Republicans have settled on an attack against President Biden’s jobs plans: Raising taxes on ultra-rich Americans constitutes socialism.
The most buffoonish expression of this yet comes courtesy of former New Jersey governor Chris Christie, who said Sunday on ABC News that raising the capital gains tax, of all things, is “socialism” because it constitutes “redistribution of income.”
But this absurdity is actually useful. It points to a deeper intellectual scam employed by opponents of higher taxes, one that should be exposed as the debate over Biden’s plans gets underway.
It’s the idea that higher taxes represent a departure from a purportedly natural baseline of free-market capitalism that is getting distorted by those higher taxes in a way that offends pristine free-market principles.
This was also voiced by House Minority Leader Kevin McCarthy (R-Calif.) on “Fox News Sunday,” who suggested new taxes to fund spending on infrastructure and social programs are “socialist.”
The same old scam
This week, Biden will introduce new proposals for higher taxes on the wealthy, including an increase in the capital gains tax on those with income over $1 million, and a hike in the rate paid by earners in the top income bracket.
Those would pay for the next phase of Biden’s economic plans, which include investments in child-care funding, paid medical leave and free community college. It comes after Biden proposed higher corporate taxes to fund the first phase of his infrastructure package.
Christie’s denunciation of a capital gains tax hike as “socialism” vividly illustrates the scam that opponents will pull. The fact that we tax capital gains (which come from sales of capital assets and overwhelmingly go to the wealthy) at a lower rate than wage income (the main income of everyone else) is a policy choice.
The Biden plan would tax the capital gains of millionaire investors at roughly the same level as income. The idea that this constitutes “redistribution” (let alone “socialism”) presumes that the current tax structure is the natural order of things.
But in reality, it is one of countless ways our economic order has been structured by rules created by the government, via policy choices. There cannot be a magically “natural” economic order that is not structured by policy choices. This is precisely what people like Christie want to obscure.
Why? Because it helps obscure a larger truth: Many who would see these higher taxes have gotten rich in part due to various policy choices in recent decades, ones the wealthy have helped engineer. Higher taxes would simply be another such choice to undo a fraction of the benefits those choices helped lavish on them.
It’s the economic rents, stupid
In a pair of useful papers, Berkeley professor of political economy Steven Vogel explains this well. Government rules enable markets to exist in the first place, Vogel notes, so the choice is how to structure markets, in whose interests and for what purpose.
These market rules, Vogel explains, structure power relationships between various players and factors in the economy. The “neoliberal” turn is often described as moving toward “free” markets, but in many cases, “free-market ideology camouflaged policies that did not actually reduce government regulation but rather redirected it in favor of those with wealth and power.”
Changes in labor market law weakened worker power relative to employers. Changes in corporate governance channeled higher salaries to executives and prioritized shareholder gains over other stakeholders’ interests. Changes in financial regulation helped the financial sector seize a larger share of the economy. A retreat on antitrust enforcement, and more generous government protection for intellectual property rights, have granted more market power (and profits) to dominant firms, such as in Big Tech and Big Pharma.
The big story: The top has benefited partly from economic rents, or extractive gains rooted in deliberate changes in market rules. Tax policy, too, has helped channel more after-tax income upward, including taxing capital gains at a lower rate, as scholar Gabriel Zucman illustrates well:
Economist Dean Baker notes that Biden’s tax hikes would target many who profited in part from these economic rents. The top tax bracket includes many in the top 1 percent of earners, who are often tech, pharma and Wall Street executives and wealthy investors (who would also face a capital gains tax hike), Baker notes. Higher corporate taxes would hit many wealthy shareholders.
“We structured the market to redistribute tens of trillions in income and wealth upward,” Baker told me. “Biden’s tax hikes would take back a small portion of this money. This is taxing back rents we’ve given those at the top.”
Indeed, another feature of Biden’s proposals — reining in multinational tax avoidance — also targets a type of rent. As Ryan Cooper notes, rules that facilitate this avoidance via profit-shifting also emerged from policy choices, meaning we can choose to undo them and bring back more revenue to fund public investments.
All these insights are longtime features of progressive economics, but they need centralizing right now. Indeed, the Biden brain trust appears to believe rising rents help justify higher taxes.
“The share of profits … from rents have been … increasing over time,” top Biden economic adviser David Kamin told me, adding that taxing those rents would help rebalance long-running imbalances.
“The system is broken,” Kamin said. “There are multiple reasons why we should be trying to fix it.”
This is what Republicans want to portray as “socialism,” precisely because they don’t want you to understand what tax hikes on the wealthy would even begin to rectify.