There was a revealing moment at this year’s World Economic Forum in Davos, Switzerland.
In recent years, as global elites from the business, financial and political spheres — along with the political donor class — have converged at their annual meeting, they have been increasingly hard pressed to celebrate the triumph of neoliberal politics and expanded global connectedness. At the same time, they’ve been perplexed and discomforted by policy solutions put forth by those outside their Davos bubble to push back on rising inequality.
The moment to which I refer happened when computer executive Michael Dell — who has a net worth of $28 billion — reportedly laughed off calls by Rep. Alexandria Ocasio-Cortez (D-N.Y.) for a 70 percent marginal tax rate for income above $10 million, and challenged the audience to “name a country where that’s worked. Ever.”
Economist Erik Brynjolfsson was also on the panel and, to his credit, quickly met Dell’s challenge with one prominent place: the United States.
From 1913, our average top tax rate was about 60 percent, then from the 1930s to the 1980s, the top tax rate ranged from about 60 to 90 percent (today’s top tax rate is 37 percent). Such high top rates “worked” in the sense that they did not obviously dampen growth, which was on average stronger in those years than since, when rates have been lower — a pattern that holds for various other countries as well. To be clear, this is correlation, not causation, but Dell’s point was nonsense.
Unless he meant such tax rates “don’t work” for him and other denizens of the wealth stratosphere. If so, his point is revealing. Dell’s wealth places him near the top of the top 0.001 percent. In recent years, angst in Davos has noticeably increased over the rise of populism, Trumpism, Brexit and the impact of the concentrated wealth the World Economic Forum has come to represent. What there hasn’t been, however, is much in the way of policy solutions to correct any of the above.
This is no great revelation: The beneficiaries of the status quo — at least, the one that prevailed before President Trump, Brexit, November’s midterms and so on — are rarely the ones to challenge it. That falls to outsiders like Ocasio-Cortez (or AOC as she is popularly known) and those who have long touted the notion of a “rigged economy,” like Sen. Elizabeth Warren (D-Mass.), who just introduced a wealth tax on net worth above $50 million. Others, including Sens. Kamala D. Harris (D-Calif.) and Sherrod Brown, (D-Ohio) and Rep. Ro Khanna (D-Calif.), have also proposed significantly progressive tax ideas, in their cases through large expansions of tax credits for lower-income working households.
With all that going on, old boomers like myself can perhaps be forgiven for walking around humming Bob Dylan’s “The Times They Are a-Changin’.” (Come senators, congressmen/ Please heed the call/ Don’t stand in the doorway/ Don’t block up the hall) But are they (a-changin’)? If so, why and in which direction?
That’s too complex a question for one post, so let’s narrow it down to progressive taxation. Yes, I think they are. Whether Congress legislates some version of any of these plans is, of course, a function of political outcomes that no one can foresee, but if Democrats control federal politics, I can see the tax code a-changin’ in a progressive direction.
Part of that outcome would be driven by a widespread sense among Democrats across their caucus, and including moderates, that the Trump tax cuts were a serious mistake, exacerbating existing market inequalities, robbing the Treasury of much-needed revenue, incentivizing production abroad and opening more loopholes for tax avoidance and evasion. Another motivation, further to the left of the caucus, is the belief that earlier Democratic administrations did not go far enough in this space, nibbling at the edges of inequality instead of trying to take a bigger bite out of it.
The fact that the leftward caucus’s ideas are being taken so seriously signals their ascendancy. Another big reason for this spate of progressive ideas is that the moderate wing of the Democratic Party hasn’t done enough to push back on inequality, which — as measured by, say, industry and wealth concentration — is getting worse, not better.
Their ascendancy resonates. Who do you think captures the urgency of the current moment in our political economy: the 39th-richest guy in the world laughing off AOC’s idea in the Swiss Alps, or AOC herself? Different people will have different answers to this question, but for most of us, I’ll bet it’s the latter.
At this stage, the usual technocratic suspects, myself included, are trotting out their defenses of and attacks on these ideas. Warren’s wealth tax, for example, creates real implementation challenges. Valuing and taxing wealth has largely been outside the scope of our tax system, and it creates the need for a stronger IRS with solid connections to similar agencies in places where wealth goes to hide. (Now there’s a bit of global coordination we need to see a lot more of!)
To be clear, such advances are in her proposal.
Arguments that high marginal tax rates on income, closing loopholes or taxing income derived from wealth (e.g., capital gains) will hurt investment, productivity and growth, are a lot harder to sustain, given our history. Research shows much smaller responses to tax changes than conservatives tout and the obvious phoniness of the claims to sell the Trump cuts, which are, in one of least surprising outcomes in the history of tax policy, not “paying for themselves.”
But weedy, predictable arguments are not the point right now. What’s exciting about this moment are the directional aspirations of the most diverse group of progressive policymakers we’ve ever seen at the federal level.
Sticking with Alpine references, I don’t mean to lean too far over my skis. But it’s possible that the sun is setting on the Davos elites and rising on bold, progressive policymakers.