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Is the Democratic Party Still Safe for Plutocrats?

Posted on Oct. 21, 2019

In a recent issue of The American Conservative, James Pinkerton poses an important question: Can wealthy Democrats find a place in the party of Massachusetts Sen. Elizabeth Warren?

It’s reasonable to wonder, given Warren’s rise in the polls. While certainly no lock for the Democratic nomination, she has eclipsed left-leaning Senate colleague Bernie Sanders and threatens to wrest the top spot from Joe Biden.

Sanders’s fade might be a comfort to well-heeled, moderately progressive voters; his version of democratic socialism can be unsettling for those at the top of the wealth and income distributions. But Warren is hardly any better for that group. Her tax policy in particular can send shivers up the spine of any self-respecting plutocrat. Almost singlehandedly, Warren has made American politics safe for wealth taxes, or at least serious discussion of them. She has also proposed a range of other controversial tax policies, including a supplementary corporate income tax, a lobbying tax, an increase in payroll taxes for higher earners, and a rollback of the Tax Cuts and Jobs Act.

The Democratic primary electorate seems to like this flurry of tax proposals. But it’s unclear how completely the party as a whole will embrace them. Democrats have long made room in their big tent for wealthy voters. Pinkerton’s question is whether that era of accommodation has ended. My question is whether it even matters.

Issues

Pinkerton writes about Democrats from the perspective of a Republican. A veteran of both the Reagan and George H.W. Bush administrations, he has been a right-leaning commentator for much of the past 30 years.

Pinkerton’s background gives him an interesting perspective on Democratic politics, but it also leads him to pepper his analysis with bold assertions dressed up as empirical truths. In particular, he makes some debatable claims about the ideological cast of the Democratic Party and its membership.

“As we all know, the Democratic Party as a whole is shifting,” Pinkerton insists. Any sentence starting with “as we all know” is almost certain to finish with a highly controversial, possibly unsupportable claim. That’s certainly true in this case.

The shift Pinkerton sees is to the left. “Defeat in the 2016 election has liberated activists from the leash of Clinton-Obama neoliberalism, and now the party is embracing populism, redistributionism — even democratic socialism,” he writes.

That’s true for some particularly vocal and visible members of the party, including not just Warren and Sanders, but Rep. Alexandria Ocasio-Cortez, D-N.Y., and several of her newly elected House colleagues.

But it’s much less clear that Democrats as a whole are moving sharply left. After all, Biden has maintained his top spot in the primary field throughout the year, even after “Hunter Biden in Ukraine” began to dominate the news cycle. Warren has been climbing in the polls, but most of her gains seem to have come at the expense of her non-Biden competitors. The former vice president, meanwhile, has really not lost much ground at all (so far).

A second problem for Pinkerton concerns the party allegiance of wealthy voters. In his view, most of them are Democrats. “It has been a long time, after all, since the Republicans were the party of plutocracy,” he writes. “Setting aside the stray Koch Brother — and an economic policy platform that still includes whole chapters borrowed from the Cato Institute — the GOP is now the party of workers; by contrast, the Democrats are the party of owners.”

Again, Pinkerton takes a plausible point and makes it untenable. Democrats have certainly made room for wealthy voters in their heterogeneous coalition. And in the 2018 election, the party welcomed an influx of well-heeled suburban voters. (A Washington Post analysis of the election results, published three days after the voting, explained how “wealthy neighborhoods delivered Democrats the House majority.”)

But are these new, wealthy Democratic voters truly “plutocrats”? Or are they simply rich suburbanites? It’s a meaningful difference, at least when it comes to Warren’s signature wealth tax, which is targeted narrowly enough to leave most of these new voters unscathed.

Pinkerton is also too quick to dispense with the political significance of major Republican donors like the Kochs. These deep-pocketed donors have played an outsize role in shaping the modern Republican Party, not to mention American politics more generally. They have played a major role in funding GOP campaigns, of course, but they have also helped build an imposing institutional edifice (in the form of think tanks and university programs) to support their libertarian agenda.

Insights

Despite those issues, Pinkerton has many valuable things to say. Some of his most compelling points are historical. He does a great job, for instance, explaining the shifting dynamics of partisan politics over the last century or so. Both parties accepted the idea that progressive taxation was a necessary accommodation to modern capitalism, he contends. “By the 20th century, one consensus solution to the issues raised by robust capitalism loomed above all others: the progressive income tax,” he writes.

That consensus helped shape American politics, especially after World War II. But the consensus was imperfect: It left plenty of room to argue about rates, preferences, and incentives. “As with any political thing, there was a left end and a right end,” Pinkerton writes. “Thus came the many arguments over tax rates, higher versus lower. And since in those days the Democrats were firmly the party of higher rates, affluent places such as Greenwich, Connecticut, and Winnetka, Illinois — and even the Upper East Side of Manhattan — were firmly Republican.”

Ironically, it was Ronald Reagan who upset that cozy electoral arrangement. “Late in the 20th century and into the 21st, tax rates fell dramatically, and so the old tax tug-of-war mostly went away, to be displaced by other concerns, typically cultural,” Pinkerton contends. The modern Republican Party is the party that necessarily emerged in that low-tax environment — one that didn’t allow enough argument about taxation to rally a constituency.

The cultural focus of modern Republicanism proved hard to swallow for many of the party’s traditional supporters. Therefore, “partisan loyalties inverted,” Pinkerton writes. “The old Republican citadels became Democratic, even as the old Democratic bastions — in Missouri, South Carolina, and West Virginia — are now Republican.”

Once again, Pinkerton is overstating and exaggerating his story. But it remains basically correct in its essentials. And the story goes a long way toward explaining how the two parties shifted in the postwar decades, trading constituencies to form new coalitions.

Implications

Ultimately, however, it’s unclear that the latest shift — with Democrats returning to their redistributionist rhetoric and policy proposals — poses a serious threat to the Democratic coalition. Since at least 1980, most Democrats have embraced — either implicitly or explicitly — the rollback in marginal and average tax rates that began under Republican leadership in the 1980s and continued under two Democratic presidents. “In an era when Democrats held the White House for four presidential terms, the effective tax rate on the rich fell by more than a third, from 27 percent to 17 percent,” Pinkerton notes.

The full story is a bit more complicated, especially during the Obama years, which brought important efforts to make the tax system more progressive. But it’s still fair to say that Democrats took a break from their century-long struggle to saddle wealthy individuals and large corporations with high — sometimes very high — marginal tax rates. The Reagan revolution in taxation, which began with a bang in 1981, proved enormously powerful and durable, shifting the tenor and content of fiscal politics for the next four decades. (Prior analysis: Tax Notes, June 3, 2019, p. 1474; and Tax Notes, Oct. 17, 2011, p. 349.)

Pinkerton is right that something has changed. What Democrats on the primary trail have discovered — or rediscovered — is the power of talking about other people’s taxes. Republicans rode to power in the 1980s by promising to cut taxes for everyone. Democrats, by contrast, are trying to win by promising tax hikes for everyone else.

This Democratic emphasis is hardly new. It’s a revival of Franklin D. Roosevelt’s approach to taxation, which helped define fiscal politics for an earlier era — one that began in the 1930s and remained ascendant until the 1980s.

Roosevelt understood something that today’s liberal Democrats also seem to understand: Cutting taxes is popular, but raising taxes can also be popular — if you pick your targets carefully. Americans don’t hate paying taxes (most of the time). What they hate is other people not paying taxes — not shouldering “their fair share” of the overall fiscal burden.

Many of today’s most prominent Democratic leaders — Warren, Ocasio-Cortez, and the like — have embraced that political reality. They have linked their tax proposals to broader trends in wealth and income inequality, which support the idea that rich individuals and large corporations are claiming too large a share of the economic pie while also failing to pay their fair share in taxes.

Pinkerton suggests that the Democrats’ new emphasis on progressive taxation may alienate wealthy voters, especially Wall Street titans. Those voters found a place in the party after Reagan slayed the beast of redistributive tax policy. Uneasy with the Republican turn toward social and cultural forms of conservatism, they made their peace with their erstwhile tormentors in the Democratic Party. As Pinkerton puts it:

For affluent places, the new winning Democratic model can be described as “liberaltarian” — that is, the fusion of libertarian and liberal. The familiar fat cat formulation is: I’m conservative on fiscal issues, but liberal on social issues.

The revival of redistributive rhetoric among leading Democratic presidential candidates may pose a threat to this arrangement. But Warren and company probably pose a bigger threat to Democratic fundraising than they do to the Democratic vote gathering. By narrowly targeting their tax hikes at the extremely rich, they may drive a wedge between the superelite on Wall Street and the average elite on Main Street. And it was those Main Street voters who gave the Democrats a winning coalition in 2018.

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