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A Wealth Tax Could Make Rich People More, Not Less, Powerful

Posted on Feb. 10, 2020

Worried that rich people have too much political power? You’re in good company. “We can have a democratic society or we can have the concentration of great wealth in the hands of a few,” intoned famed Supreme Court Justice Louis Brandeis. “We cannot have both.”

That’s a powerful, provocative, and widely quoted statement. And probably an apocryphal one, too. Over his long and storied career, Brandeis said many things, but that famous quotation wasn’t among them. The definitive attempt to track down the origin of this too-good-to-check quotation concluded that “there is no evidence he ever actually said it.”

Still, Brandeis probably would have said it. “While there is no positive proof Brandeis ever said these exact words, he expressed a similar sentiment numerous times,” concluded Peter Scott Campbell in a 2013 piece for The Green Bag law journal. “If it is not a Brandeis quote, it is at least a Brandeisian one.”

The Brandeisian worry about concentration — of individual wealth, industrial enterprise, or political power — has been a fixture of American politics since the 19th century. So has the linkage between these disparate forms of concentration: Each reinforces the other, bolstering the power of wealthy elites and marginalizing everyone else.

Or so the argument goes. That argument, moreover, has given rise to any number of proposed solutions, including anti-monopoly legislation, campaign finance reform, and redistributive taxation. Over the last few years, the last has been getting extra attention, as Democratic presidential candidates have rolled out new tax plans designed to slow, or even reverse, the concentration of personal wealth.

Most of those tax proposals, including the wealth tax plans championed by Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., have been defended as a means to curb not just economic but political power. The leap from one to the other seems rather modest: It’s intuitively obvious that rich people have outsize influence in politics. And there’s evidence to support that intuition, with social scientists demonstrating a clear link between wealth and public policy.

But here’s the problem: Money affects politics in any number of ways, and it’s unclear that it’s decisive in some of the most important political arenas, like presidential campaigns. Even more problematic, if you believe that money really is the root of all political evil, it’s unclear that new taxes on wealth will improve the situation. In fact, those taxes could make matters worse.

Legitimate Worries

That money matters to politics is hardly news; critics have been making that complaint for centuries. More to the point, since the 1970s that complaint has helped shape a range of campaign finance restrictions. Even today, in the wake of the Citizens United decision, those restrictions continue to regulate the influence of money in politics.

But money still seems to be getting its way, at least most of the time. In recent years, social scientists have tried to get specific about the ways money shapes governance. Northwestern University political scientist Benjamin I. Page has been a leader in this field, and in a recent paper with Princeton University political scientist Martin Gilens, Page argued that rich people are getting much of what they want — certainly more than their less-rich fellow citizens. “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence,” they wrote in 2014 in the journal Perspectives on Politics.

But if money can buy policy, it’s less clear that it can buy elections. The Center for Responsive Politics, publisher of the OpenSecrets.org website, tends to think it can. “Even in wave elections, the candidate who spends the most usually wins,” the center concludes in a statement on its website. “This trend is stronger in the House than the Senate but applies in both chambers.”

That trend may be less clear at the presidential level. Campaigns for the White House have been getting more expensive in every cycle, but spending hasn’t grown especially fast when adjusted for inflation. Moreover, President Trump’s victory in 2016 seems to raise serious doubts about the power of money in high-profile campaigns. Trump won the 2016 Republican primary over the opposition of most party leaders and many deep-pocketed GOP donors. He went on to win the general election on the relative cheap; according to The Washington Post, Hillary Clinton spent $768 million while Trump clocked in at $398 million.

The 2016 election is just part of a larger story that makes it hard to reconcile simplistic corruption narratives with the actual business of politics. Arguably, politics is more democratic today, in the era of growing economic inequality, than it was in decades past. Once upon a time, party elites — and the donors who supported them — were almost entirely insulated from popular pressure when making their most important decisions. Presidents were nominated in the proverbial smoke-filled rooms, and regular voters got their say only in a final two-way race.

By contrast, as Trump made clear, regular voters have the decisive voice in modern nomination decisions. Primaries and caucuses may not be perfect (we’re looking at you, Iowa), but they are generally “small-d” democratic. And again, using Trump as an example, we can draw a reasonably straight line from primary victories to the practical business of governance. Does anyone seriously doubt that America looks different today than it would have if Jeb Bush had won the nomination? Power in the primaries is power in politics.

Still, the story of money in politics remains complicated. Primary voters have been empowered since the 1970s, but that doesn’t mean money doesn’t influence how they cast their ballots. Candidates with lots of money can buy more organization and advertising, both of which can be decisive.

Moreover, the scale of money in politics still remains small. Clinton tried to win the presidency by spending about three-quarters of a billion dollars. For at least one of the current Democratic candidates, however, that’s a relative drop in the bucket: Michael Bloomberg may well spend twice, three times, or even five times as much in his current bid for the White House. It’s hard to imagine that kind of money wouldn’t make a difference. Indeed, some recent polling suggests it might be already.

Uncertain Solutions

If you’re worried about the influence of rich people in politics, you have two choices about how you might fix it: You can take the money out of politics (through regulation and campaign finance reform), or you can take the money out of rich people’s pockets (with taxes).

Recent proposals focus on the latter. In a paper last year for the Brookings Institution, University of California, Berkeley, economists Emmanuel Saez and Gabriel Zucman underscored the ways individual wealth can influence political decision-making, noting in particular that political contributions “are extremely concentrated with 0.01 percent of the population accounting for over a quarter of all contributions.” Their preferred solution: a new, annual wealth tax.

It’s not entirely clear, however, that wealth taxes would actually improve matters. They could even make them worse. In a recent article for Vox.com, Kelsey Piper warned that wealth taxes could have “unpredictable effects” on politics.

“A wealth tax will likely make billionaires spend their money now instead of leaving it to their foundations or their descendants,” Piper wrote. “If billionaires suck (and many proponents of a wealth tax think that they do), this might mean more distortionary political spending on behalf of ideals that most Americans don’t share, rather than less of it.”

That concern seems plausible, especially if a new wealth tax puts limits on private foundations. Saez and Zucman suggest that it should. “To prevent abuse, donor advised funds or funds in private foundations controlled by funders should be subject to the wealth tax until the time that such funds have been spent or moved fully out of the control of the donor,” they wrote.

That makes sense. But it might backfire. If inheritance and estate taxes have historically encouraged rich people to leave money to charity, wealth taxes, when outfitted with these kinds of restrictions, might encourage rich people to simply spend their money while they have it.

And that spending could be big. For all the hand-wringing about money in politics, we have only just begun to plumb the depths of plutocratic politics. As noted above, the Bloomberg campaign may force all of us to recalibrate the scale we use to measure the influence of money in politics. There’s plenty of room to grow. “For all the talk of money in politics, there’s actually little money going into politics compared to the spending power of the country’s richest,” Piper wrote in her Vox piece.

The amount of money is also small when compared with the buying power of that money in the political realm. If Page and other political scientists are correct, money does a good job of buying policy change. Any increase in the flow of that money seems likely to increase the power of wealthy spenders. A wealth tax, in other words, might turn out to be an instrument of corruption, rather than a remedy for it.

FDR’s Complaint

In a recent article recounting the 1935 debate over a new federal inheritance tax, I offered an actual quotation from President Franklin D. Roosevelt that sounds an awful lot like the apocryphal quotation attributed to Brandeis. “Great accumulations of wealth cannot be justified on the basis of personal and family security,” Roosevelt declared in a message to Congress. “In the last analysis such accumulations amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others.” (Prior analysis: Tax Notes Federal, Jan. 27, 2020, p. 519.)

Roosevelt’s warning about the power of wealth resonated with Americans of the 1930s and 1940s; voters broadly supported his decade-long drive to make the tax system more progressive. But Roosevelt (and those voters) were more concerned with economic than political power; he was more worried about the influence of rich people on “employment and welfare” rather than politics.

Quite possibly, Roosevelt focused on economic power because he believed it was more fundamental and foundational than political power; he was, after all, something of a materialist. Were he alive today, Roosevelt would almost certainly support a wealth tax. He would also probably have agreed that such a tax would strike a crucial blow for democracy writ large. But the mechanism of action, at least for Roosevelt, would have flowed from the economic to the political, not the other way around.

Roosevelt, of course, could never have foreseen the myriad ways money has infused politics in the 21st century. Some of these ways are obvious and well demonstrated (like the success of rich people in buying congenial policy revisions). Others are far less certain (like their success in buying elections).

But one thing would probably have been clear, even to Roosevelt. Attempting to limit the influence of money in politics is complicated and uncertain. Making rich people less rich might make things better. But it could just as easily make them worse.

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