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Tax History: Jeffrey Sachs Still Wants More Taxes to Buy More Civilization

Posted on July 19, 2021

Ten years ago, Jeffrey Sachs published The Price of Civilization, a sweeping reassessment of the American political economy. Framed in the medicalized rhetoric of symptoms, diagnosis, and cure, the book is actually more political than clinical. One part jeremiad and two parts polemic, it makes the case for a progressive reconstruction of American state and society — including the federal tax system.

With the benefit of hindsight, it’s easy to spot the omissions, exaggerations, and misconceptions in Sachs’s analysis. The book suffers from a recency bias, inflating the importance of events that occurred during its writing: the tumultuous years following the 2008 financial crisis.

In his preface, for instance, Sachs exaggerates the importance of both the Tea Party and the Occupy Wall Street movements. Both seemed powerful, even transformative, when they first appeared. But neither had real staying power; the GOP quickly harnessed the disruptive Tea Partiers to serve traditional partisan ends, while Democrats suppressed, marginalized, and ignored Occupy Wall Street.

Sachs also failed to anticipate the populist reconstruction of the Republican Party that Donald Trump made possible in 2016. To be sure, Sachs saw the populist wave cresting on the horizon, but he expected it to break differently — possibly toward Democrats but more likely toward a third-party alternative. He even had a name in mind: the Alliance for the Radical Center.

Sachs, in other words, was wrong about the developments he anticipated and wrong about the ones he did not. But forecasting errors are an occupational hazard, for both economists and political analysts. Almost every book written on contemporary politics will seem dated 10 years later: Long-term obsolescence is the price of short-term relevance.

And make no mistake: Sachs is all about relevance. That’s not intended to be quite as snarky as it sounds; relevance is the common currency of public intellectuals. If your writing isn’t relevant, then your intellect won’t be public for long — not if book publishers have anything to say about it.

In his quest to make The Price of Civilization timely and readable, Sachs ventures far afield from his acknowledged expertise as an economist. He dabbles in history, political science, sociology, psychology, and any number of cognate fields. As one reviewer noted, this broad intellectual ambit almost works. “The gain in perspective mostly outweighs the loss in authorial authority,” wrote Martin Sandbu in the Financial Times.

Almost, but not quite. When it comes to history, at least, Sachs has some work to do. Like many progressive economists writing these days, he romanticizes the past, especially the period after World War II. Sachs wants to paint the 1980s as a radical break with the American past: an inflection point when U.S. political and economic leaders abandoned their long-standing concerns with fairness and equity, especially around taxation.

That’s a convenient story, and not altogether inaccurate. But it exaggerates the importance of Ronald Reagan’s election and ignores the long-running resistance to progressive taxation that persisted throughout the postwar era. We remember the 1950s as the decade when Republicans (and President Dwight Eisenhower in particular) made their peace with the New Deal tax regime. But we should also remember the 1950s for a nearly successful campaign to gut the income tax by imposing a constitutional cap on marginal rates. (Prior analysis: Tax Notes, July 30, 2012, p. 487.) The postwar decades were good ones for champions of progressive taxation. But there were always dissenters from the New Deal faith.

Why Bother?

If Sachs gets so much wrong in The Price of Civilization, why should we bother revisiting it 10 years later? Why not let it sit, unloved and unread, on the shelves of used bookstores around the nation (or at least in Washington, D.C., and various college towns)?

That would be a shame, because for all he got wrong, Sachs got many things right in his book. In particular, he seemed to anticipate (perhaps unwittingly) the transformation of the Democratic Party and the unlikely rise of Joe Biden as a new progressive standard-bearer. The book also foreshadows the party’s unapologetic embrace of progressive tax reform. It reads today like an extended brief for Biden’s fiscal agenda.

The Diagnosis

The Price of Civilization is not all, or even mostly, about tax. Indeed, its substantive tax discussion is confined to a single chapter. But the book itself bears a “tax title,” drawn from the famous observation by Justice Oliver Wendell Holmes that “taxes are what we pay for civilized society.” The phrase is useful shorthand for an argument that suffuses the book: that civilization is important to happiness, that government is the instrument of civilization, and that taxes are the price we pay for using that instrument.

Let’s move quickly through the first two parts of this argument. The notion of civilization, as Sachs defines it, is a great thing, encompassing public goods like education, infrastructure, dependable legal institutions, and high-quality, affordable healthcare. Almost everyone wants and values this kind of civilization. But what’s the best way to build and maintain it?

For Sachs, the answer is obvious: government. Libertarians might believe that unfettered human freedom is the surest route to happiness, but collective action through political institutions is the only way to build a good society, at least according to Sachs. To make the point, he quotes Franklin D. Roosevelt’s second inaugural address, which describes government as “the instrument of our united purpose to solve for the individual the ever-rising problems of a complex civilization.” Indeed, FDR believed government to be indispensable to the resolution of social problems. “Repeated attempts at their solution without the aid of government had left us baffled and bewildered,” he said.

Americans used to agree with FDR, but not anymore. “One of the most basic and important ideas of economics — that business and government have complementary roles as part of a ‘mixed economy’ — has been increasingly ignored, to my amazement and consternation,” Sachs complains. Over the last 40 years, Americans have lost faith, not only in government, but in other large institutions, too, including big business, the news media, banks, and unions.

The result of all this lost faith? An unhappy and unsettled populace. “Americans are on edge: wary, pessimistic, and cynical,” Sachs warns. Rising inequality has added fuel to this unhappiness, sharpening divisions between the haves and the have-nots — chiefly by corrupting the former.

“Soaring income and power at the top has changed American society,” Sachs writes. “Many of those at the top of the heap have come to look upon the rest of society with disdain. We have entered an age of impunity, in which rich and powerful members of society — CEOs, financial managers, and their friends in high political office — seem often to view themselves as above the law.”

This indictment lies near the heart of Sachs’s diagnosis. Many of the most obvious symptoms of our national malady are material: crumbling infrastructure, stagnant wages, inadequate education, poor health outcomes, and the like. But the underlying cause is not financial or even broadly economic.

“At the root of America’s economic crisis lies a moral crisis,” Sachs declares. “The decline of civic virtue among America’s political and economic elite.”

The Prescription

Sachs proposes to rebuild faith in government (and restore American virtue) by first reforming government and then expanding its scope. His program includes various political reforms designed to liberate American governance from the domination of business and political elites. But the real heart of his program features sweeping investments in human capital.

Sachs’s list of spending priorities is broad, ambitious, and expensive. It focuses heavily on things like education, child development, and healthcare. In every case, he insists that long-term planning is essential; if government is going to succeed in growing the store of human capital, it must pursue its goals over years and even decades, rather than two- or four-year political cycles.

Sachs’s spending priorities from 2011 would seem familiar to the progressive leaders of 2021. But today’s progressives would part company with Sachs when it comes to another part of his agenda: He’s a relentless deficit scold.

Unchecked borrowing is an unreasonable burden on future generations, Sachs contends throughout The Price of Civilization. He doesn’t even accept the Keynesian use of deficits as a form of demand-side stimulus, deriding it as a short-term gimmick rather than a long-term solution. After all, you can’t stem moral decline with a boost of federal spending.

In 2021 it’s fashionable to be unconcerned about deficits — or it was until the last couple of months, when inflation started to tick upward. In 2011 Sachs argued passionately (as he still does today, for the most part) that progressive government must be adequately funded with tax revenues.

Where would Sachs find new revenue for his revitalized American state? In all the usual places. His list of desirable tax increases is long and eclectic. While focused heavily on taxing the rich, it also makes room for a few regressive taxes, too, as long as the revenues are (1) spent on progressive priorities or (2) serving some other desirable purpose, like slowing climate change.

Here’s a sampling from Sachs’s laundry list of revenue raisers:

  • Increase individual income tax rates.

  • Raise corporate income taxes, chiefly by changing the treatment of foreign income.

  • Tax capital gains as ordinary income.

  • Tax carried interest in particular as ordinary income.

  • Limit the mortgage interest deduction.

  • Limit the deductibility of expensive employer-provided health plans.

  • Impose a 1 percent wealth tax on net worth exceeding $5 million per household.

  • Close the tax gap through tougher enforcement and improved information reporting.

  • Raise taxes on oil, gas, and coal production.

  • Raise the federal gasoline tax.

  • Impose a financial transactions tax.

  • Impose a value added tax.

Some of these ideas have gotten serious consideration in the decade since Sachs penned the list; a couple have even made their way into law (temporarily, for the “Cadillac” tax on health plans). But for the most part, Sachs’s revenue agenda makes a decent wish list for the progressive tax reformers of 2021.

Reformers like Biden.

The Prophet of Bidenomics

If there’s anything that really stands out when revisiting Sachs’s work from a decade ago, it’s the extent to which The Price of Civilization portends Biden’s emergence as a progressive standard-bearer. Like Sachs, Biden is an unlikely champion for the modern progressive cause. While both endorse ambitious, sometimes deeply reformist goals, both also bring a rather conservative mind-set to the task of rebuilding the American state.

Consider Sachs’s disavowal of radical redistribution as a goal of federal taxation. “I am not in the slightest against the accumulation of wealth, even vast wealth,” he writes. “I am not recommending a ‘class war.’ There is no case for equalizing incomes through massive redistribution, and there would be a lot of grief and economic chaos if we tried.”

That’s a sentiment that Biden (and many other mainstream Democrats) would happily endorse, especially when coupled with the other half of Sachs’s tax philosophy: “My point isn’t to bleed the rich but to call upon them to pay a decent and responsible share of the national needs.”

Sachs doesn’t see the tax system as a way to remake society through the redistribution (or limitation) of wealth; his version of progressive governance is designed to lift from the bottom rather than push down from the top.

That’s why spending takes pride of place in Sachs’s prescription for recovery. Taxes are important but ultimately just instrumental. They are the tool we use to cover the costs of building our civilization, not a tool for doing that construction directly.

Indeed, like other champions of the “radical center,” Sachs sees higher taxes on the rich as essentially conservative — a way to stave off more permanent and radical attacks on private enterprise and wealth. “If poverty were eliminated, if all who wanted to go to college could afford to do so, if the poor lived as long as the rich, we could worry less about the responsibilities of the rich to the rest of society,” he writes. “We are not far away from those hallowed goals — if we invest in them.”

The investment is crucial, especially if the rich hope to retain their wealth over the long term. “We need the rich today to do their modest part to enable all of society to share in prosperity,” Sachs writes. “By passing that hurdle, we would reduce the need for long-term transfers from rich to poor in the future.”

Sachs intends that observation to be comforting, but it carries an implied threat: Pay somewhat higher taxes now, or you’ll face more permanent — and more punitive — taxes in the future.

Reading The Price of Civilization with the benefit of 10 years of hindsight, one thing seems abundantly clear: Sachs was unreasonably optimistic about the prospects for his agenda. Optimism is not a bad thing in a public intellectual, especially one trying to sell books. Most people enjoy a good jeremiad, replete with crises and villains, but they also want a happy ending, or at least a hopeful one. A diagnosis is fine — as long as it’s not terminal.

But Sachs has also kept the faith, weathering the Trump years and welcoming Biden’s victory in 2020. Indeed, he seems quite the fan of America’s 46th president, penning op-eds that endorse various tax and spending proposals advanced by the White House this year. And who’s surprised by that? Many of Biden’s proposals can be found in the pages of Sachs’s book.

Biden and Sachs seem made for each other. Sachs is more than a decade younger, and his political inclinations seem rooted more firmly in Cambridge than Scranton. But these two are cut from the same cloth: conservative reformers who would remake society with the goal of preserving it. In particular, the two share a similar, instrumental agenda for tax reform.

And as long as Democrats retain their (tenuous) majorities in Congress, the nation shares that agenda, too.

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