The People Have Spoken: It’s Time to Tax the Rich
The Pitch: Economic Update for July 14th, 2022
Friends,
I wanted to share with you a terrific piece from my home state of Washington that identifies a promising change in the electorate. Earlier this year, Washington’s legislature passed the state’s first-ever tax on the extraordinary profits from the sale of stocks. Considering the fact that Washington is home to some of the wealthiest people on the planet, a capital gains tax seems like a no-brainer: While the 7% tax on profits over $250,000 per year would not affect the day-to-day lives of the state’s wealthiest few thousand residents one iota, the hundreds of millions of dollars in revenue raised by the tax every year would make a tremendous difference in the lives of children across the state.
For a while, it seemed certain that a handful of Washington’s wealthiest people were going to move ahead with an initiative to repeal the tax. They’ve successfully combated initiatives to tax the wealthy in the past, after all, and they raised more than $700,000 to get a repeal initiative off the ground. But then, something happened.
Or rather, nothing happened. The initiative failed to materialize. As local political consultant Sandeep Kaushik writes for Post Alley, polling showed the capital gains tax repeal “garnering only 32 percent support (with 50 percent of voters starting out opposed). That’s a shockingly weak starting point,” Kaushik notes. He continues:
While support for taxing the wealthy has deepened somewhat on the left, particularly revealing, I’m told, were the focus groups [pro-capital-gains groups] conducted with self-described tax-sensitive independents and conservative-leaning voters living in Pierce and Snohomish Counties. Participants in those groups expressed strong beliefs they were paying too much in taxes in large part because the wealthy weren’t paying their fair share. Particularly in blue collar Pierce County, traditional Republican “job creator” or trickle-down arguments didn’t land well even among these conservative, tax skeptical voters.
After nearly 50 years of strict trickle-down messaging which promised that cutting taxes for rich people would result in wealth trickling down on the rest of us, the American people—including conservatives and independents—understand that the money is never going to trickle down. And that’s why they now want rich people to pay at least as much as they’re paying in taxes.
This is a watershed moment, and the super-rich would do well to recognize that if leaders don’t start visibly correcting our nation’s upside-down tax system, the appetite for taxing the rich will only increase in the coming months and years. This kind of populist anger never just goes away—in fact, if it’s not sated, it will grow until it cannot be ignored. The longer the super-rich delay the will of the people, the higher their tax bill might be when the people finally get their way.
The Latest Economic News and Updates
Jobs and wages are up, crude oil prices are down
While many economists were expecting the jobs report to deliver some bad news last week, the numbers were much stronger than expected, with the economy adding nearly 400,000 jobs and wages climbing by more than 5 percent. Yet again, America’s labor market continues to be the one unrivaled economic success story of the pandemic recovery era.
But good jobs numbers alone aren’t enough to keep the economy afloat—as Courtenay Brown at Axios points out, the raises that ordinary Americans are seeing aren’t enough to keep up with inflation, so workers actually lost a significant amount of money in the big picture.
Still, there are a few signals that prices may be coming down or at least flatlining for a while. Crude oil prices, for example, have declined significantly since the peaks inspired by the Russian invasion of Ukraine:
Two prominent economic thinkers at the New York Times feel that the economy is headed in the wrong direction. Peter Coy warns that the economy is already cooling, and that the Federal Reserve’s decisions to aggressively raise interest rates may be driving us into a recession. Paul Krugman agrees with Coy, and he further makes the case that inflation is already receding, so essentially the Fed is pushing us into recession for no good reason. For what it’s worth, the Federal Reserve disagrees with Krugman: It looks like the Fed is preparing to post another big three-quarters-of-a-point rate increase later this month, in order to slow the economy down.
Housing prices continue to eat away at the American middle class
It’s easy to talk about the Fed’s interest-rate decisions like they’re some abstract idea. It’s hard to visualize what a three-quarters of a point interest rate hike looks like in the real world, after all. But Jeanna Smialek and Conor Dougherty write for the New York Times that higher interest rates absolutely discourage ordinary Americans from buying homes. Those would-be homebuyers instead rent their homes…but rising interest rates also result in higher rents.
And as Abha Bhattarai and Rachel Siegel write for the Washington Post, rising rents lead to a rising homeless population. Numbers dimensionalizing homelessness in America are hard to come by, but the two journalists contacted homelessness service providers in 15 states, and every single provider reported a dramatic increase in the number of people seeking assistance over the last few months—particularly among single mothers.
“Shelters across the country are reporting a sudden increase in numbers of people looking for help as they struggle to cover basics. Inflation has reached 40-year highs just as many vulnerable families are readjusting to life without a boost from government stimulus or protections to keep them from being evicted,” they write.
Combined, all of these stories indicate that the housing market is becoming vastly unequal, with a small number of wealthy homeowners paying exorbitant prices on one end of the scale, and an ever-growing number of Americans barely holding onto housing on the other end. The New York Times provides some great analysis about disappearing American middle-class neighborhoods, as cities begin to fracture into wealthy enclaves and swaths of low-income housing. Here’s just a section of a stunning graphic showing that middle-income neighborhoods are disappearing in every major American city:
This might all sound like a hopeless situation to you, but there are many policies that could help resolve this housing inequality issue, getting Americans into good homes in a more affordable way. The Center for American Progress offers some solutions including financial assistance for first-time home buyers, creating equity in the housing market by preventing housing discrimination, and protecting tenants who are at risk of eviction.
Can cutting tariffs lower prices?
In an effort to lower prices for the average American, the Biden Administration is considering the revocation of Trump-era tariffs on products from China. Those imported products, the reasoning goes, will be more affordable without the tariffs in place, which makes sense on a very basic level.
But two progressive voices have called on Biden to keep the tariffs in place. Robert Kuttner at The American Prospect is short and to the point when he says that there should be “no cuts in the China tariffs until there is a total renegotiation of China’s predatory role in the trading system.”
The Economic Policy Institute’s response to the idea of cutting tariffs is dense and packed with evidence. First, EPI argues that “the tariffs are working to resuscitate America’s industrial base and have done so with no meaningful adverse impacts on prices.” Tariffs, they show, are not a cause of inflationary price increases. Russia’s invasion of Ukraine had more of an effect on rising prices than any tariff, by far:
It may be surprising to hear progressive voices fight hard to retain a Trump-era policy, but there’s more nuance to their position than that: Both agree that America needs to renegotiate trade deals with the world, reconfiguring some of the ease and affordability of global trade created by Clinton-era trade agreements. But they argue that the tariffs are serving as a slapdash solution protecting American manufacturers until we can do the work of rebuilding more equitable relationships with trading partners around the world.
Three policies that would actually combat inflation
We’ve talked a fair amount in this email about what our leaders should not do to combat inflation. But as an optimist, I thought it would be useful to explain what our leaders could do in order to immediately address the higher prices that every American is paying at grocery stores, gas stations, and in the housing and automobile markets. Here are just three policy proposals that are ready to be enacted:
First, and perhaps most straightforwardly, we could continue putting money in people’s pockets to help them weather the higher prices. Several states have already started the process of sending inflation relief checks to residents. The most recent such state, remarkably, is deep red South Carolina, which is mailing $800 checks to some residents as an inflation stimulus. Georgia, Idaho, and Virginia are all red or purplish states that are joining blue states like California and Massachusetts in sending stimulus checks this year.
The United States could use prevailing-wage laws to ensure that the workers building electric vehicles are paid good wages, building a new manufacturing middle class for the 21st century.
“Policymakers have an opportunity this year to enact critically important tax reforms that would better prevent multinational corporations from shifting their profits offshore to avoid paying taxes and would raise substantial revenue,” writes Samantha Jacoby at the Center on Budget and Policy Priorities.
Real-Time Economic Analysis
Civic Ventures provides regular commentary on our content channels, including analysis of the trickle-down policies that have dramatically expanded inequality over the last 40 years, and explanations of policies that will build a stronger and more inclusive economy. Every week I provide a roundup of some of our work here, but you can also subscribe to our podcast, Pitchfork Economics; sign up for the email list of our political action allies at Civic Action; subscribe to our Medium publication, Civic Skunk Works; and follow us on Twitter and Facebook.
On Civic Action Live this week, we’ll discuss the choices that Boeing made to prioritize outsized profits over safety, the direct correlation between rising housing prices and growing homeless populations around the nation, and we’ll talk through some policies that we could enact to immediately improve the economy. Join us at 10:30 am PST.
On the Pitchfork Economics podcast this week, Ben Cohen and Jerry Greenfield (of Ben & Jerry’s fame) discuss how the founders and leaders of corporations can choose to become activists for positive change rather than mindlessly accumulate profits above all else.
In his Business Insider column, Paul looks at a recent Twitter spat that erupted when President Biden blamed corporate greed for high gas prices. Wealthy and powerful interests immediately slammed the president for not understanding “Econ 101,” which is a common trickle-down tactic: When the wealthy and powerful make money at the expense of everyone else, we’re told that’s the result of easy-to-understand “market forces” that are just as natural as the law of gravity. Paul walks through the many ways trickle-downers try to convince us that growing income inequality is an inevitable part of capitalism, not a matter of policy failure.
Closing Thoughts
In his great Substack The Liberal Patriot, Peter Juul reflects on a new book about the collapse of plane manufacturer Boeing. Juul writes that “Boeing went from a company that relied on its own engineers and pilots to make sure it built safe and reliable airliners to one dependent on financial markets and cost-cutting measures. Boeing hollowed itself out in the process, leaving it able to pump up its own stock prices but unable to build usable airplanes.”
For much of the 20th century, Boeing was the biggest employer in Washington state—it’s why Seattle was once known as Jet City—and they provided a lifetime of economic security to Washingtonians, who were fiercely loyal to their employer. But in recent years the company moved production lines to North Carolina in order to hire a non-union workforce, and rather than invest in their workforce or R&D, leadership chose to dump billions of dollars of the company’s profits into a series of stock buybacks, enriching an elite shareholder class at the expense of quality.
Ultimately, Boeing’s failures to build a safe product became headline news around the world. And the company’s stock has failed to recover:
But look at virtually every industry in America today, and you’ll find at least one business like Boeing—a once-great, hugely innovative company that has sacrificed its own reputation in the name of short-term spikes in profits. This is what shareholder primacy has created: A series of big corporations cannibalizing themselves and destroying their workforce so that executives can score a big payday before jumping ship.
Obviously, this kind of behavior isn’t sustainable. In the best-case scenario, the corporation fails and thousands of workers are tossed onto unemployment rolls. In the worst-case scenario, as with Boeing, people are killed. We can hope that eventually business leaders will understand that behavior like Boeing’s is unsustainable and unacceptable, or we can dream up policies that will penalize short-term profiteering like this and encourage long-term corporate sustainability. This email goes out to thousands of smart people around the nation and the world. If you have any ideas for how to build a future that makes it harder for another Boeing-like disaster to happen, I’d love to hear them.
Be kind. Be brave. Get vaccinated—and don’t forget your booster.
Zach