This post originally appeared at The Nation.
The party of Trump is being torn to pieces by its own crackpot, bigoted leader, and Democrats are eagerly feeding on the carcass. But we can already see that the Democratic Party is astride its own contradictions.
One problem for Democrats is they can’t tell the truth about their own past. Despite bleeding-heart rhetoric, the party has been directly complicit with corporate capitalism in generating the retrograde policies that effectively dismantled the country’s widely shared prosperity. Income inequality, we might say, was partly manufactured in Washington, DC, and both parties did their part.
Of course, economists would explain that faceless economic forces flattened labor wages and generated the awesome gap between fabulous wealth and the everyday people struggling to get by. But these events were not an act of nature. Political actors and political interests were at the wheel and steering at every turn, starting with Ronald Reagan’s reactionary tax cuts and anti-government slogans in the early 1980s. The Democratic Party got walloped by the Gipper, and was so traumatized that it began to imitate the Reagan mantra: “Big government is the problem, not the solution” became Bill Clinton’s famous “The era of big government is over.” Jimmy Carter struck a similar pose with his mania for deregulation.
From Clinton to Obama, Democratic administrations took their cues from Wall Street financiers and the multinational corporations that were gutting US jobs and wages. Dems too often dismissed these dislocations and stagnant wages as unfortunate but temporary. For better wages, workers simply needed more education. But the displaced didn’t need an economist to figure out what was happening to them. They saw it in their pay stubs and swollen credit-card debt. A lot of them voted for the crackpot last fall.
If you strip away the magical claims of Reaganomics (“cutting tax rates will yield more revenue and balance the budget”), you can see that the real purpose of “supply side” theory was to shift the tax burden down the income ladder—away from the high incomes. This is the operative objective: Tax work instead of wealth. That has been the practical result of favoring capital’s returns on stocks and bonds over wage income. The pivot was a landmark political reversal, and it continues to this day.
Returns on capital used to be known as “unearned income,” since it did not involve personal labor by the shareholder. Starting in the Reagan era, cutting taxes on unearned income has become a favorite way for politicians to reward the upper middle class and wealthiest citizens but especially to benefit multinational corporations, which have enormous influence in electoral politics.
Back in 1981, only a handful of principled senators voted against Reagan’s original tax-cutting measure. Many similar measures have followed over the years, strewn across the political landscape like posies for the well-to-do. Bill Clinton’s administration reduced the tax on capital gains from 28 percent to 20 percent. George W. Bush came along after Clinton and cut capital gains from 20 percent to 15 percent. Imagine if government had cut the tax rate on wages nearly in half.
Now it’s Donald Trump’s turn.
Trump’s so-called “tax reform” legislation is more accurately called “tax forgiveness.” He proposes post-facto rate reductions that allow corporations off the hook on hundreds of billions in back taxes they already owe on their overseas profits. Imagine if workers could legally dodge taxes so brazenly. The fundamental fraud of Reaganomics — that everyone will benefit if rich people get — is the same argument Trump is making for his bogus “tax reform.” It was the big lie in 1981, and it’s still the big lie in 2017.
Meanwhile, after years of center-right moderation, the Democratic Party has discovered the angry working class. Or so it claims. Some party operatives arranged a private workshop on how to talk to pissed-off white guys. Other Dems are organizing grass-roots rebellions against old leaders. Good for them.
This summer the party’s congressional leaders jointly produced a “Better Deal” agenda of worthy liberal reforms — ideas the party had routinely ignored if they sounded too much like “big government.” The agenda described the symptoms of economic distress but not the root causes, since that might implicate Democrats themselves. Still, the emphatic gesture did demonstrate the party’s solidarity with struggling families. That’s promising.
But can we believe them? Not yet.
Democratic leaders, it appears, still want to have it both ways. They are offering solace and useful ideas for helping injured and angry working people. But party influentials won’t come clean on their own contributions to the pain and suffering (see Hillary Clinton 2016 campaign).
And the same party leaders who express sympathy for working stiffs are talking favorably about doing a fabulous tax deal for America’s leading corporations — about helping these titans of capitalism to dodge hundreds of billions in federal taxes they owe on their overseas operations (a nifty loophole allows them to defer paying taxes until they bring the money home). The titans owe some $600 billion, which they refuse to pay unless and until Congress reduces the tax rate on past profits as well as future profits. No surprise, Trump supports the corporates. The issue will be a first test of whether Democrats have changed.
The corporate lobby has already gathered an impressive group of Democratic supporters, including Senate leader Charles Schumer, House leader Nancy Pelosi and Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, which will write the tax-forgiveness legislation.
For several years Schumer has been coaxing senators of both parties to sign on. Give the multinationals what they want — a monster tax break — and they can bring back their capital to finance the nation’s backlog of infrastructure projects. Likewise, Pelosi and Wyden are enthusiasts for deal-making with Trump, though nobody is settled on the details. Pelosi has said Trump’s proposed tax reduction on corporate profits is too severe, but “we could split the difference.”
A similar approach was actually enacted by Congress back in 2004, when President George W. Bush and his opponent, Sen. John Kerry, agreed on a one-time, bargain-basement tax rate of 5 percent. The corporations got the money but double-crossed the politicians and spent the windfall on themselves, boosting stock prices for their shareholders.
Sen. Elizabeth Warren famously called Schumer’s so-called reform “a giant wet kiss for the tax dodgers.” Sen. Bernie Sanders has proposed a simpler solution: End the deferral of corporate taxes on overseas profits. Make them pay what they owe — now.
Many Democrats have remained coy on the issue of a corporate tax holiday, and that arouses my skepticism. They like to pound on rich individuals for not paying enough in income taxes, but they are strangely silent about the corporate tax dodge. Are we witnessing a kind of slow-motion sellout, in which Congress generously feeds the corporate beast our public money while posing as a tight-fisted reformer? Suspicions could be quickly squelched if elected officials simply stated their positions explicitly.
This tax hustle is a particularly ugly example of how our corrupted democracy can be looted by corporate capitalism more or less in broad daylight. There is no obvious crime here, but then we aren’t talking about bucket-shop swindlers. These tax dodgers are the best and brightest and often most profitable names in American manufacturing: General Electric, Verizon, Boeing and Priceline paid no federal tax at all over a five-year period. Other big dodgers include Apple, Pfizer, Microsoft, IBM, Google and Cisco. The top 50 US corporations owe more than $600 billion on $2.4 trillion in profits.
Collectively, the companies put this squeeze on Washington: We won’t pay a dime, they tell elected representatives, until you cut the corporate tax rate sharply on the billions we already owe the government and our future profits as well (forget the 35 percent corporate tax rate that companies whine about — that’s another lie, since almost none of them pay at that rate).
I gently teased a friend who works for one of the high-powered tech companies known for its hardball politics and flagrant tax dodging. Was he embarrassed? Not at all. “We can go either way,” he said. “Cut the tax rate and we will bring the money home and you get some revenue. Or don’t cut the tax rate and you get nothing from us. Take your choice.”
This is an accurate description of the dilemma his company and the other multinationals have created for politicians. It resembles a threat from the mob: “Give us the money or we break your legs.” Sounds like extortion. American capitalism creates many situations that sometimes resemble criminal behavior but are perfectly legal, as the hustlers like to say.
Yet here is the good news. The old status quo is breaking down before our eyes. People are fed up with both parties, but at least some Democrats can glimpse a new era struggling to be born. Republicans have the money and the hardball strategies to prevail for now, but they are defending a vanishing America that is changing and facing profoundly different threats. Sooner or later, Republicans either lose or change their minds.
My optimism is simply a crude restatement of the national history. Some political conflicts have sputtered on at a stalemate for decades, even generations, until one day the weather changes abruptly. Or war or economic circumstances force a change. More and more people have lost patience with the old order because it is so absurdly mistaken about what people want and need. I think we may be headed for a “market correction.” And that could be good.
I have focused on the twisted political values expressed in the tax system because the absurdity is so obvious. The nation has just experienced a generation of stagnation and swelling inequality, with millions losing personal status, but also their hopeful sense of the future. What does the political system propose in response? More tax breaks and tax forgiveness for the rich and powerful, for the ambitious managers and investors. More disappointment and inequality for citizens down below. And more looting of government.
Rebellion may be required within the Democratic Party. It has to turn away from the bankers and the multinationals and restore the multihued party of workers and imaginative reformers. Refreshing the field of battle with new faces and original ideas risks losing the next election or two, but intramural contests can energize skeptical voters and redefine fundamental principles.
The rebels within the ranks may be a minority, but as the GOP discovered in previous decades, a purposeful minority can agitate and educate and change party direction in fundamental ways. Party elders might have more campaign money, but Democratic challengers can employ a device that worked wonderfully for right-wing, anti-tax Republicans: Ask primary candidates to take the “pledge,” then target those establishment incumbents who refuse to do so. For Democrats, the pledge would be a promise to fight any measure that cuts taxes for corporate dodgers as well as any measure that refuses to support expansion of Social Security or Medicare. Politicians who try to cheat on their pledge should be targeted and taken down. After incumbents see a few supposedly safe colleagues get wiped, they will get the message.
Polling by Hart Research for Americans for Tax Fairness suggests that the Democratic Party’s base is already on board for a different agenda. “There is no significant constituency for reducing corporate tax rates,” the polling firm found. “Seven in ten voters (69 percent) say wealthy corporations paying their fair share of the taxes is more important than cutting the taxes for American business to make them more competitive in the global economy,” the survey concluded.
In other words, Americans have “progressive values” on taxation. They are more worried that Republicans will cut Social Security and Medicare to pay for tax cuts for corporations and the wealthy.
Perhaps the most significant finding is that people no longer believe what Reagan taught Americans 35 years ago. The supply-side theory argued falsely that tax cuts for business and for rich people would benefit everyone by stimulating the economy and creating jobs and rising incomes.
“What’s different now,” said Frank Clemente of Americans for Tax Fairness, “is people don’t believe in ‘trickle-down economics’ or that tax cuts benefit them.”
Clemente asked this question: “Are Democrats going to be united with their base on opposing corporate tax cuts?”