Of course, such a program would have to be designed well, it would require qualified personnel, and it would be costly. But it would also be hugely beneficial. A public option for childcare would enable parents to get back to work, prevent kids from getting into trouble when parents aren’t home, and help remove a major stressor and financial burden on families that can’t afford to hire a nanny or pay for the fanciest childcare centers.
Education is critical for democracy and for the economy. In a democracy, the people determine their futures, and that requires them to debate over public affairs. Education—and particularly education in civics and history—is essential for citizens to develop the ethics and sense of community that sustain democracy. Education is also increasingly tied to success in the economy. Some kind of post–high school training is increasingly important for everyone, just as a high school education was increasingly important a century ago. And as technology changes our society, continuing education throughout a lifetime is also critical for workers to succeed.
A public option for higher education would help on both of these fronts. Public training programs, colleges, and universities should be free to all attendees—tuition and fees, room and board, books, and other expenses. A public option for college would guarantee that anyone who needs an education can get it without taking on mountains of debt. Those who want to attend private schools wouldn’t get the benefit of free college (private schools are not a public option) unless they joined Patriot Corps and participated in national service.
One of the most successful public options is Social Security. Social Security is effectively a baseline public option for a pension—it provides Americans who work with a pension for their retirement years. Workers can supplement with another pension and additional retirement savings, and they don’t have to draw their Social Security benefits if they don’t want to. Social Security has helped keep millions of Americans from a life of abject poverty in their old age, and, as a result of this reliable safety net, it is extremely popular.
But Social Security was never meant to be the sole way that Americans financed their retirement. It was meant to be part of a three-legged stool, alongside employer-based pensions and personal savings. Over the course of the neoliberal era, however, the other two legs of the stool have collapsed. First, as economic inequality has increased, more and more Americans simply do not have sufficient retirement savings. According to Boston College’s Center for Retirement Research, half of Americans don’t have enough money for retirement. The problem is so bad that almost one in four Americans, according to a 2019 survey, say they will never retire. Second, employers largely eliminated pensions for their employees during the neoliberal era and instead shifted to defined contribution investments like 401(k) plans. Under a traditional pension, the employee would get a fixed sum of money every month during retirement. In contrast, under a defined contribution plan, the employee pays into a 401(k) and then can invest that money in the stock market. The result is that these new plans shift risk onto the employee. If you retire after a big economic crash, for example, you’ll find yourself without much in your employer-based retirement plan. On top of that, many investment firms charge hefty fees and even steer people to fee-charging investments because they get kickbacks from the funds. Employees thus bear the risks of market downturns and can be manipulated and cheated out of their money in the process.40
The path forward is to reinvigorate the public option for retirement in two ways. The first is to increase Social Security benefits, thereby improving the baseline of secure finances people have for their retirement. The second is to create a public option for 401(k)s. Ideally, this public option would offer coverage to all workers, regardless of where they are employed, whether they change jobs, or if they are independent contractors. It would offer a simple set of sound investment options with low fees. Finally, it would pay out benefits as annuities so that retirees would get a reliable stream of income over their later years. Right now, in fact, the government offers a plan pretty close to this one. It’s called the Thrift Savings Plan (TSP), and it is open to federal government employees. Making the TSP open to all, and expanding Social Security, would go a long way in providing economic security during retirement.
Taxes and Democracy
“Taxes are what we pay for civilized society,” Oliver Wendell Holmes Jr. once wrote. From World War II until the early 1960s, the top marginal tax rate was between 80 and 94 percent before ultimately settling in at 70 percent until the Reagan administration. But in the neoliberal era, the spirit of Holmes’s maxim was barely tolerated—and certainly not celebrated. Taxes were seen as a burden, and the central thrust of tax policy was to cut taxes, not to achieve a “civilized society,” as Holmes put it. Right-wing neoliberals did not worry that tax cuts would mean lower revenues; they opposed government action, seeking instead to “starve the beast” and privatize its functions. And they did not see taxes as essential to redistribution because “greed is good,” as the movie Wall Street reminded us. The center-left neoliberals of the Third Way were worried that raising taxes would be bad politics, and they saw cutting middle-class taxes as both good politics and good policy.41
Since the Reagan administration, Republican presidents made tax cuts one of their central priorities, with Democrats eventually going along, albeit emphasizing tax cuts for the middle class. The top marginal tax rate for individuals dropped below 40 percent. The capital gains tax rate—a tax on investments by which many wealthy people make money—plummeted from 39.9 percent in 1977 to 15 percent. Taxes also dropped on estates, the ability to pass along wealth to one’s children. In 1976, more than 7 percent of estates paid a tax. By 2011, it was 0.14 percent. Corporate taxes also dropped from 52 percent in 1960 to 35 percent, and then in the Trump administration to 21 percent.42
With this downward trajectory over the neoliberal era, it is worth asking the question squarely: Why does taxation matter in a democracy? There are three answers. The first is to generate revenue. Every government—democracy or not—needs to generate revenue to fund itself. The national defense, diplomacy, police, and firefighters all require funding. In a democracy, the people choose to build the future however they desire. When “we the people” create a Constitution to “promote the general Welfare,” as the preamble to the US Constitution says, we need to fund the activities that lead to the general welfare.43
But why fund these activities through taxes instead of other forms of revenue? The answer gets to the second reason: taxes keep citizens engaged in democracy, and at the same time, they keep government dependent on the will of the people. The American Revolutionaries did not seek freedom from all taxation but “taxation with representation”; they wanted a government that was accountable to the people for its actions and responsive to the people’s demands. Taxes are one way to keep that linkage strong. The people set the government’s agenda, and they fund it.
The third reason taxes are important is to ensure a relatively equal society. Commercial activity will inevitably create winners and losers. Eventually, the “vast inequality of wealth is socially destructive,” a leading tax scholar notes, “because it degrades relationships among people (cultural, social, and political), and eventually undermines the sense of community on which a democratic polity must rest.” On one side, taxation allows for redistribution that makes society more equal, both through spending on public programs and through financial transfers. In the process, this equalizing effect tends to make the community more similar economically. On the other, taxes prevent the creation of a class of wealthy individuals who can use their economic power to undermine democracy. Although some people might protest that wealth itself does not automatically translate into power, the wealthy themselves recognize that it does. As James Stillman, a Gilded Age banker and investor admitted, “’Twasn’t the money we were after, ’twas the power. We were all playing for power. It was a great game.”44
With these purposes in mind, achieving a great democracy
will require tax policy to change. Personal tax rates should be designed to protect economic democracy from the emergence of an oligarchy. This means, first, having a more progressive income tax structure. The top tax bracket currently starts at $500,000 for an individual and $600,000 for married couples. There should be new brackets at higher levels—$1 million, $5 million—with higher top marginal rates. Congresswoman Alexandria Ocasio-Cortez, for example, has called for returning to a 70 percent top marginal tax rate. Many economists have agreed with her proposal—and some have said she did not go far enough. All income should also be treated the same to better capture how many wealthy people currently earn their income. Right now, for example, investors who make their money primarily through the stock market pay a capital gains rate, which is lower than the ordinary income tax rate. These rates should be aligned. Second, we need to institute oligarch taxes, a tax on enormous levels of wealth that threaten political and economic democracy by their very existence. There are many ways to do this. Senator Elizabeth Warren, for example, has proposed an Ultra-Millionaire Tax on those who are worth more than $50 million. From a democratic perspective, the source of the income is not as important as the fact that accumulated wealth, however it is gotten, threatens our constitutional system.45
Third, we need to prevent the creation of a hereditary aristocracy in the United States by either reinvigorating the estate tax or establishing inheritance taxes. Currently, upon death, a couple can transfer $22 million to their heirs without paying any estate taxes. This is a gigantic sum of money, enough that the heirs will never need to work again—and would have money to spare. This policy does not value work; it supports the creation of heirs and heiresses who didn’t earn any of their wealth. The usual justification for such transfers is that the wealthy parents should be able to give freely to their children. Although this individualistic argument has some merit, it conflicts squarely with the ethos of democracy. The purpose of estate and inheritance taxes is to prevent the creation of a hereditary aristocracy—a class of people who, generation after generation, have wealth and exercise power. The Founding Generation understood this, even though their economic situation was different. Writing to John Adams in 1813, Thomas Jefferson said that one of his proudest accomplishments was abolishing the entail and primogeniture. These were legal rules that allowed landowners to pass property on to their heirs in a concentrated fashion. Property was the central form of wealth at the time, and ending these laws made sure that property would be divided among children, rather than placing it in the hands of the oldest son. Jefferson said his abolition of these laws in Virginia “laid the axe to the root of the Pseudo-aristocracy.” When North Carolina passed a similar law, the bill noted the purpose of the law: “It will tend to promote that equality of property which is of the spirit and principle of a genuine republic.” The contemporary version of this policy is estate and inheritance taxes.46
The other side of taxation in a democracy is distribution. Economic democracy requires that everyone has opportunities. It has no place for hereditary aristocracy or hereditary poverty. James Madison thus noted in 1792 the importance of having laws that would “reduce extreme wealth to mediocrity, and raise extreme indigence toward a state of comfort.” Today, many commentators have argued for cash transfers to the poor, either through an expanded earned income tax credit (which transfers additional money to the working poor) or through a universal basic income. These direct tax-and-transfer policies, in conjunction with others, can help realign economic democracy, but it is also worth noting that other policies, like public options, are effectively redistributive as well. When the government offers universal access to public schools and public libraries—or Social Security and health care—it benefits the poor and working class.47
Corporate taxes also need to be reformed. In recent years, many policy makers have been skeptical of corporate taxes for two reasons. They argue that corporations are made up of shareholders and that shareholders are already taxed. So corporate taxation is really double taxation. Perhaps more prominently, they argue that the American corporate tax rate is too high, which makes the United States less competitive than other countries for investment. Based partly on these justifications, under the Trump administration, Republicans passed a bill reducing the corporate tax rate from 35 percent to 21 percent.
These arguments misunderstand the role of corporations in a democracy. Corporations only exist because we the people allow them to exist. It is perfectly legitimate to condition the privilege of operating as a corporation on paying a fee like a tax. The other justification for the corporate tax is to regulate and reduce corporate power. Although corporations have shareholders, corporations are not simply the sum of their shareholders. Managers have significant power internally over corporate decisions and, through corporate spending, have considerable public power as well. And corporations last long after shareholders die. One purpose of the corporate tax is to allow the public to have control over what these important, legally created entities do. Imposing a corporate tax, as one tax professor notes, “reduces the economic resources available to corporate managers [and thus] also reduces the power of corporate management.” Information from tax filings and the tax’s regulatory power also give the government another way to oversee corporate activity and prevent the bad behavior of corporations. As President William Howard Taft said on the passage of the corporate tax in 1909, with “knowledge of the real business transactions and the gains and profits of every corporation in the country, we have made a long step toward that supervisory control of corporations which may prevent a further abuse of power.”48
The global competitiveness problem is also solvable. The United States taxes corporations that are in residence in the country and taxes income from foreign corporations or subsidiaries when that income is repatriated into the United States. As globalization has made capital more mobile, corporations increasingly move residency or operations overseas to tax havens. Economist Gabriel Zucman has shown that about $200 billion, or 8 percent of global wealth, is held in such tax havens, forcing the middle and lower classes to pay more in taxes to cover the shortfall in revenue. Luckily, there is an easy way to solve this problem. The global tax problem is similar to the problem of corporations operating in different states within the United States. Companies could move their residency to low-tax states to avoid paying higher rates. The way that we have solved this problem domestically is that we do not try to attribute specific income to specific states and charge taxes based on it. Instead, we calculate national income and apportion it to the different states in which a company operates. This same approach could work globally. Calculate worldwide income, and then apportion it to all the different countries in which the company operates. There are a lot of technical details for how such a system would be adapted to the international level, but the key point is that global companies exist and our tax system needs to start from this premise. A race to the bottom with tax havens isn’t good for democracy.49
Trade Policy for All
The 2016 election marked the end of an era of go-go trade liberalization, with candidates Clinton, Trump, and Sanders all opposing the Obama administration’s signature trade policy, the Trans-Pacific Partnership. Since taking office, President Trump has raised tariffs on rivals and allies alike, waged a trade war with China, and renegotiated NAFTA. In the midst of all of these changes, little has been articulated on what the United States’ trade strategy should be. A reformed trade policy should include three parts: redistributing the gains from trade to help the so-called losers from trade deals, addressing the economic threat from nationalist oligarch governments by developing and executing a comprehensive economic growth and security strategy, and fixing the rigged domestic trade policy process.50
For the last generation, the trade consensus had three parts. First, policy makers believed that trade deals would be a rising tide that would ultimately lift all boats. The losers from trade, they argued, would be able to adapt, transition,
and bounce back after a short while. Second, policy makers believed that trade liberalization would push undemocratic foreign governments to open up both their economies and their politics. Countries like China would, over time, become more market friendly and more democracy friendly. Finally, policy makers believed that what was good for American companies was good for America, and they gave companies privileged access to trade negotiations.
All three of these assumptions have now been proven wrong. Although trade agreements have been a powerful force for economic growth in many parts of the country, both academic research and the lived experience of many communities demonstrate that trade liberalization has also created serious distributional consequences that persist over time. In a series of papers looking at the consequences of economic integration with China, economists David Autor, David Dorn, and Gordon Hanson have demonstrated that some areas of the country have been disproportionately impacted. More importantly, these areas have not bounced back even a decade after the “China Shock.” The long-standing view has been that the winners from trade liberalization could compensate the losers, ameliorating these festering consequences of trade liberalization, but that such compensation should not come from trade policy itself. Yet time and again, we have watched as a trade deal passes and, with it, the political leverage for serious redistribution.51
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