A Direct Assault on US Democracy: The Fight over Tax Policy

On March 4, 1933, Franklin Delano Roosevelt’s (FDR) theme song for his inauguration was, “Happy Days Are Here Again,” as a prelude to the impact of his New Deal policies on pulling the United States out of the Great Depression. During his tenure, FDR challenged big business, restructured the tax code, and extended social benefits to citizens. In fast forwarding to today’s political environment, Senators Alexandria Ocasio-Cortez and Elizabeth Warren are invoking big government ideas through a progressive agenda that intends to push the Democratic Party more to the left. While the political divide in Washington has been growing and a potential economic crisis is on the horizon, the current economic numbers and market sentiment still show signs of optimism.

Will Alexandria Ocasio-Cortez and Elizabeth Warren be able to invoke the “Happy Days Are Here Again” message for Democrats eager for policy reforms that embody the values of the New Deal? Currently, the Trump administration has been taking credit for the economic policy outcomes of the Obama years while, at the same time, deregulating the economy, passing regressive tax reform, and challenging democratic values. To combat republican reform, Ocasio-Cortez and Warren have been successful in building a consensus in the Democratic Party, but they will be facing an administration which has as its main goal to combat a liberal agenda by supporting special interest, big business, and dismantling the tax structure. So, what will be the competing policies of the Democrats to reverse the Tax Cut and Job Act legislation passed by the Trump Administration?

To support her Green New Deal, Ocasio-Cortez proposes to increase the marginal tax on income above $20 million to 70 percent. This has been met with resistance from the business elite that claims tax increases will hurt economic growth. However, Ocasio-Cortez is not proposing anything new; the tax rate in the United States from 1957 through the 1970s was around 70 percent and did not hinder economic growth. On the contrary, it generated more tax revenue for the redistribution of government programs to stimulate growth.

In challenging Ocasio-Cortez’ policy agenda, Warren proposes to tax the extreme wealthy by imposing a 2 percent annual tax on an individual household’s net worth more than $50 million and an additional 1 percent on wealth over $1 billion. This tactic echoes the politics of Theodore Roosevelt who, in 1903, tried to address widening inequality and excessive wealth by increasing taxes on big business and the wealthy. This poses the question of whether Senator Warren will invoke the spirit of Roosevelt by passing her tax proposal.

The success of the Democrats will depend on the ability of their party factions to create a united message that will directly challenge the Trump administration. This can be successful if Bernie Sanders backs one of these proposals by dropping his own policy agenda to reduce political competition within the Democratic Party.

Moderate Republicans have denounced the current Tax Cut and Job Act because of its direct assault on the middle and working classes which democracy is supposed to protect. Instead of allowing democracy to create checks and balances on the elite, the Trump administration has provided a political win for industrialists, like the Koch brothers, by reducing the corporate tax rate to 21 percent. This has allowed CEOs and companies to consolidate their corporate gains by buying back stock, to invest more capital in their political action committees, and to expand corporations’ rights for free speech.

This reduction in corporate taxes is coupled with deregulation of industry and finance to allow the plutocracy to gain more market share and accumulate record profits. The premise of the Republicans that redistributive democracy and regulation hinders free enterprise at the expense of society is fundamentally inaccurate. On the contrary, redistributive gains acquired by average citizens create greater safety nets which, in return, produce greater economic growth.

The Tax Cut and Job Act passed in 2018 by the Trump Administration is a clear departure from traditional conservative and Reaganite tax ideologies of low deficits. Liberal and conservative economists alike predict that the new piece of legislation will contribute $1.7 trillion to the deficit in the next decade. To offset the deficit, Republicans propose automatic cuts to entitlement spending (e.g., Medicare). This proposal is a direct assault on distributive democracy and further widens the gap of gender and inequality in American society.

In American politics, the far-right has demonized Ocasio-Cortez and Warren as socialists and communists comparing them to Nicolás Maduro and even Joseph Stalin. Historically, similar tax proposals as promoted by Ocasio-Cortez and Warren have been implemented during the New Deal era and WWII. However, the American public still views raising taxes on the wealthy and a progressive tax system as too far to the left. Even though the American stance on raising taxes will not change any time soon, there is overwhelming support for increasing spending on entitlement reform. This will make it harder for Republicans and Democrats to create a consensus on how to deal with broader issues relating to the budget and the economy.

This ideological fragmentation provides inroads for Ocasio-Cortez and Warren to challenge the political and business elite and to reaffirm the progressive values of the Democratic Party.

Marcus Walsh-Führing is a postdoctoral fellow at Johns Hopkins School of Advanced International Studies (SAIS) Europe.

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