To tax or not to tax the rich more, that is the question

Thanks to Alexandria Ocasio-Cortez and Elizabeth Warren, the most important battle in American politics is finally on.

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    File: Demonstrators take part in a protest against tax cuts for rich people in the Manhattan borough of New York City,US November 27, 2017 [Eduardo Munoz/Reuters]
    File: Demonstrators take part in a protest against tax cuts for rich people in the Manhattan borough of New York City,US November 27, 2017 [Eduardo Munoz/Reuters]

    Alexandria Ocasio-Cortez and Elizabeth Warren have poked the B-hive. That's B as in billionaire!

    Higher taxes! On the rich.

    The two billionaires with presidential ambitions who are associated with the Democratic Party - Howard Schultz (who built up Starbucks to ubiquity) and Michael Bloomberg (who made his billions delivering urgent info to Wall Street) - instantly came buzzing out of their hives.

    Taxing the rich was dire! Dangerous! It would mean no more honey!

    Mr Schultz threw a full double Caramel Creme Frappuccino right in Ms Ocasio-Cortez's face! Metaphorically, of course. She, by floating the idea of a top marginal income tax rate as high as 70 percent, had caused him to leave the Democratic Party and announce his run for president as an independent.

    Money has played an ever-increasing role in US politics. Members of the media not only know that, they promote it. The viability of candidates is based on their access to funds. Schultz could self-fund. That gave him instant status. All the news networks had him on. Immediately. Normally, it's considered impossible for an independent to win. Still, Schultz said he had a fully caffeinated vision. There were more independents, 42 percent, than either Democrats, 31 percent, or Republicans, at just 24 percent. They would unite behind him. Plus, he would get anti-Trumpians from the right and centrist Democrats as appalled by anti-rich radicals as he was. What policies would he promote if he won? How would he get everyone else, who were still members of the two parties, to come together on them? In his vision, he saw himself swept into office by such a wave, that rather than defy it, legislators would also become his followers. He would then bring in the "best people", "real problem solvers", who would come up with the "best deals" ... it sounded appallingly familiar.

    Schultz also felt personally insulted by Elizabeth Warren.

    She tried to criticise him "for being a billionaire". His umbrage was not for himself, it was on behalf of the American Dream. "I'm self-made. I grew up in the projects in Brooklyn, New York. I thought that was the American Dream?"

    Warren's actual proposal was that the first $50m in assets would not be taxed. Assets above that would be taxed at two percent. Assets above one billion dollars would be taxed at three percent.

    It would affect just 75,000 households.

    What would that do to Schultz?

    His net worth was reported to be $3.3bn. He would pay two percent on the $950m between the first $50m and a billion, then three percent on the remaining $2.3bn. He would be paying $88m. That sounds like a lot. Until you realise he would be left with $3.21bn! Even with a very conservative strategy, Schultz would expect to make more than three percent on his money. So his wealth would continue to increase in spite of the new tax.

    Schultz screamed, "Socialism!!!"

    Yes, of course, Americans would stop pursuing their own special dreams if they knew that at the end they might be worth a mere $3.21bn instead of $3.3bn.

    Misleading the public

    Back in 2012, Bloomberg said, "Raising taxes on the rich is about as dumb a policy as I can think of."

    Bloomberg is a good liberal on many things. But when it comes to taxing the rich, he is a perfect example of the automatic resistance and, this is important, the fundamental dishonesty of much of what we will hear.

    He spoke of driving "out the one percent of the people that pay roughly 50 percent of the taxes, or the 10 percent of the people that pay 70-odd percent of the taxes." Without them, "our revenue would go away, and we wouldn't be able to have cops to keep us safe, firefighters to rescue us, teachers to educate our kids."

    Those statistics refer to personal federal income taxes. They exclude the many other taxes Americans pay: Social Security, Medicare, sales taxes, property and school taxes, various fees and levies. Add those in, and we find that Americans pay something closer to a flat tax than a progressive tax, with only the very rich and the truly destitute paying significantly less. This quick conflation that makes it seem like the rich already pay for everything is not only misleading, it is employed constantly without correction. We will hear it over and over again in the coming 22 months.

    When the 'S-word' is not enough

    While Schultz used the "S-word", Bloomberg used both the "S-word" and the "V-word"!

    V for Venezuela!

    "If you want to look at a system that's non-capitalistic," he instructed us, "Just take a look at what was once, perhaps, the wealthiest country in the world, and today, people are starving to death. It's called Venezuela."

    Venezuela is clearly a country with a lot of problems. However, it's top marginal tax rate is just 34 percent. Even after the Trump tax cuts, the top US rate is higher, at 37 percent. Nonetheless, the V-word has already become the new synonym for socialism-as-a-disaster and an argument for not taxing the rich.

    Neither Ocasio-Cortez nor Warren are backing down. They're sticking to it and in doing so they have established the standard for the upcoming campaigns. Among the declared and potential Democratic presidential candidates, Kamala Harris, Cory Booker, Julian Castro, and Bernie Sanders have specifically called for tax hikes on the rich. Another potential presidential candidate, Sherrod Brown, said we're likely to hear many more proposals like theirs, because "clearly, we need to make the wealthiest one percent pay more."

    The battle is on

    For the last half-century, the number one issue for Republicans has been tax cuts for the rich. Increasing both their wealth and power.

    The Democrats have been sadly complicit, routinely servicing their own big donors, those members of the financial elites, like Bloomberg and Schultz, who are socially liberal. The policies of the two parties combined have led us to ever increasing inequality. That condition underlies America's social unrest and the dissatisfaction with democracy that has spread worldwide.

    The only real way to address it is with taxes.

    That debate is on. That debate will be a battle. It will be fierce, loud, full of lies, and, at last, some real elements of truth.

    Neither Schultz nor Bloomberg has issued their own tax plan. Though Schultz says, urgently, that we need "comprehensive tax reform." With not even a hint of what it will entail, except the getting the best people on it.

    Then, there's Kamala Harris plan. It is both "progressive" and very problematic, both politically and economically. 

    It's ending the Trump tax cuts and reaiming them at the least well off, from the genuinely poor up to the middle, using payments. This is necessary since she's speaking of federal taxes and federal income taxes only take money from the top 50 percent, so you can't reduce them on the bottom 50 percent, you can only give out money. 

    The political problem is that really does come off as handouts. The crudest form of redistribution. The practical problem, as with Obama's tax cuts, is where does that money go? Does it go to places that grow the economy or to buying cheap goods from China? How does it build business and raise wages? The economic problem is that it retains the ever-growing Trump deficits. 

    In any case, the battle is on. It promises to be as busy and noisy as a busted open beehive. 

    It is also the most important and only real political debate in American politics - which translates to world politics - in decades. 

    The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial stance.


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