Home > Uncategorized > Combating the political power of the rich

Combating the political power of the rich

from Dean Baker

I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario.

Let’s say that we get progressives in the presidency, a progressive majority in Congress, and can either get a sympathetic Supreme Court or find a workaround with a hostile court. Maybe in that scenario, we can get a wealth tax in place in eight to ten years. Then let’s say the tax has been in operation for ten years. Again, being optimistic but at least somewhat realistic, perhaps after ten years, we will have downsized the big fortunes, like those held by Koch and Zuckerberg, by 50 percent.

So, in this optimistic scenario, twenty years from now, Jeff Bezos will still have $80 billion, Bill Gates will have $50 billion, and Mark Zuckerberg will have $40 billion. Will the United States then have a functioning democracy, with everyone getting a more or less equal voice?

The point here is that the rich do have a hugely disproportionate amount of political power, and we should be upset about this, but the fact is that we cannot plausibly hope to balance the scales by reducing their wealth, or at least not any time in the foreseeable future. There is an alternative route, which is both simple and already in practice: the Seattle Democracy Voucher program.

This program gives Seattle residents four vouchers, worth $25 each, to be given to the candidate(s) of their choice. To be eligible to receive a voucher, a candidate must accept limits on both overall spending and the amount of money that they can get from any individual donor. This system has allowed many candidates to run competitive campaigns, without relying at all on getting the support of rich people.[1]

This sort of system of campaign finance focused on giving low and middle-income people a voice, will not necessarily be able to the match the millions or tens of millions that the very rich can shower on their favored candidates, but it is adequate to ensure that candidates appealing to the non-rich can get their arguments out. And, there is sufficient research to show that, while candidates need a certain amount of money to be competitive, the biggest spending candidate does not always win.

This raising of the voice of the bottom approach can be applied elsewhere, including to the media and creative work more generally. A major problem for those of us concerned about the future of democracy is the collapse of traditional newspapers and other print media. The Internet, and the rise of Facebook and Google, have deprived them of the advertising revenue they depended upon to survive. As a result, hundreds of newspapers have gone out of business in the last quarter-century, and even most of those that survive have hugely cut back on their staff of reporters.

The few outlets that still maintain a large staff of reporters, such as the New York Times and Washington Post, depend on the goodwill of rich people who are prepared to lose money or at least get well below market returns on the money they have invested in their papers. While it is great that some of the very rich are committed to helping maintain a vibrant press, this is not a viable long-term mechanism.

We can pick up on the Seattle democracy voucher approach to support the media as well. Suppose that every adult had a $100 a year fully refundable tax credit to be used to support the creative worker or organization of their choice. This could include individual reporters, writers, musicians, singers, or any type of creative worker, or alternatively they could support an organization, such as a newspaper, a publisher, a movie production company, or any other organization that supports creative work.

There are two reasons for including creative workers more generally and not just journalists and news outlets in the list of potential beneficiaries. The first is that they have also seen plunges in revenue as a result of the Internet. The amount of spending on recorded music, in particular, has dropped by close to 90 percent over the last two decades. It is important to set up a new source of revenue to support creative workers.

The other reason for extending eligibility beyond news media is that we don’t want the government to be in the business of deciding what qualifies as news. If a news outlet were to include opinion pieces or satire on political events, would the government allow it to get money designated for news reporting? If we draw the lines broadly, this should not be an issue. There will always be issues of outright fraud, which must be policed, but these should be far removed from anything resembling judgments about what constitutes proper news reporting and commentary.

The $100 figure is arbitrary, but even this modest sum could provide more than $20 billion a year to support creative work.[2] At a pay rate of $80,000 a year, this could support 250,000 journalists and other creative workers. It is also important to realize that this system does not preclude other mechanisms for raising revenue.

For example, newspapers can still sell print copies and get ads, as they do today. The big difference would be that this would not be their primary mode of raising revenue. Musicians, writers, and creative workers could still earn money from other sources, such as live performances or conducting workshops. So, the money they receive through this tax credit system would not be the sole support for newspapers and other creative work, but it would provide an enormously important supplement that could maintain a vibrant news media and creative sector that did not depend on the goodwill of a small number of very wealthy people.

Going Local

Another tremendously important aspect of this tax credit route is that it can be implemented at the state or even local level, as demonstrated by the Seattle democracy voucher program. The ability to start a measure like this at the state or local level is tremendously important given the improbability of major action addressing the unequal distribution of political power at the national level.

As a practical matter, it would be a relatively simple thing for a state or city to give each of its adult residents a voucher of $100 to support journalism and other creative work. To avoid freeloading by residents of other states or cities, it can even put up paywalls, as most newspapers do now. That way, if people in Chicago, or the state of Illinois, were prepared to use their vouchers to support a high-quality newspaper like the New York Times, they would be able to get free access themselves, but people elsewhere in the United States would have to pay, just as they do now for the New York Times.

On the creative worker side, a state or city going this route could set itself up as an artistic mecca with this sort of system. It could just include a requirement that to be eligible to receive money through the voucher system, a person had to be physically present for at least nine months a year. This would attract musicians, singers, writers, and other creative workers since they would want to be eligible for this pool of money. Furthermore, to make additional money and to increase the likelihood that residents would support them, they would want to perform their music, or offer workshops, or engage in other activities that would make them known to the community. These activities would also attract tourists from around the country.

The key point here is of course to establish an alternative mechanism for supporting independent media. If this can be done successfully in a city or state, it is likely to be emulated by others. Ideally, it would be adopted nationally, but even if just a small number of cities and states went this route it can provide a substantial measure of support that does not currently exist.

In any case, even a single city would be a big step forward. We can sit around and wait for the gods to make things work out to our liking so that there is a radical downward redistribution from the very rich to everyone else or we can take simple steps that will actually have an impact. We know liberal funders much prefer the former route, but anyone who actually gives a damn about inequality better be looking for things we can do now.

[1] There are comparable systems that amplify the voice of people with less money, such as the “super-match” system that New York City has in place for local elections. Under this system, small donations can be matched up to eight to one for candidates that limit their spending and large contributions and meet other criteria. The advantage of the Seattle system is that the vouchers can give a voice even to people who may find a small contribution to be a substantial burden.

[2] I would require a trade-off to be eligible for this money that the recipients could not also get copyright protection for their work. The government supports you once, not twice. If you take the money, then your work is in the public domain and can be freely reproduced and transferred. We want people to have access to the material that the government has paid for. I discuss the mechanics of this sort of system in more detail in chapter 5 of Rigged [it’s free].

  1. July 11, 2020 at 2:43 am

    Taxing federally the incomes or wealth of the richest people does not improve the lot of the poorest or poorer in society because federally taxes are not actually income. But the wealthy have too many votes available with their dollars. That must be neutralized.

  2. yok
    July 11, 2020 at 2:29 pm

    A wealth tax is a waste of time. They would gut, undermine, erode, evade as they do now. Recent years have seen them pay less taxes than ever. Redistribution won’t work like that. Everyday people need to be empowered; through more unionization. making corporations not human, making spending money not free speech, empowering and strengthening the general population as you describe.

  3. Ed Zimmer
    July 12, 2020 at 3:48 pm

    I see charitable capital just as corrupting as venture capital. Instead of trying to pump more money into a corrupt system, let’s work on removing the need for such capital. Building a business, whether for goods or services (including entertaining or informing) is about building an audience (aka, customer set). Using money to buy your way in is only one approach (& has now become the dominant approach because that money can be (& is) used to suppress potential competitors). Until reduce the dominance of “money” & find productive ways to let entrepreneurs do their thing, the system will stay “rigged”.

  4. Edward Ross
    July 13, 2020 at 1:02 am

    Again i although i think their has been a lot of good conversation on important aspects of economics recently, i am concerned that the conversation seems reluctant to focus directly on the human problem of the corona virus and the devastating affect it has on the economy.

    Hence i ask are the tentacles of neoliberalism so strong that most academics are reluctant to challenge neoliberal economic rationalism because it may affect their position and livelihood Here i remember C T Kurien’s Wealth and Illfare, where he clearly explains his views of neoliberalism and the importance of teaching students and people how to think not what to think.
    Dean Baker has written several times explaining from his observations and experiencing how the present patient monopoly system allows speculative organisations to purchase promising vaccines and then on sell them to the pharmaceutical giants , who in turn are able make massive profits.
    Then in JULY 11,2020AT 10;11PM
    Jan Wikland wrote ” “The non patient system already exists,as Joseph Stiglitz wrote a few months ago”.
    From my humble perception it is not an either or question, rather it is Dean Baker is writing from his experience and observation of the empirical evidence in the real world Where as Joseph Stiglitz seems to .write from an ideal academic world where their seems to an assumption that once a law is passed that everybody will observe that law or ruling everybody will observe it.. HERE THE CRITICAL REALISM is that a written law is nothing until it is observed . Therefore in the effort to find solutions to the human and economic problems posed by the virus it is essential that a way is found that guarantees globally everybody everybody cooperates to solve the problem Ted

  5. Ken Zimmerman
    July 21, 2020 at 4:05 pm

    A little law education reading. For example, let’s look at the Wells Fargo Accounts Fraud of 2015 and 2016. Instead of the usual course of long civil suits and criminal charges for the bottom end employees, charge the bank as a person (it is a person according to SCOTUS) under the RICO (Racketeering statutes). When convicted (the bank did confess, after all) the prison sentence is 12.5 to 25 years along with forfeiture of all money directly or indirectly acquired through the crime. The prison time would be served by the CEO and BOD, who are the bank’s “bosses.” The forfeiture (about $2.8 billion) would go to the US Treasury. This process is unfortunately easily repeatable for all major US banks and corporations. Until they find ways to avoid prosecution or stop doing the crimes.

    The Law

    Some criminals might be content to serve time in prison, if they know their assets will be available upon release, or that their non-incarcerated families may continue to enjoy the proceeds of crime. This is why confiscation of assets is such an important measure to prevent and combat organized crime. It is also an equally important tool to prevent organized crime infiltration of the legal economy.

    Confiscation is also known as forfeiture in some jurisdictions. The two terms will be used interchangeably in this Module. Confiscation of assets or property is the permanent deprivation of property by order of a court or administrative procedures, which transfers the ownership of assets derived from criminal activity to the State. The persons or entities that owned those funds or assets at the time of the confiscation or forfeiture lose all rights to the confiscated assets (FATF, 2017; McCaw, 2011; Ramaswamy, 2013).

    The large revenues generated from organized crime activity can affect the legitimate economy and in particular the banking system adversely through untaxed profits and illicitly funded investments. Furthermore, even after having invested in the legal economy, organized criminal groups often continue to use illicit tools and methods to advance their business, potentially pushing other businesses out of the market. Confiscation of assets is a way to undermine the fiscal structure and even the survival of an organized criminal group by seizing illicitly obtained cash and any property derived from criminal activity (Aylesworth, 1991; Baumer, 2008; U.S. Executive Office for Asset Forfeiture, 1990).

    Confiscation occurs under one of two types of proceedings: conviction-based confiscation or forfeiture and non-conviction-based confiscation or forfeiture. They differ in the level of proof required for it to take place. Conventionally, non-conviction-based confiscation requires a standard of proof that is lower than the standard required to obtain a conviction in a criminal court.

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