Moral Measure of a Tax Plan

In 2010, the moral measure of tax policy choice is: Does it further concentrate wealth and power in the hands of a few? Or does it disperse concentrated wealth and power, and strengthen possibilities for a democratic society with greater equality, improved health and well-being, shared prosperity, and ecological sustainability?

Does it move us toward Plutocracy, or Peace and Plenty?

President Obama's "Tax Compromise" fails this moral test. By extending the Bush tax cuts for the wealthy and instituting a significantly weakened estate tax, more wealth will flow into the hands of the richest one percent -- and within that to the richest one-tenth of one percent.

Most of us are aware of President Obama's willingness to trade away his campaign promise to let the tax cuts for high-income households expire. This will cost $60 billion next year, and if it is permanently extended, an estimated $700 billion.

But Obama also backed away from his position on the federal estate tax, our nation's only tax on substantial inherited wealth. The president's original proposal was to freeze the estate tax at 2009 levels (wealth exempted to $3.5 million, 45 percent rate). He now supports the Kyl-Lincoln amendment that would raise the exemption to $5 million ($10 million for a couple) and drop the rate to 35 percent. The cost difference between these two measures is at least $100 billion over ten years.

There are important priorities that the president's deal addresses: the need to extend unemployment benefits for the millions of workers still reeling from the economic meltdown. And, a short-term reduction in payroll taxes would have an economic stimulus effect. But the overall balance of this proposal will be to further concentrate wealth in the hands of a few.

Does it matter how wealthy the wealthy are?

For the last generation, this richest one percent, with some admirable exceptions , has been using its considerable wealth and clout to push for public policy changes that have further concentrated wealth.

As wealth concentrates, a hyper-organized segment of this wealth-holder class uses its wealth, privilege, and power to change the rules of the economy to further concentrate wealth and privilege. The logical progression of these policies is a society governed by wealth, a modern high-tech version of the Gilded Age of 1900.

For 30 years, congressional leaders who care about the poor have cut deals to win victories for working families such as family leave, increased minimum wage, expanded health care, and earned income tax credits. But the price of these victories has always been very expensive tax cuts for the wealthy and corporations. Under Clinton and Bush II, you couldn't accomplish a legislative priority for the non-wealthy without a big bone to the wealthy or corporate class -- another capital gains tax cut or corporate loophole.

Compromises have also been central to Obama's political strategy. In order to get a stimulus package to save the economy, Congress allocated one-third of $780 billion for tax breaks to corporations (and still didn't get one GOP vote).

In order to get broader health-care coverage for the uninsured, lawmakers surrendered the "public option" that would have forced competition and cut into the power and profits of the health industry cartel.

In order to get a Consumer Financial Protection Bureau included in the June 2010 financial reform bill, lawmakers allowed Wall Street to keep its risky casino operation in place -- laying the groundwork for future bubbles, meltdowns, and bailouts.

This is a very costly strategy. It diverts trillions of dollars from the Treasury that could be used for long overdue investments in infrastructure, education, poverty alleviation, energy independence, which are things that could truly boost the real economy. But worse, it sets up future political battles, where the very wealthy and powerful corporations continue to have disproportionate clout. In the post "Citizens United" campaign finance environment, this is premeditated surrender.

There are only a few ways to intervene to reverse course. They all require moral leadership and an engaged citizenry to clearly say: "We want an economy that serves everyone, not just the wealthy."

The first intervention is through progressive income, wealth and estate taxes. We urgently need to re-institute a progressive estate tax. Instead of cutting a deal to institute the Republican estate tax proposal that greatly weakens the law, Congress should press for the Responsible Estate Tax Act which would chip away at concentrated wealth.

The second intervention is through robust campaign finance reform that closes the nexus between wealth and political power. Anything that puts a speed bump between wealth and political influence helps the disproportionate influence of the wealthy.

The third intervention is to mobilize the silent faction of the wealthy elites that actually see their stake in the common good. All in the wealth-holding class are not actively lobbying to protect their power and privilege. We need a progressive counter-weight to organized defenders of power and privilege. With its several thousand business leaders and wealthy individuals advocating for policies to broaden prosperity and opportunity, the Wealth for the Common Good network is an inspiring start. They can counter the deep mythology around wealth creation and deservedness that often justify tax cuts for the wealthy and support the positions of engaged citizens.

Some Congressional leaders have stepped up to oppose the deal and declaim about the dangers of extreme inequality in the U.S. Let's all take a similar stand in our own lives, and urge our elected officials to do the same.

Chuck Collins is a senior scholar at the Institute for Policy Studies where he directs the Program on Inequality and the Common Good. He is co-author, with Mary Wright, of The Moral Measure of the Economy (Orbis Books) and with Bill Gates Sr. of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes (Beacon).