Some on the left criticize the Peace and Freedom Party for our slogan, “Tax the rich and their corporations.” The goal, they say, should be expropriation of the rich. Socialists can be for both. It is a matter of what the time is ripe for.
Taxing the rich: Socialists and billionaires agree
When Alexandria Ocasio-Cortez suggested a top tax rate of 70% during a TV interview, she was derided by many in the capitalist class—but not by the ultra-wealthy investor Warren Buffett. Why would a self-described socialist and an unapologetic billionaire agree? Or do they? The following article investigates the divergent reasons why some capitalists and most socialists (including the Peace and Freedom Party) advocate increased taxes on the wealthy.
Capitalism is in crisis worldwide. The owning classes, particularly in the United States, are pursuing policies that are only making it worse. The arguments carried on by their politicians and media all misrepresent, in different ways, the nature of the crisis and of capitalism itself. In response to this crisis, some capitalists (and their representatives) advocate increased taxes on the wealthy – as do many socialists. Why would this be good for the capitalists? Why are most capitalists refusing to take their medicine? And why do we, as socialists, support calls for taxing the rich and their corporations?
To answer these questions, we first need to understand how capitalism works. In broad strokes, capitalists derive their profits through the exploitation of labor. An owner invests in land, buildings, tools and machinery (the means of production), and hires workers to produce a product. The owner pays the workers just enough to meet their basic needs and keep them coming back to work, but the individual worker produces more value than he is paid for. The difference is profit.
In order to keep making profits, the capitalist class needs a productive and contented workforce. That is why they also pay for the education, health care, and other needs of the workers and their families, either directly through benefits, or collectively by paying taxes to fund state-run programs. The workers keep the system humming along by willingly selling their labor at a bargain rate, buying the capitalists’ products, and paying taxes to help maintain themselves and their families and produce conditions that ensure a future productive workforce. In short, capitalism in its normal operation serves to concentrate wealth in the hands of the few who own, at the expense of the many who work.
This concentration of wealth has reached epic proportions, amplified by both Democratic and Republican administrations' taxation and spending policies over the past several decades. The following graph illustrates how much the income tax rate on the wealthy (the highest marginal rate) has fallen compared to the tax rates on the lowest-paid workers. Note that this does not include the most recent tax cuts, and the falling capital gains tax rate and other tax loopholes which primarily benefit the wealthy.
While the rich get richer, the wages of working people have stagnated. A graph in a study by the Pew Research Center illustrates this:
At the same time, the cost of health care, housing and education have grown exponentially, with a corresponding decrease in discretionary income for working class people.
The ill logic of capitalism
Logic tells us that it would be in the interest of capitalists to maintain the livelihood of workers to keep the system going. However, the opposite has happened. Capitalists seek to squeeze more profits out of workers by cutting their benefits and looting their pensions, both private and public. They also want to stop paying taxes to fund things like education, health care, and preservation of the environment, or anything else that does not directly and immediately benefit them. They are cutting production, not only because of decreased demand by workers feeling the pinch of reduced wages and a higher cost of living, but primarily because they are turning toward the financial industry to maximize profits.
In the article, “Financialization: Causes, Inequality Consequences, and Policy Implications,” authors Donald Tomaskovic-Devey and Ken-Hou Lin explain this phenomenon:
Financialization is at its root a system of income redistribution which favors the finance sector over the non-finance sector, financial investments over investments in production, and shareholders and top executives over workers and middle-class citizens. In addition, financialization is a product of regulatory decisions, both decisions to deregulate and encourage the concentration of financial power in a few large institutions and the failure to regulate new financial instruments or strategies. As a result income increasingly is diverted from investment,employment, and production into financial instruments, and the economic surplus of the society pools in the accounts of the owners of financial instruments and financial service firms.
The authors go on to explain that financialization furthers not only income inequality and unemployment but also crises in the banking industry itself. They point to taxation of profits as a way to save their system:
If the solvency of the finance sector is to be insured, some check on their market power should be explored. One solution to this problem is to restructure the incentives and tie the banking sector’s profitability to economy-wide growth. Surplus profits could be taxed and redistributed for long-term investments in infrastructure, human capital, and research and development.
Capitalism has survived contractions and crises throughout history. Something has always happened to pump up business and get things rolling again. While the New Deal of the 1930s helped put some people to work, it was the growth of the aerospace and weapons industries during World War II and its aftermath that bailed out the economy. In the United States, the government has increasingly subsidized corporations, particularly through military-related spending, rather than spending on public infrastructure, which has been left to crumble. And of course, the U.S. has recently engaged in some very costly, and economically unproductive, military adventures abroad.
Capitalism cannot be reformed and must be abolished
One way out of the economic crisis is increased government spending on infrastructure projects. Increased government spending must ultimately mean increased taxation, particularly on the wealthy. This is the program that Ocasio-Cortez and others propose with the “Green New Deal.”
Some capitalists, their politicians and media spokespeople, understand these things. Warren Buffett is not a socialist, and neither are most of the Democratic Party members of Congress. They are calling for increased taxes on the wealthy because they want to save capitalism.
The capitalist class and the working class both require a large and rapid recirculation of income from the few to the many – but for different reasons, and toward different ends. The capitalists need to shore up the financial industry and restore an adequate level of income to the workers so they can get back to making profits. The workers need to provide for themselves and their families, with some measure of security and hope for a better situation in the future. So while we hear the call to “tax the rich” from some of the rich themselves and their spokespeople, we must neither be afraid to echo the same call nor have any illusions that, in the end, we’re calling for the same thing.
The capitalists will strive to keep any redistribution to a bare minimum in both extent and duration, and above all to preserve the understanding that the wealth rightly belongs to the wealthy. The workers will benefit most by a more extensive and structural redistribution, one which imposes not only a steeply graduated income tax, but a tax on wealth. Beyond that, we need to understand that capitalism is a complex system that ensures that *they* control the wealth that *we* produce.
When we say, “Tax the Rich and Their Corporations,” it is to draw attention to this simple fact and to assert our right to control the wealth of society. We seek not merely to reform capitalism, but to abolish it, and replace it with a democratically-run socialist civilization.
Taxing the rich will not bring us socialism, but it is a demand that socialists make while living under capitalism to take care of the needs of our society and secure the future well-being of humanity. Taxing the rich is one way we can take back some of the wealth that rightfully belongs to all of us (because we have produced it) and use it to take care of human needs and desires, and to save the earth from further degradation. This is why we socialists support efforts that call for taxing the rich and their corporations now, while we recognize that in order to implement socialism, we ultimately need to eliminate their control and ownership of all that should be held in common.
In a socialist society, the working class (or all the people when we have achieved a classless society) will cooperatively own and manage the resources and the means of production and distribution. We will use the wealth we have created for our own needs and pleasures and for those of future generations: education, research, care and restoration of our planet, and whatever a society that acts in its own interests finds fruitful.
We have seen that neither the Republican nor Democratic parties will act on behalf of the working class; the only disagreement between them is how best to serve the wealthy. Therefore, we seek to build a viable alternative to the two parties of the bosses. Join our effort by registering to vote in the Peace and Freedom Party and connecting with us on our website PeaceAndFreedom.org, on Twiiter @PeaceAndFreedom or through the Peace and Freedom Party Facebook page.
-- written by Marsha Feinland and Dave Campbell