Playing Chicken with History

If America really is threatened by a growing mountain of debt, shouldn’t the wealthy help out by paying higher taxes? Most voters think so, according to polls, and for good reason. The rich have enjoyed staggering run-ups in their incomes and net worth in recent years, while average Americans have barely treaded water. Yet the effective tax burdens on the wealthy are lower now than at almost any time in the past fifty years, thanks to past rate cuts and a proliferation of tax exemptions which, as Suzanne Mettler makes clear in this issue, shower most of their benefits on the affluent. The idea that the economy will suffer if we modestly raise taxes on upper-income Americans is belied by recent history: we increased tax rates on the rich in 1993 and the economy created more than twenty-two million jobs; we cut them in 2001 and the economy created fewer than seven million jobs. Of course, to put our long-term fiscal house in order, we also need to get control of Medicare spending—which, as Sebastian Jones explains, means not letting Congress kill off a powerful but little-known cost containment board called for in the new health reform law. Other cuts in government and tax hikes that hit the middle class may also be necessary eventually. But wouldn’t Americans be more willing to accept such shared sacrifice if they knew the rich were first in line?

Of course, GOP leaders have refused to even consider tax increases, especially on the rich—or, as conservatives like to call them, the “wealth producers.” The Ryan plan would further cut taxes on the wealthy and pay for them by gutting Medicare benefits. So determined are Republicans to shield the wealthy from taxation that they have been playing a game of chicken with the White House over raising the debt ceiling, at the risk of spooking financial markets, wrecking America’s credit rating, and plunging the economy back into recession.

As it happens, the willingness of the rich to defend their wealth from taxation to the point of national ruin is nothing new in world history, as Francis Fukuyama recounts in his magisterial new book The Origins of Political Order. The Han dynasty in China fell in the third century AD after aristocratic families with government connections became increasingly able to shield their ever-larger land holdings from taxation, which helped precipitate the bloody Yellow Turban peasant revolt. Nearly a millennium and a half later, the great Ming dynasty went into protracted decline in part for similar reasons: unable or unwilling to raise taxes on the landed gentry, the government couldn’t pay its soldiers and was overrun by Manchu invaders.

In the fifteenth century, the Hungarian King Matthias Corvinus persuaded his reluctant nobles to accept higher taxes, with which he built a professional military that beat back the invading Ottomans. But after his death the resentful barons placed a weak foreign prince on the throne and got their taxes cut 70 to 80 percent. When their undisciplined army lost to Suleiman the Magnificent, Hungary lost its independence.

Similarly, the cash-strapped sixteenth-century Spanish monarchy sold municipal and state offices off to wealthy elites rather than raise their taxes—giving them the right to collect public revenues. The elites, in turn, raised taxes on commerce, immiserating peasants and artisans and putting Spain on a path of long-term economic decline. This same practice of exempting the wealthy from taxation and selling them government offices while transferring the tax burden onto the poor reached its apogee in ancien regime France and ended with the guillotine.

By contrast, in England during the same period, the nobility and gentry didn’t conspire with the crown to exempt themselves from taxation. Instead, thanks to a number of factors—greater social solidarity, a keener sense of foreign threats, reforms that made the government itself less corrupt, and the principle of taxation only with the consent of Parliament—the wealthy of England willingly accepted higher taxes on themselves. As a result, government spending in England rose from 11 percent of GDP in the late seventeenth century to 30 percent during some years in the eighteenth century. That’s higher than U.S. federal spending today. These higher taxes on the wealthy in England, Fukuyama notes, “did not, needless to say, stifle the capitalist revolution.”

Higher taxes on the rich won’t stifle America’s economy either. Nor, I think, would most wealthy Americans object to paying more if they truly understood that the fate of the country is on the line. Unfortunately, the GOP may now be too ideologically rigid to see the real interests of its own wealthy constituents. History shows that the rich sometimes make suicidal decisions. The challenge of American democracy right now is to somehow keep ours from doing so.

Paul Glastris

Paul Glastris is the editor in chief of the Washington Monthly.