The Anti-Tax Movement

Yale Open Course <Power and Politics in Today's World>

Lecture 7: Shifting Goalposts: The Anti-Tax Movement

Notes

Origin of the anti-tax movement

• Post-Watergate soul-searching and the rise of activist think tanks on the right

  • think tanks to change the ideological terrain that had allowed for the New Deal and Great Society

• California Proposition 13 (June 1978)

  • referendum vote on limiting property tax

  • “government is the problem”

  • starting point of the anti-tax movement

The logic of referendum politics

• The Brexit Paradox

  • 2015 the majority of the Parliament pro-remain

  • 2016 Brexit referendum - 52:48 pro-leave

  • 2017 Parliament more pro-remain than 2015

  • Referendum votes focus only on single issues

    • masks the downstream effect and their relations to other issues

    • Kahneman & Twersky

      • Framing effect: how you frame an issue has a lot to do with what people will say about it

• Anti-tax movement

  • tax cuts as single issue politics

  • became non-negotiable for republicans to support tax cuts

    • GWHB - “no tax increases” → 1991 Gulf War + fiscal crisis: raised taxes → Newt Gingrich: “GWHB = traitor” → GWHB loses to Clinton

  • 1994 Gingrich “Contract with America”

    • manifesto of anti-new deal coalition on taxes

      • every republican to pledge anti-tax

  • 1932 - 1994: Senate mostly under the democrats; afterwards Republican congress

    • 1994 pivot point

Repeal of the Estate Tax (the “death tax”)

• estate tax = most progressive tax that almost no one paid but repealed with bipartisan support

• June 2001 Bush’s <Economic Growth & Tax Relief Reconciliation Act>

  • phasing out estate & gift taxes over a 10 year period

  • income and capital gains tax cuts

  • increased tax credit for children

  • *Reconciliation → didn’t have the senate’s 60 votes → go through budge reconciliation (only need majority in the senate); the changes to be introduced must balance budget over a 10 year period without increasing deficit → CBO refused to do dynamic scoring (scoring assuming economic growth) → bill phased over 10 years

  • banked on the idea that the tax cuts will likely be extended in 2011

  • where did the bipartisan support come from?

    • diverse coalition possible with single issue politics

      • black caucus, gay activists, etc.

    • what was the opposition doing? didn’t take the movement seriously

      • organized labor? too weak to do anything

      • non-profits? not an easy argument to make given they receive donations from the rich

      • insurance industry? republican-dominated industry

      • liberal democrats? split

  • the campaign

    • well organized & resourced

    • smart strategy & leadership

    • good at managing conflicts within the coalition

      • rates vs. threshold?

        • rates affect billionaires, thresholds affect small businesses

      • farmers vs. small businesses

        • farmers could influence the senate

        • small businesses could influence the house

    • How was the coalition held together?

      • ‘total repeal’ the rallying cry

      • moral narrative (ideology)

        • “morally repugnant tax,” “a moral cause”

        • moral argument headed off the splintering

Tax cuts and the Republican coalition

• “the one issue that unites the entire Republican party”

• Tax cuts & race (2nd dimension)

  • tax agenda & racial agenda linked

    • underlying idea: tax money spent on undeserving poor who are probably not white

• tax cuts for all

  • heads off the divide-a-dollar game

How much has the goalpost shifted?

• 2010 Obama administration

  • in recession → tax increase not a good idea, so extended the tax cuts for 2 years till 2012

  • 2012 → Republican Congress, 82% of Bush’s bill kept

    • estate tax:

      • 2010 - repealed

      • 2011 - $5 mil threshold

      • 2019 - $11.4 mil threshold at 40% rate (lower than the starting 55% 2001 rate)

How effective was the anti-tax movement in shrinking the size of the govt?

• not very:

  • ↑ # of govt workers + privatized/contracted out govt sectors

  • per capita spending ↑, deficit ↑

• funding govt with taxes → funding govt with debt

New Democrats, New Labour, and Europe's Social Democrats

Yale Open Course <Power and Politics in Today's World>

Lecture 6: Reorienting the Left: New Democrats, New Labour, and Europe's Social Democrats

The 1990s and the 2000s were marked by the reorienting of the left especially in the UK and the US where it began to shift more to the center and adopt neoliberal policies. The decrease in industrial jobs which led to a decline in union membership weakend the left-of-center parties, leading their leaders such as Tony Blair and Bill Clinton to distance themselves from the left flank of their parties and cater to the center and center-of-right constituents.

Notes

• After Thatcher, Labour Party out of power until Tony Blair

  • Tony Blair: “new constitution for the Labour Party”

    • removed Clause 4: nationalization of the means of production/distributional exchange

  • Bill Clinton @ democratic leadership council

    • similar to New Labour

    • “New Choice” → “personal responsibility to make future America better”

Absolute vs. relative gains

• no win-win situation for relative valuation

  • one of the reasons for neoclasscist’s distaste of relative valuation

• relative gains are often more potent in politics

  • but local reference groups matter more than distant ones

    • source of indivious or solidaristic comparison

      • Solidaristic: vulnerable to the logic of the divide-a-dollar game

    • unions can function as institutional backbone for solidarity of people below median income

Thought experiment:

• Lottery scenario 1:

  • Steve wins $2 mil, but next day gets a call that says there was a second winner and his prize money now is $1 mil

• Lottery scenario 2:

  • Art wins 500K but gets a call the next day that says he’s won $1 mil because there was no second winner

• Who’s unhappier?

  • Steve → loss aversion (similar to endowment effect)

    • it bothers people more to have something taken away than gaining something (Daniel Kahneman)

    • to motivate people to do something, better to talk about avoiding a loss rather than a prospect of gaining something

      • prospect theory

• Problem:

  • unions - becoming less effective → becoming smaller and weaker

    • US membership peak in the 1950s and falling ever since

    • UK peaks in the 80s and declining

  • places where unions are powerful within the left-of-center parties, they will pull away from the median voter

    • ex. UK 80s, South Africa 2000s v. Germany

      • In Germany, agreement by unions applies to non-union workers

        • interest of unions and of all workers better aligned

• Political triangulation

  • left-of-center party (candidate) peeling away from the flank to attract median voters and the other side (esp. true when unions and left-of-center party are weak)

    • ex. Bill Clinton, Tony Blair

    • the flank abandoned, no place to go

Multiparty system

• more representative? yes at the election stage but not at the governing stage?

• more likely to be egalitarian and redistributive? inequality less severe in France and Germany (multiparty states) compared to UK and US

• BUT:

  • unions are declining in these systems

    • because of:

      • globalization of capital (low exit cost for capital)

      • jobs increasingly going to technology

• Implications:

  • ↓ union membership, ↓ union leverage to negotiate

    • left of center parties less effective in protecting workers

    • protecting unionized workers might come at the price of losing below-median income workers, service workers, long-term unemployed

• In multiparty states, the number of parties are going up

  • the major party moves to center → new party takes up the flank

    • greater fragmentation on the left

  • industrial jobs ↓ → left party weaker → new parties to take up the open seats

• party fragmentation makes it difficult to sustain solidaristic ideologies among the below-median voters

  • fragmentation on the left can lead to fragmentation on the right

DIAGRAM

• SPD loses voters → CDU moves to center to pick up new voters → the left and right flanks open for other parties to collect votes

• Proportional representation (PR) system

  • Multiparty system

  • the previously acknowledged benefits of better representation & ↑ equality in qusetion