The appearance of “The Trouble With Billionaires” could not have been more timely. Published in Canada by Penguin Books (Toronto, soft cover edition in 2011, 272 pages), the book is to be released in the USA under the title “Billionaires’ Ball: Gluttony and Hubris in an Age of Epic Inequality” on March 27 by Beacon Press.
It’s as though co-authors Linda McQuaig, a Toronto Star political columnist who has written eight books, and Neil Brooks, professor of tax law at Osgoode Hall Law School, had anticipated the Occupy movement and its odious target—the incredible inequality of wealth and income that is a burgeoning North American scandal.
The authors provide numerous shocking descriptions of the vastness of the wealth concentrated in so few hands. Here’s one example: if Bill Gates started counting his money at the rate of one dollar every second, every hour of every day, he would have to count for 1680 years to complete the task.
One chapter challenges the notion that immense wealth acquisition is the reward for the sheer brilliance and unique efforts of a precious few remarkable individuals. It draws on the works of famous liberals and conservatives like Adam Smith, John Stuart Mill, and Thomas Hobbes to demolish the “great man” theory of history. They argue that the greatest innovations and discoveries, by the likes of Isaac Newton and Joseph Marie Jacquard (inventor of the loom), were built on a pyramid of accumulated human knowledge and that this knowledge is really the inheritance of us all.
The book looks at the adverse affects of gross inequality on human health, social relationships, and democracy. It cites studies that show that a healthier, more politically inclusive society results from a more equal distribution of income and wealth.
The authors compare the era of the Roaring Twenties, leading up to the great stock market crash of 1929, with the years prior to the economic crisis of 2008. The deregulation of banks and provision of huge tax breaks for corporations and the super rich preceded both global crises.
In 1911, U.S. President Howard Taft deregulated the banks in America, allowing them to become involved in the selling of stocks and bonds. Then in the 1920s, Andrew Mellon, serving as Treasury secretary under three presidents, was able to reduce corporate and personal income taxes massively in favour of the rich and powerful. A speculative frenzy hit the stock market, with paper values rocketing far above their real worth. This resulted in the market crash of 1929 and the Great Depression of the 1930s.
Under the New Deal, Franklin D. Roosevelt’s programme to save capitalism—greater regulation, higher marginal tax rates, and government spending—started to pull the U.S. economy out of depression, although World War II played a more decisive role. In 1938 Roosevelt signed the Fair Labour Standards Act. It established a national minimum wage. Workers’ pay rose and union membership grew from 12 percent to 35 percent in 10 years. The Glass Steagall Act of 1933 prohibited a bank holding company from owning other financial companies. (It was repealed in 1999 by the Gramm-Leach- Bliley Act.)
The state interventionism of the Second World War was followed by an era of unprecedented growth in capitalist economies, as well as a much greater sharing of wealth production (to divert workers from the path of revolt). But as the authors point out, “The wealthy interests had never given up resisting the New Deal.” President Ronald Reagan’s crushing of the air traffic controllers’ strike in 1980 signalled a return to blatantly one-sided laws in the interests of the rich and powerful. Through the regimes of Reagan, the Bushes, and Bill Clinton, progressive taxation was rolled back. Washington deregulated businesses and banks.
In Canada a similar trend was afoot. In 1987 Michael Wilson, the finance minister in the Conservative Government of Brian Mulroney, began a major overhaul of the federal tax system to reduce the burden on the country’s richest families. Rules on Family Trusts, set up essentially to avoid taxes, saved Canada’s richest families $7.9 billion between 2000 and 2010. A report from the Senate Banking Committee, chaired by Leo Kolber, lawyer and former CEO of the multi-billionaire Bronfman family’s holding company, persuaded the Liberal Jean Chretien government to reduce the capital gains tax in Canada. This caused a huge loss of federal revenue. Where did it go? We know that 50 percent of capital gains go the richest 1 per cent of the population. During the last two decades, corporate taxes have also been significantly reduced and replaced with higher consumer taxes.
North American tax regimes continued to change so that corporations and wealthy individuals benefited from lower corporate, income, capital gains, and inheritance taxes. The discrepancies of income and wealth even surpassed those of the 1920s. Since industrial profit rates were at an all-time low, surplus wealth was devoted to wild speculation in Mortgage Derivatives and Credit Default Swaps. Speculation facilitated by the deregulation of financial industries hit a wall with the collapse of these Ponzi schemes. The banking crisis of 2008 and the ensuing deep recession continue to this day.
McQuaig and Brooks present a series of reforms to force billionaires to pay more. Higher tax revenues and increased government spending on social programs could reduce the wage and wealth gap that presently bedevils society.
They propose two new tax rates—60% on income over $500,000 and 70% on income over $5 million. Tax loopholes that benefit the rich, like Capital Gains exemptions and business “entertainment” expenses, would be eliminated. A Financial Transaction Tax, also known as the Tobin Tax, should be imposed on all financial transactions. Cooperative and enforceable international measures for a clampdown on tax evasion can be devised. Every time a payment or disbursement is made to an individual or corporation from an off-shore banking haven, a copy of the transaction would be sent to the national jurisdiction of the corporation or individual involved.
Inheritance taxes could be a major source of expenditures to meet human needs. Taxing all inheritances over $1.5 million on a steeply progressive scale up to 70% on inheritances of $50 million dollars, would be a step forward. The authors propose putting this money into an education trust fund to make college and university accessible to all. Finally, governments should strive to change social attitudes towards taxes. The role of taxation in achieving a fair, democratic, and equitable society should be promoted, say the authors.
McQuaig and Brooks have written a very readable and informative book—a valuable resource for critics of the tax system. The progressive tax measures they propose are among the measures that the NDP in Canada, and a future labour party in the U.S., should fight to achieve.
Sadly, the authors suggest that capitalism can be transformed from within by enacting such reforms. This is wrong on many levels. Even the most radical tax reform will not end the alienation of labour, nor break the political power of the super-rich—both of which are rooted in the capitalist mode of production. Keynesian measures and progressive taxes cannot stop the ups and downs of the business cycle, much less permanently entrench social justice.
The authors themselves show how the capitalist class resists taxation, how it uses all the power at its disposal, including control of political parties and the media, to sabotage any move towards social equality. If these measures fail they have other means at their disposal—exorbitant interest rates, wage suppression, and using high levels of government debt, coupled with budgetary deficits, to justify “austerity” policies designed to further rob the working class. And that is to say nothing of resorting to state violence to quell protest!
In terms of Canadian fiscal deficits, the combined federal and provincial shortfalls are about $65 billion annually. Keep in mind that since 1980 the top 1 per cent has increased its share of national income in Canada from 8.1% to 13.3%. That’s a shift of $67 billion. If taxes had stayed at the 1980 level, there would be no deficit nationally.
“The Trouble with Billionaires” explodes many myths. It demolishes the claim that there is a “free market,” the claim that without huge salaries the rich would exert little or no effort (we should be so lucky!), and the contention that there is meaningful democracy under capitalist rule today. The authors deserve credit for that. Nonetheless, a radical critique of capitalism, and of the capitalist state, is needed.
First of all, capitalism is a global system. Its crises are triggered by overproduction (of useless things) and the decline in the average rate of profit (due to the system’s growing reliance on machines, rather than exploitable labour). Under capitalism the ruling powers spend billions to send armed forces around the world to impose regimes amenable to the extraction of natural resources for their home industries at the lowest possible price.
Capitalism despoils the environment and puts the existence of humankind in peril. While workers should fight for a more progressive tax system, taxation alone cannot achieve a just society. Socialists fight for progressive reforms, but aim for the abolition of taxation and the abolition of the class system through collective ownership. The solution for growing inequality and oppression is a planned economy run on the basis of human need, controlled by democratic workers’ governments, and globally coordinated. In a word, socialism.
> The article above was written by John Orrett and Barry Weisleder, and first appeared in the March 2012 print edition of Socialist Action newspaper.