the national interest

Understanding Class Warfare Hysteria

The recent outbreak of hysterics over “class warfare” occasioned by President Obama’s deficit reduction plan from a week ago was a highly revealing event. The super-rich have enjoyed overwhelming prosperity and a rapidly accelerating share of the national income over the last three decades. They also enjoy a position of privilege within the cultural and political elite, which paradoxically rallies around them and has come to see them as a vulnerable minority threatened by populist currents, however faint those may be.

And they are faint, indeed. To understand the hysterical character of the “class warfare” charge, consider the basic lay of the land. Here is a chart showing the share of national income earned by various income groups alongside their share of the tax burden:

Obama’s proposed tax hike would, by limiting deductions, increase the average tax rate paid by households earning between half a million and one million dollars by 2.7 percentage points. Households earning over a million dollars would see their tax rate increase by 5.5 percentage points.

How do you take this state of affairs and portray it as a kind of quasi-Bolshevism? First, you ignore the taxes that burden average Americans most heavily. The income tax is progressive, taxing the rich at higher rates and the poor not at all. On the other hand, payroll taxes, which finance all of Social Security and most of Medicare, levy higher rates on the poor and middle class. And state and local governments tend to employ sales taxes and other levies that are more regressive still. The overall progressive character of the American tax system is quite mild. But if you pretend income taxes are the whole of the tax system, then it can be made to look as if the rich are being oppressed.

Next, you focus on the share of taxes each group pays. Few Americans have a sense of just how large a share of the pie is brought in by the most affluent. For that reason, the share of taxes paid by the rich is likewise surprising.

So put the two together, and you have results like this soundbite:

According to the nonpartisan Tax Foundation, the 1 percent of households with the highest incomes pay 38 percent of federal income taxes. The top 10 percent pay 70 percent of federal income taxes. Meanwhile, 46 percent of households pay no federal income tax at all.

That’s Chris Wallace on last weekend’s Fox News Sunday, but versions of this statistic are uttered almost every day.

It’s important to note that the interminable campaign to persuade Americans that the rich are overtaxed has not succeeded one iota. Raising taxes on the rich remains highly popular. Among voters, raising taxes on the rich unites Democrats, independent voters, and even many Republicans, isolating a small, recalcitrant base of committed right-wingers. At the level of political elites, by contrast, it works just the other way around. Higher taxes for the rich is “class warfare,” a left-wing play for the Democratic base, alienating thoughtful centrists. Proposals like Obama’s deficit reduction plan will be met with gasps of horror, not just from conservatives but from moderate Republicans like David Brooks and even moderate Democrats like Mark Penn.

One explanation for this anomaly is that rich people, obviously, hold a pride of place within the culture of the political elite. Mike Allen, who publishes the bulletin board of the political press corps, today endorses the worldview of the CEOs he “constantly” speaks with. The idea that a writer like Allen would endorse the (not crazy, but certainly self-interested) proposals he constantly hears from union leaders is, of course, unimaginable. Unions are an interest group. CEOs are economic leaders. One of the peculiar sentiments held by the rich is a fine-tuned sensitivity to any rhetoric that suggests they ought to have less privilege. Even the mildest advocacy of moderate fine-tuning of the tax code will produce spasms of complaint that, due to their proximity to the political and journalistic elite, reverberate throughout the political discourse.

Consider this representative grievance from Washington sports franchise owner Ted Leonsis, which is all the more noteworthy because Leonsis voted for and donated to Obama in 2008. In a long blog post, Leonsis protests:

I say this as I read all of the rhetoric about Class Warfare, the rift that is being created between economic middle and lower class and as the President said “those millionaires and billionaires.” …

Economic Success has somehow become the new boogie man; some in the Democratic party are now casting about for enemies and business leaders and anyone who has achieved success in terms of rank or fiscal success is being cast as a bad guy in a black hat. 

Pick some business leaders that you work with and make them heroes. Don’t demonize them. 

It blows my mind when I am asked for money as a donation at the same time I am getting blasted as being a bad guy!

Good and evil? Demonized? What is this man talking about? Obama has not said anything remotely like this. His riff on raising taxes for the rich has always described the Bush tax cuts for the affluent as tax cuts for people “who didn’t ask for them and don’t need them” — which is specifically designed to shield the rich from any blame. His recent “class warfare” speech contains not the slightest hint that the rich are bad, or that taking money from them is a positive thing in and of itself. It simply describes fiscal necessity, and takes pains to reassure the rich with passages like this:

Nobody wants to punish success in America. What’s great about this country is our belief that anyone can make it and everybody should be able to try — the idea that any one of us can open a business or have an idea and make us millionaires or billionaires. This is the land of opportunity. That’s great. All I’m saying is that those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible.

The hypersensitivity of the super-rich, impervious though it may be to facts, is nonetheless a powerful political force. And so we have an economy driving an increasing share of the national income to the rich counterposed with a political system in which a primary consideration is to safeguard the rich from any hurt feelings resulting from proposals to arrest that trend, even slightly. “Class warfare” is the term we have to signify this bizarre state of affairs.

Understanding Class Warfare Hysteria