Americans strongly favor raising taxes on the rich. So why are Democrats struggling to do so?

By David Leonhardt, The NY Times, October 7, 2021

An 80/20 issue

In the late 20th century, the Democratic Party moved to the right on economic policy. Bill Clinton and his allies in Congress cut taxes on investments, deregulated Wall Street and embraced a more corporate-friendly image.

The shift was in part a genuine attempt to be pragmatic about what worked. The United States was faring better than its economic rivals in the 1980s and 1990s, and a market-oriented approach seemed to be a reason.

But the evidence has changed in the early 21st century. Economic growth has been disappointingly slow in the U.S., as has income growth for most families. According to many measures of well-being, the U.S. is faring worse than other high-income countries. Life expectancy here has risen less since 1980 than in Canada, Japan, Australia, Britain, France, Germany and dozens of other countries.
Soaring economic inequality is a central cause of American stagnation, as the economists Anne Case and Angus Deaton have explained.

With more years of evidence now available, the turn toward laissez-faire economics in the late 20th century — including sharp declines in tax rates on the rich — appears mostly to have helped the rich, not the entire country.

In response, many Democrats have tacked back to the left on economic policy, especially on tax rates for the rich. In 2020, Joe Biden campaigned on raising the income tax, the inheritance tax and investment taxes on the wealthy, as well as increasing the corporate tax (which is effectively paid by stockholders, who are disproportionately wealthy).

When Biden took office, the Democratic Party seemed united in its desire to reverse some of the sharp decline in high-end tax rates. Every Democrat in Congress — including Senator Joe Manchin of West Virginia — had voted against Donald Trump’s 2017 tax cut. And polls show that most voters support higher taxes on the rich. About 80 percent of Americans say they are bothered by wealthy people and companies not paying “their fair share” of taxes, according to the Pew Research Center.

Yet, now that Democrats hold the White House and control Congress, they are having a hard time raising taxes on the wealthy.
House and Senate Democrats are shrinking Biden’s proposed tax increases, and the party still does not have a consensus on what a final bill should include. The tax plan will probably end up closer to a proposal from Manchin than Biden’s campaign platform.

I asked Gabriel Zucman, an economist at the University of California, Berkeley, to estimate the effects of both Manchin’s and Biden’s proposals, and the results are telling:

Rates include income, estate, corporate, investment and other taxes.

Source: Gabriel Zucman of the University of California, Berkeley

Sincerity, not corruption

Why are Democrats struggling to enact an overwhelmingly popular tax increase?

The answer from some frustrated progressives is that centrist Democrats like Manchin have been bought off by the wealthy and their lobbyists. And money does matter in politics. But campaign donations are at best a partial explanation.

It’s worth remembering that left-leaning Democrats today are often better funded than moderates, thanks to a large network of progressive donors. Just look at the fund-raising success of Senators Bernie Sanders and Elizabeth Warren, both of whom favor bigger tax increases than Biden. If Manchin and Kyrsten Sinema of Arizona — the Senate Democrat most skeptical of tax increases — embraced Biden’s agenda, they would have no trouble raising money.

A more plausible explanation than campaign donations, Matthew Yglesias of Substack argues, is that Manchin and Sinema sincerely favor lower taxes on the rich than Biden does. Manchin, in particular, often looks for high-profile ways to signal that he is not as liberal as most Democrats. For much of his career, skepticism about high-end tax increases has been an obvious way to do so. He and Sinema are where most Democrats were only a couple of decades ago — part of what Paul Krugman, the economist and Times Opinion columnist, calls the party’s corporate wing.

Yglesias puts it this way: “Sinema isn’t blocking popular progressive ideas because she’s getting corporate money; she’s getting corporate money because she’s blocking popular progressive ideas, and businesses want their key ally to succeed and prosper.”

Win more votes

In 2021, the Democratic Party’s corporate wing has shrunk so much that it represents only a small share of the party’s elected officials in Washington. Arguably, the group does not include many more than Manchin, Sinema and a handful of House members like Josh Gottheimer of New Jersey. But it doesn’t need to be large to be decisive. The Democrats’ current margin in Congress is so narrow that the party cannot pass legislation without near-unanimous agreement.

If Democrats want to enact larger tax increases on the rich — and help pay for expansions of pre-K, college, health care, paid leave, clean energy programs and more — the path to doing so is straightforward: The party needs to win more elections than it did last year.

That isn’t easy, of course. In many conservative and moderate parts of the country, most voters agree with the Democratic Party’s call for high-end tax increases, but have enough other disagreements with the party that they still often vote Republican. And elected Republicans remain almost unanimously in favor of historically low taxes on the wealthy.

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