Self-dealing in the tax code is just another form of disenfranchisement

Money != merit

I have come to believe that if you let politicians be ruled by money, then money - not merit - will determine the content of the legislation passed by politicians as law. If you want a meritocracy, letting politicians take money for legislative favors is not the path to get there. The state of political affairs in America makes this plain to see. The rule of money has run its course in politics to the point now that we can clearly see self-dealing for the finance industry in our tax code.

Bloomberg, a financial industry journal if there ever was one, has finally put a mirror before the face of the financial industry. They have posted a very interesting article to show that American workers pay twice as much in taxes as investors. Those investors are for the most part, the financial industry, some 20% of GDP at the height of the housing bubble, a sector of the economy that is far bigger in America than in any other industrialized country.

It is interesting to note just how different the Great Recession is from the Great Depression. Where the financial industry was humbled and emaciated after the Great Depression, the financial industry is roaring back from the Great Recession. From the New York Times:

The industry’s recovery is strong and broad enough to suggest that the great financial crisis of the early 21st century will have an effect different from that of its 20th-century counterpart. In the aftermath of the Great Depression, the nation’s finance industry shrank severely — and remained in a humbled state for most of the next four decades. The economy boomed in this period, with no major financial crises and less income inequality than in recent decades.

Once you get a taste of self-dealing, there is never enough

Both the Great Depression and the Great Recession were caused in large part by the financial industry. These guys just can't get enough now, can they? Who could forget that as big investment banks were being bailed out after the collapse of the housing bubble, that bonuses were going out to the "top performers"? Who could forget how millions of people lost their homes and their retirement in the collapse of the housing bubble of 2008? I didn't forget.

Of those captains of finance, who among them are so proud to note that most people approaching retirement have an average of $15,000 tucked away for their golden years? That is the nugget buried in the Bloomberg article I speak of. It is truly a wonder to read. For it tells us exactly where the legislative priorities of the top 0.02% can be found, and for us, the average American, we're not among them.

What Bloomberg has shown us is that the tax code was not written with the average American in mind. Well, if it was, the tax code wasn't the high point for the middle class in the last 30 years. Sure, they pass as reasonable, the idea that labor should be taxed at a higher rate because young men will work regardless of the tax rate, and that when they retire, taxes on their deferred income should be lower. But even the mightiest of all investors, Warren Buffet, disagrees with that reasoning, and has argued for higher taxes on the wealthy investor class.

You need bubbles to buy low and sell high

I have seen some in social media that have argued that every economic boom has been preceded by wonderfully generous tax cuts. But few of them are willing to admit that the greatest sustained economic boom in American history occurred when the marginal tax rates were as high as 90% with Republican Dwight Eisenhower as president. During that time, wages grew right alongside investment income. Everyone prospered. But since about 1978, some of the wealthiest among us decided that the old tax code wasn't fair.

The tax code such as it is now, has decidedly put the financial industry into the drivers seat. But as any investor knows, the trick is to buy low and sell high. They must have asked themselves, "How do we make this thing go up and down so that we can derive income just buying low and selling high?" I believe that there is an answer: they gave us the bubble economy.

During the time between 1942 and 1978, the economy was fairly absent of wild fluctuations in the market. The economy grew steadily without large bubbles to collapse and their massive concurrent wealth transfers from the middle class to the investor class. During the post-war boom years, the income of the middle class grew with the investor class.

Big money in politics is just a nice name for disenfranchisement

Since 1986, money has had a much bigger role in politics. The political class figured out that it's easier to appease a few very wealthy donors than to try to please millions of small donors to give to their campaigns. Through legislation and the courts (just think of a long trail of rulings like "Citizens United"), the wealthy got their way: they can use their money to buy the laws they want. There is ample evidence of this fact from the largest empirical study of the influence of money in politics that I'm aware of: Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, by Martin Gilens and Benjamin I. Page. Here is the summary of that study:

Each of four theoretical traditions in the study of American politics—which can be characterized as theories of Majoritarian Electoral Democracy, Economic-Elite Domination, and two types of interest-group pluralism, Majoritarian Pluralism and Biased Pluralism—offers different predictions about which sets of actors have how much influence over public policy: average citizens; economic elites; and organized interest groups, mass-based or business-oriented.

A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.

Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism. (emphasis mine)

In other words, unless you have real money, you have no real influence upon the legislative bodies that decide the collective fate of our nation. There's a really nice word for that: disenfranchisement. When I think of disenfranchisement, I think of slaves. Wouldn't that make the very wealthiest among us slave owners? To put this in perspective, is it even possible to name a billionaire that is not dependent upon a government subsidy for his wealth, paid for by someone else's labor?

Self-dealing in a nutshell

I know. That seems depressing, doesn't it? Who cares to know or even consider the possibility that those with the most money would rather not let anyone else have a say in legislative matters as they are considered in the halls of power? Well, I think that "disenfranchisement" accurately describes the power of big money in politics.

I have a representative in Congress, well, I have 3. But they don't listen to me because I have not enough money to be worthy of consideration. I know this because they respond to my letters with irrelevant platitudes about how great the American Way is.

But if I'm a big spender, I can make direct campaign contributions, I can finance fancy trips to Panama so my representatives can check on their own tax shelter, and I can make generous donations to their SuperPAC knowing full well that coordination between their SuperPAC and my Congressperson's campaigns are notoriously difficult to prosecute. Why, with a big pile of money, I can buy the laws I want without regard to anyone else. I can buy laws that send more money to me, my family and my friends. How productive is that?

That is self dealing in a nutshell. Take the big money out of politics and suddenly, the merits of a piece of legislation become more relevant in the head of a Congressperson. Institute citizen funded elections and anti-corruption laws with real teeth that can send a sobering message to legislators and suddenly, those wealthy donors have less influence in consideration of the risk of spending those golden years in prison. There is a proposal written by law professor Larry Lessig just for that purpose: The Citizen Equality Act. You can learn more about that act here: mayday.us. Lessig has a great TEDtalk on the subject of modern disenfranchisement here.

Self-dealing is devolution

There is another element to self-dealing which might not have been considered so far, at least, not as far as I know. There is an evolutionary aspect to self-dealing. Self-dealing can lead to trust fund babies and that means that self-dealing has an influence on human evolution. It's great to know that you can skim off the top of the working class during salad days, but when those salad days come to pause, and they always do, the man with the most money sticks out like s sore thumb. He begins to look a lot like a turkey to a hoard of some very hungry people.

Devoting time and energy to influencing government to work for your benefit at the expense of everyone else is counter productive. If everyone else is working under an arrangement assumed to be mutually beneficial, when those workers find themselves in between salad days with no money, and you're the one with the money, you're not going to have the skills to produce justification for the power you wield. You can't expect everyone to be working as temps for you while you vacation in the Swiss Alps, and still be praised. All you can really say is that you've produced nothing but division within society. Power always requires justification from those who hold it. This is the problem with self-dealing. There is simply no justification for it.

From an evolutionary standpoint, self-dealing will eventually lead to extinction. Even if the self-dealers should somehow manage to succeed in accumulating most of the wealth, it doesn't mean squat without the rest of us. Self-dealers produce very little in the way of additional wealth because, by definition, everyone else is doing all the work.

Self-dealers, left to their own devices, will only create debts for themselves and find ways to make other people pay for those debts. I offer as evidence the following question: Do you think we'd have a national debt if members of the investor class, legendary self-dealers in their own right, had to pay for those debts with their own labor? I think not.

But when self-dealers are taken to task for and required to pay down the debts they create, but without someone else's labor, I think we can be fairly certain that large government debts may very well be considered not such a great idea. As a practical matter, the enormous federal debt is function of public policy, created by the people with the greatest influence in public policy decisions: the top 0.02% (as discovered by Lessig in the same TEDtalk referenced above). Who else are they going to blame? The same disenfranchised people who lack the money to exert any real influence in public policy? I don't think so.