The New Yorker - That Which is Not Socialism

Contrary to John McCain's feeble attacks, Barack Obama is not a socialist (although it seems Bush has socialized the US banking system), and the The New Yorker explains why he isn't a socialist. The more important topic is that the media enables this rather ignorant and misleading line of attack by the McCain camp. Why is that?

That Which is Not Socialism

I flew to California Monday, on Virgin America, a snappy airline that is so modern and young in its aesthetics that it makes a person of a certain generation feel that he may be culturally unqualified to be a passenger. One of the airline’s selling points, however, is that it allows you to watch live satellite television; I had CNN on without sound while I read and worked, and when I glanced up I saw that the network was running its campaign coverage above a big banner that read, “Share the Wealth? McCain Slams Socialism.”

How did socialism become a notional subject of this Presidential campaign? The use of the term originated with the dubious Joe the Plumber episode, subject of my Comment in the magazine this week. But just to be clear, headline writers of the world: socialism is not language that Obama ever used or even remotely implied in describing the principles of progressive taxation in his (and everyone else’s, including President George W. Bush’s) tax plan.

Instead, socialism is the term that McCain and his campaign advisers have now decided to ride in a last desperate push to regain ground in their campaign—because past Republican-led polling of terms such as “socialized medicine” shows that the language raises hackles and has unusually negative connotations for many Americans. Allowing McCain’s campaign to control headline and media language in this way is analogous to running a banner that reads “Tough on Russia? Obama Slams Nuclear War Threats.” Headline writers would know that such a take would be unfair to the essence of McCain’s statements about Russia; why do they not display the same judgment here?

Obama and McCain disagree about what the top federal-tax rates on individual income, corporate profits, and capital gains should be. The two candidates do not disagree on the principle of progressive taxation—McCain might be sympathetic to a flat tax, but he has not come out for one; presumably, he is influenced by the fact that a progressive system, in which the rich pay proportionately more than the poor, is more popular politically than a flat tax would be. Within the progressive system that they agree on, Obama thinks the top rates should be higher than McCain thinks they should be. In the case of the top federal-income-tax rate, the difference between them is not very large—Obama wants to go up from Bush’s thirty-five per cent top rate to Clinton’s top rate, a little over thirty-nine per cent. This is the change Obama was discussing with Joe Wurzelbacher, the unlicensed contractor who has become known as Joe the Plumber. Obama’s plan means that even for the richest of filers, the difference between his tax system and McCain’s concerns approximately $45,000 in additional taxes for every $1 million wealthy filers earn in income after they reach the highest possible bracket. That’s enough to buy a small B.M.W., yes, but in the great scheme of things, this does not seem to qualify as an argument about socialism.

If it did, then Richard Nixon and Gerald Ford would be Bolsheviks. In 1975, when Gerald Ford was President, the top U.S. federal-income-tax rate was seventy per cent—that’s right, almost twice what it was under Bill Clinton. In Sweden, the top rate in 1975 was eighty-seven per cent; in Britain, eighty-three per cent; in Japan seventy-five per cent; in Australia, sixty-five per cent; and in go-go capitalist Canada, it was forty-seven per cent (it went up to about sixty per cent a few years later.) It is difficult to compare these top rates precisely because state and city taxes in the U.S. can add another ten per cent or more, and the deductibility and income-qualification rules in each country are different—but the top line provides a generally accurate sense of how much income governments in industrialized countries took from their wealthiest filers during the nineteen-seventies: a lot.

The Reagan and Thatcher years did produce a major change in consensus thinking about the politics and economics of top marginal tax rates. The top rates—and all rates—in both America and Britain fell dramatically by the end of the nineteen-eighties. (My colleague Sam Sherraden, using comparative data assembled by economists at the University of Michigan, put together this spreadsheet tracking the evolution—or devolution—of top rates in the G-8 countries since the nineteen-seventies.) This big change in top tax rates was not limited, however, to the Anglo-Saxon economies with traditions of greater individual liberty and more freewheeling markets. It spread gradually across continental Europe and industrialized Asia and the Pacific as global economic competition after the Cold War facilitated the free flow of capital and threatened to punish any country that kept its tax system too far out of alignment with the American-led norm. The consensus also affirmed the potential of lower tax rates, in a balanced and transparent regulatory system, to spur economic innovation and economic growth, just as Reagan and Thatcher had argued. The fierce disagreements about taxation that prevailed when the world really was full of socialists subsided by the mid nineteen-nineties into debates about nuance and technocratic mechanisms—not principle.

So we come back to the essential falsity of this moment in the 2008 campaign. The principle of progressive taxation is agreed between the two candidates. They also agree that, in principle, lower taxes can spur economic growth and innovation. They disagree about which of these two principles should be emphasized over the other at this time of economic crisis and rising income inequality. They also disagree about small fiddles on the tax-rate dial. In historical (and even economic) terms, the differences between them concerning both economic principles and specific tax-rate policies are trivial. To allow the poll-savvy advisers of the McCain camp to make this a debate about “socialism” is to capitulate to their manipulation.

Tags: Barak Obama, George Bush, Joe the Plumber, John McCain, Steve Coll, progressive taxation, socialism, The New Yorker