Oligarchy in the U.S.A

Article excerpt

THE WEALTH DEFENSE INDUSTRY PROTECTS THE RICHEST OF THE RICH

IN 2005, CITIGROUP OFFERED ITS high net-worth clients in the United States a concise statement of the threats they and their money faced.

The report told them they were the leaders of a "plutonomy," an economy driven by the spending of its ultra-rich citizens. "At the heart of plutonomy is income inequality" which is made possible by "capitalist-friendly governments and tax regimes."

The danger, according to Citigroups analysts, is that "personal taxation rates could rise- dividends, capital gains, and inheritance taxes would hurt the plutonomy."

But the ultra-rich already knew that. In fact, even as America's income distribution has skewed to favor the upper classes, the very richest have successfully managed to reduce their overall tax burden. Look no further than Republican presidential contender Mitt Romney, who in 2010 paid 13.9 percent of his $21.6 million income iu taxes that year, the same tax rate as an individual who earned a mere $8,500 to $34,500.

How is that possible? How can a country make so much progress toward equality on other fronts- race, gender, sexual orientation and disability- but run the opposite way in its policy on taxing the rich?

In 2004, the American Political Science Association (APSA) tried to answer that very question. The explanation they came up with viewed the problem as a classic case of democratic participation; While the poor have overwhelming numbers, the wealthy have higher rates of political participation, more advanced skills and greater access to resources and information. In short, APSA said, the wealthy use their social capital to offset their minority status at the ballot box.

But this explanation has one major flaw. Regardless of the Occupy movements rhetoric, most of the growth in the wealth gap has actually gone to a tiny sliver of the i%- one-tenth of it, or even one-one-hundredth.

Even more shockingly, that ? percent of the 1% has shifted its tax burden not to the middle class or poor, but to rich households in the 85th to 99th percentile range. In 2007, the effective income tax rate for the richest 400 Americans was below 17 percent, while the "mass affluent" 1% paid nearly 24 percent. Disparities in Social Security taxes were even greater, with the merely rich paying 12.4 percent of their income, while the super-rich paid only one-one-thousandth of a percent.

It's one thing for the poor to lose the democratic participation game, but APSA has no explanation for why the majority of the upper class - which has no shortage of government- influencing social capital- should fall so far behind the very top earners. (Of course, relative to mido!le- and lower-class earners, they've done just fine.)

For a better explanation, we need to look more closely at the relationship between wealth and political power. I propose an updated theory of "oligarchy," the same lens developed by Plato and Aristotle when they studied the same problem in their own tunes.

A QUICK REVIEW

First, let's review what we think we know about power in America.

We begin with a theory of "democratic pluralism," which posits that democracy is basically a tug-of-war with different interest groups trying to pull government policy toward an outcome. In this framework, the rich are just one group among many competing "special interests."

Of course, ifs hard not to notice that some groups can tug better than others. So in the 19505, social scientists, like C. Wright Mills, author of The Power Elite, developed another theory of "elites"those who wield more pull thanks to factors like education, social networks and etUicity. In this view, wealth is just one of many factors that might help someone become the leader of a major business or gain a government position, thereby joining the elite.

But neither theory explains how the super-rich are turning public policy to their benefit even at the expense of the moderately rich. …