As America faces rising wealth disparity and stagnant wages, socialism has grown increasingly popular while capitalism is being touted as a tool for inequality and injustice. Well-known political figures such as Bernie Sanders and Alexandria Ocasio-Cortez identify themselves as socialists, and their success on the national stage has propelled over 40 primary wins for other democratic socialists in the 2018 midterm elections. However, the definition of socialism is hotly contested and appears to have shifted dramatically over time. According to recent polls, only 17% of Americans defined socialism as government ownership of the means of production (compared to 50% in 1949) whereas 23% of the population defines socialism as equal standing for everybody, and 10% of the population defining it as government provision of benefits and services. In fact since the 1940s the percentage of people that believed socialism would benefit America has increased from 25% to 43%. While capitalism is still favored amongst the general population, socialism has gained significant traction amongst young adults with 50% reporting favorable views. Additionally, big businesses, corporations and the wealthy in general have become increasingly unfavorable with 54% of young adults viewing them negatively, but why is this?
The rising sentiment against the wealthy likely stems from the apparent infeasibility of class mobility. A college education, once regarded as imperative for a higher salary is depreciating in value, the price of college is increasing 8 times faster than wages, and national student loan debt has reached 1.6 trillion dollars. In fact, America’s middle class has been deteriorating for the past few decades. Brookings finds that despite gains in national income over the past half-century, middle class households have experienced very little income growth in recent decades. Furthermore, America’s wealth inequality has skyrocketed. Brookings furthers that the top 0.1 percent of American’s wealth share increased from 7 percent in 1978 to 22 percent in 2012. Moreover the wages for labor intensive jobs have declined or stagnated. This, to many people, means that reform to our economic system is imperative, and that the government must take responsibility in ensuring the financial well being of its citizens in order to fulfill its duty of providing life, liberty and happiness.
That being said, what are some of the proposed plans to combat wealth inequality and an evidently broken system? Many suggest expanding the social safety net with programs including, medicare for all, free college, cancellation of student and medical debt, housing for all and UBI (universal basic income). However, these programs are obviously huge undertakings and they are estimated to cost upwards of 50 trillion dollars over the next 10 years, so how will they be paid for?
Democratic candidate Andrew Yang proposed a value added tax, which he claims is “a more efficient way of generating revenue with no loopholes.” A value added tax would theoretically tax goods and services at every stage of production and sale. However, the Tax policy center (TPC) finds that the VAT is passed along to consumers via higher prices, and that a VAT (like any consumption tax) does not tax the returns (such as dividends and capital gains) from new capital investment, and income from capital which makes up a larger portion of the total income of high-income households, thus disproportionately affecting low income communities.
Bernie Sanders however, proposed a financial transaction tax, which he claims targets those wall street speculators that caused the financial crisis in 2008. When TPC analyzed Sanders’s FTT plan it concluded that it would generate far less than his supporters claimed. Sanders estimated his tax would raise about $3 trillion over a decade while TPC concluded it would generate only about $400 billion. TPC identified two issues that suggest the FTT would generate less revenue than Sanders claims. First, the larger estimate overstates the dollar amount of derivatives transactions. Second, a tax of the size Sanders proposes likely would change investor behavior. According to TPC a 0.5 percent tax could potentially reduce the volume of equity transactions subject to the tax by 85% meaning the revenue from taxes on capital gains would be severely reduced. Furthermore investors could move to lower-taxed overseas markets or trade less. In fact the EU has attempted to adopt a FTT which they initially predicted would bring in €30 and €35 billion annually. However, The latest estimate based on France’s actual experience with an FTT was just €3.45 billion. While supporters often insist these programs could be easily paid for by only taxing the very wealthy, conservative estimates put taxes on the rich, which include: raising the top individual income tax rates to 70%, doubling the corporate income tax rate from 21% to 42%, increasing estate tax, strengthening minimum tax on foreign earnings, and raising capital gains tax at funding just about 40% of medicare for all (assuming a 30 trillion dollar cost). large shortcomings will likely result in massive increases in deficit spending which will crowd out private investment as government issued bonds flood the market with higher interest rates. In fact the penn wharton budget model finds that one large program, Medicare for all, would shrink the US GDP by 24% by 2060 stating that “the negative effects of larger deficits on labor supply, capital accumulation and GDP would significantly outweigh the benefits from a healthier workforce.” Evidently raising money for these programs has proven to be a formidable task. As Andrew Yang states, “Big companies and rich people are excellent at moving assets around to avoid taxes – Amazon, Google, and other companies funnel hundreds of billions in earnings overseas.”
But are big companies being overly criticized? The phrase “eat the rich” an abbreviation of a saying by Jean Jacques Rousseau, who inspired the leaders of the French Revolution, is making a comeback along with claims that corporations don’t pay their fair share or that corporations don’t provide anything to humanity and their greed prevents them from solving world problems. A popular claim is that “Amazon paid zero in taxes last year” and that they “benefit from the American people, automation, and infrastructure without paying their fair share.” Congresswoman Alexandria Ocasio-Cortez also tweeted “Why should corporations that contribute nothing to the pot be in a position to take billions from the public?”
The initial claim of Amazon not paying federal income tax is actually true. However, this is highly misleading as people pushing this agenda simply omitted information that would make the staggering $0 claim a lot less eye-catching and thus less effective. While Amazon’s U.S. tax filings are not public, Amazon has paid over 2.6 billion dollars in corporate tax and 3.4 billion dollars in tax expense at both the state and international level over the past 3 years. Furthermore the claim that Amazon contributes “nothing to the pot” is fundamentally false. Amazon received tax breaks mainly because of their employee stock compensation. Publicly traded companies can list the stock options granted to employees and if an employee makes over 1 million dollars a year in salary, the profits from the sales of those stocks go towards federal income tax deduction. Additionally Amazon received tax breaks for their Investment in property, research and development, plant and equipment. Not to mention Amazon has made life significantly more convenient for a lot of Americans and has provided a medium for millions of merchants to sell their products hence why they are so successful. There’s a misconception that the people have no say in the economy because of the existence of large corporations. Under a free market system the people make their vote everyday; it's simply done with their money. After all, Amazon was once just a few guys working out of a garage. Another criticism of Amazon is that its CEO Bezos has a networth of over 180 billion dollars and that with that money he could be solving global issues like world hunger or we could just distribute all that money and alleviate millions from poverty. However, although he is wealthy, 95% of Bezos’ net worth is in Amazon stock meaning he can’t just give all his money away without giving up all his shares of Amazon. In fact if he did the stock price would likely plummet meaning that 180 billion figure becomes a lot smaller than at first glance.
Admittedly Amazon has its fair share of controversy and questionable practices, but what about other corporations like Microsoft for example? It’s founder Bill Gates is one of the richest people on the planet, but he is also one of the most influential philanthropists, donating over 45.5 billion dollars to charitable organizations. It’s undeniable that many transnational corporations have provided some sort of convenience or improvement to our lives one way or another, but moving into the future some sort of change appears to be inevitable. America’s rising interest in socialism and anti wealth sentiment means corporations will be persuaded to pursue more charitable causes to win the public over, or the government will crack down and implement regulations. Either way America must decide which path to diverge upon.
United States Securities and Exchange Commission. “Amazon.com, Inc. 10-K” 2018. Myers, Kristin. “Amazon Will Pay $0 in Taxes on $11,200,000,000 in Profit for 2018.” Yahoo Finance. 16 February 2019.
Banerji, Gunjan. “Potential Loser in Tax Overhaul: Executive Stock Options.” The Wall Street Journal. 19 December 2017.
*The author does not claim to represent all the opinions of all the members of the Postpartisan in this essay.