Progressives’ Tall Poppy Syndrome
Congresswoman Alexandria Ocasio-Cortez’s proposal to tax incomes over $10 million at 70 percent sparked a debate in which most commentators, left and right, largely missed the point. The case for or against “soaking the rich” has little to do with simple models of optimal tax policy or what taxes prevailed under Eisenhower. Rather, the proposal is a symbolic attack on the legitimacy of wealth accumulation itself.
Wealth is a four letter word for today’s “democratic socialist” left. Just last month, the conservative Daily Caller exposed a D.C.-area man who used pseudonyms to organize Antifa demonstrations and promote political violence online while working as a Democratic Party organizer. As one of his surfaced tweets read, “No capitalist got wealth honestly. Kill the rich.” More revealing was who leapt to the self-described communist’s defense: Sean McElwee, the influential socialist organizer known for the Abolish ICE campaign and for helping Ocasio-Cortez flesh out her “Green New Deal.”
Ocasio-Cortez’s tax proposal is cut from the same ideological cloth. Its goal is not about tax-fairness or raising revenue efficiently (which it fails at on both counts). Its goal is to popularize a strict egalitarian view of wealth accumulation as prima facie evidence of personal corruption. If that view catches on, it would represent a major setback in the public’s understanding of the differences, both normative and economic, between productively acquired wealth and rent seeking.
Against Cultures of Conformity
“Sweden Has a 70% Tax Rate and It’s Just Fine” reads a representative headline in defense of the Ocasio-Cortez proposal, in this case from socialist writer Matt Bruenig. As Bruenig notes, Swedes face a 70 percent tax on labor compensation above $98,000, have high rates of income mobility, and yet the sky has not fallen.
Yet it’s unlikely that the United States would adopt such high taxes without also adopting certain cultural antecedents. America’s mid-century experience with high marginal tax rates, for example, occurred during an aberrant period of unusually strong social conformity thanks first to the Great Depression and World War II, and later to the binding powers of mass media and the Cold War. With the countercultural rebellions of the 1960s and 70s, followed by the Reagan Revolution of the 1980s, the left and right eventually reverted back to America’s historically more individualistic ethos of self-expression and entrepreneurship.
In Scandinavia, the dominant conformist zeitgeist is called the Law of Jante, a reference to a fictional Danish town that enforces being ordinary in every possible way. “Tall poppy syndrome” is perhaps the closest concept in American vernacular, although it doesn’t do the oppressiveness of Scandinavia’s egalitarian milieu justice. Excessive ambition is frowned upon while non-conformists are treated with suspicion, as illustrated by the expression, “You are not to think you’re better than us.”
Nearly a quarter of Scandinavia’s population migrated to America and Western Europe during the 19th century, presumably in pursuit of a life less bounded from the top. The resulting selection effect deepened Sweden’s cultural homogeneity and America’s individualism simultaneously. To this day, the Swedish districts with the greatest historical emigration have fewer people born with unique first names. As business journalist Matthew Klein put it, “Scandinavian social democracy might not be possible without America’s historic willingness to absorb those who refused to follow the ‘Law of Jante’.”
How Income Equality Creates Dynastic Wealth
Sweden’s strict egalitarian commitment to income equality comes at a cost: levels of wealth inequality that remain notably higher than in the United States. The reason goes back to high marginal tax rates. As a hereditary monarchy, Sweden still has a formal nobility with protected titles and dynastic wealth. While high marginal taxes soaked the top 0.1 percent, they have essentially crystallized the nobility’s privileged position by making it hard for outsiders to displace them by accumulating wealth from scratch. This can be seen in the remarkable stability of Swedish wealth shares in the 90-99 percentiles throughout the 20th century. But even this overstates the degree to which Sweden’s rich are “soaked.” Once foreign-held assets are taken into account, Sweden’s richest one percent own roughly the same share of total national wealth as the one percent in the United States, but with even more billionaires per-capita.
Sweden’s dynastic economy turns up in measures of intergenerational transfer of wealth. As one study found using a large dataset of matched father-son pairs, “at the extreme top (top 0.1%) income transmission is remarkable with an intergenerational elasticity of approximately 0.9 … Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society in which transmission remains strong at the very top of the distribution and wealth is the most likely channel.”
The biggest difference between the rich in the U.S. and Sweden is thus their rate of turnover. According to IRS data, 4,474 unique people had turns with the top 400 highest taxpayers in America between 1992 and 2013, yet 72 percent appeared only once. Indeed, people move in and out of top income percentiles all the time here, with the average American having an 11 percent chance of being in the top one percent of earners, and a 56 percent chance at being in the top 10 percent of earners, for at least one year of their working life.
Focus on Dream Hoarders, Not the Top 0.1%
The focus on the super-rich is a red-herring. To the extent that the American economy is genuinely and unfairly captured, be it through special tax advantages, zoning restrictions, or elite education tracks, the blame lies with what Richard Reeves of the Brookings Institution calls “Dream Hoarders.” Some Dream Hoarders are in the top 0.1%, to be sure, but their ranks extend throughout the upper middle class. In his book by the same name, Reeves opens with the story of Obama’s aborted attempt to scale back tax breaks for “529” college-savings plans. Despite the role of the tax break in perpetuating social inequality, the most effective opposition largely came high earners from within the President’s own party.
As conservative columnist Reihan Salam wrote at the time,
We often hear about the political muscle of the ultrarich. Billionaires like the libertarians Charles and David Koch and Tom Steyer, the California environmentalist who’s been waging a one-man jihad against the Keystone XL pipeline, have become bogeymen for the left and right respectively. The influence of these machers is considerable, no doubt. Yet the upper middle class collectively wields far more influence. These are households with enough money to make modest political contributions, enough time to email their elected officials and to sign petitions, and enough influence to sway their neighbors. Upper-middle-class Americans vote at substantially higher rates than those less well-off, and though their turnout levels aren’t quite as high as those even richer than they are, there are far more upper-middle-class people than there are rich people. One can easily turn the Kochs or the Steyers of the world into a big fat political target. It’s harder to do the same to the lawyers, doctors, and management consultants who populate the tonier precincts of our cities and suburbs.
The exact same dynamic was seen more recently in progressives’ reaction to the cap imposed on the State and Local Tax (SALT) deduction by the Tax Cuts and Jobs Act. While many families claim a SALT deduction, the vast majority of its benefits go to upper-income households in rich states. Yet in an egregious case of doublespeak, Silicon Valley’s representative Anna G. Eshoo called the move “an assault on the middle class” because it cost 200,000 of her constituents an average of $30,000 in lost deductions. Of course, no one who deducts $30,000 a year in state taxes is anything close to middle class.
The awkward fact is that many (although of course not all) of America’s worst Dream Hoarders are passionate progressive voters and donors. As the political scientist Lee Drutman observed in the run-up to the 2016 election, 2012 marked the first year the richest 4 percent of Americans favored the Democratic candidate over the Republican since 1964. The trend has largely continued, reflecting Democrats’ inroads with the college-educated combined with the wealth effect of rising property values in big, progressive cities.
Egalitarianism: Strict vs. Liberal
Progressives’ cheers for Ocasio-Cortez’s tax on the super-rich, combined with progressives’ consternation about taxes on the upper-middle class, nicely illustrates the distinction between two conceptions of equality. The first view is what I’ve called strict egalitarianism. It refers to the notion that large wealth and income disparities are per se unjustifiable, and thus calls for high taxes and redistribution in order to render outcomes more equal. One might also call this the “leveling down” view of equality.
The second view, what one might call liberal or “competitive” egalitarianism, puts more concern on preventing the development of groups with special types of status or privilege, like castes or aristocracies. In this view, how wealth is created and transferred matters much more than whether some individuals happen to have more than others. Liberal theories of distributive justice thus focus on what philosophers call the “cooperative-surplus” of a society, redistributing the private benefits of wealth creation in order to keep the social system positive-sum and thus secure cooperation across its members. Wealth acquired through real estate appreciation, for example, is treated much differently than wealth acquired through productive entrepreneurship, both because such wealth represents a form of zero-sum rent seeking, and because it can easily lead to the creation of status divisions in society that are difficult to disrupt.
In short, Ocasio-Cortez’s focus on soaking the small number of Americans who make more than $10 million in a year has earned her socialist bona fides while ironically sparing — if not threatening to entrench — the closest thing America has an to emerging nobility. That’s not radical. Far from it. It’s conformism to the most mundane progressive politics imaginable.
Samuel Hammond (@hamandcheese) is the Director of Poverty and Welfare Policy at the Niskanen Center.