We are familiar with globalization forces and technology, especially automation technology, which are adversely impacting the American workforce and at the same time enriching the corporations and top 1% elites. The globalization is moving the well-paying manufacturing jobs to third world countries with cheap labor while automation technology is helping to reduce the need for the workforce. Apart from these forces, there are progressive economic principles, namely progressive taxation and essential regulations, which helped over decades to build a progressive, prosper and equitable society, are also being undermined and having a similar impact of moving wealth from public at large to wealthy few. Globalization and technology have been widely discussed, but progressive taxation and regulations which were core principles of progressive agenda since 1890 to build a strong workforce, vibrant middle class and unrivaled infrastructure, has not received its due attention. Election of Ronald Reagan reversed the course of progressive agenda and an era of unrelenting lower taxes and deregulation began giving free hand to corporations at the expense of society at large. The current economic prosperity for the few at the expense of the rest, is not sustainable and has the seeds of self-destruction.
Before 1890, an era of no regulations and very low taxes, liability law suits were handled by private litigation (litigation between two private parties/individuals). Courts ruled on corporate liabilities in industrial accidents, anti-trust cases, rail-road accidents, food and water safety. As private individuals did not have much resources, they could not compete with resourceful corporations. Most of the judges were in the pocket of corporations and very little damages, if any, were awarded to the victims of the industrial accidents. Railroads would pass through fields killing livestock and burning houses with little regard for the others. The living conditions in major cities were unbearable and safety of food was not assured.
Many intellectuals of Progressive Era (1890-1920) were influenced by the 18th Century Enlightenment Age intellectuals and French Revolutionaries. President Woodrow Wilson (Term 1913-1921) was especially influenced by German philosopher Hegel. Hegel believed that in a civil society, individuals have definite rights and freedom to achieve goals, however, individuals cannot achieve their goals without relations to other people. In other words, individual rights and success comes along with obligations to society and citizenry.
The progressive leaders were guided by above reasoning and in order to achieve it, they utilized two major tools, Regulatory Agencies and Progressive Taxation, to check on the excesses of Corporations and fund the infrastructure and other public projects. The failure of private litigation to address the social ills of the society led to the creation of regulatory agencies which would be run by neutral experts in the field and would be economically efficient and fair as compared to private litigation.
To illustrate the concept, take the example of Chemicals Production Corporation. It uses society’s infrastructure and resources to run its business and should pay back in taxes to maintain the infrastructure and help build new one to accommodate new businesses. The government needs regulatory agencies to regulate and monitor the activities of the chemical corporation so that it does not pollute community’s water resources and environment.
During Progressive Era, Federal Railroad Commission, Pure Food and Drug Act, and Workers Compensation Board agencies were created, and it continued during FDR’s New Deal and Lyndon Johnson’s Great Society. During progressive era the corporation tax rate was almost zero, individual top tax rate was 7%. President Woodrow Wilson increased Corporation tax rate to 10%, and top individual tax rate to 73%. Throughout the decades since progressive era, Corporation tax rates and individual top rates stayed high (corporation as high as 50% and individual tax top rate 93%) and many more regulatory agencies were created, such as Federal Reserve Bank, Federal National Relations Board, Food and Drug Administration, Federal Trade Commission, Securities and Exchange Commission, Consumer Protection Agency, Environmental Protection Agency and many more.
Conservatives have been opposing all along progressive higher taxes and regulatory agencies on philosophical and constitutional grounds. They got their wish with the election of Ronald Reagan in 1980; whose core agenda was deregulation and lower taxes-undermining both pillars of progressive’s agenda. Republican Party has internalized Ronald Reagan’s these two goals and even some democratic leaders (Bill Clinton) adopted it. Lower taxes and deregulation have become a mainstream concept now. Trump has further cut down taxes and appointed heads of Regulatory Agencies who want to either dismantle them or make them ineffective. It gives free hand to corporations and has mainly benefited the top 1%. It has led to economic prosperity mostly limited to top 1%, as it was before the progressive era. In pre-progressive era, top 1% share of total US income was 20%, in pursuing decades of high progressive taxes and regulatory era, it gradually come down to about 8.9% in 1980, when Ronald Reagan got elected. Since then it has climbed back up again to 22%. The budget deficits have been around zero in pre-Reagan period but has exponentially increased since Reaganomics (see graphs). The GDP growth has been fluctuating but on average has been around 3% during all periods. Higher progressive taxes and regulations did not have any adverse impact on the GDP growth. It does not seem that high taxes and regulations adversely impact the GDP growth, on the contrary GDP growth has been mostly higher during democratic administrations as compared to Republicans.
Conservatives are battling for a regulation-free society on constitutional front also. Under the constitution, only legislative branch is authorized to make laws. Conservatives and constitutional originalists argue that regulations (laws) issued by regulatory agencies is unconstitutional as they are not made by congress, as required by constitution. As regulatory agencies also enforce the regulations and administrative judges also hear violation cases, the conservatives argue that the agencies violate separation of powers by making laws, enforcing them and adjudicating them under same agency. So far, the supreme court has ruled regulatory agencies constitutional, but it is being challenged again, and with majority conservative justices on the supreme court, the conservatives may get their wish.
Lower taxes and deregulation to attract businesses is the race to the bottom and has spread to other countries. Corporations are demanding big tax cuts and tax credits to locate in your area. It is not sustainable, and it is self-destructive. It concentrates the wealth and power in the wealthy few, does not increase growth, cripples the middle class and eats away the badly needed funds to build and maintain the deteriorating infrastructure.
Graphs below;
US Berkley
Top Tax Rate Individual
1913 7 %
1918 67%
1940 81%
1954 92%
1974 74%
1987 38.5 %
1990 28%
2013 39.6 %
2019 37%