In 1992, a major New York publisher commissioned me to write a book that reflected my take on what was going on in the country. In 1993, I handed over a manuscript of approximately 200 pages titled The Overclass, because that’s what I thought the big problem would be: the emergence of a self-regarding elite whose lack of moral and intellectual distinction was offset by wealth and the political clout that wealth could buy, a materially rapacious plutocracy answerable to no one. The consequences of this latest iteration of a tendency that is integral to the history of this great republic, and probably to its very political-economic character, would be dire, I felt.
The book was never published, which is why every morning, with a heart aflame with hope, I turn to The Times’ death notices in search—to date in vain—of the name of a famous editor. I cannot say whether the book’s publication would have improved my career as a writer, a vocation famously characterized by Gibbon as “short and precarious,” but I can say that most of what was predicted has come to pass. Not that it would have mattered back then: In a culture whose sovereign motto is “Time Is Money,” foresight is simply too expensive to indulge.
That what I had to say was out of step with the temper of those times is indubitable; it was an era notable for the unleashing of personal appetites and damn the torpedoes and the unintended consequences. As I observed to someone the other night, just as Athena was said to have burst from the brow of Zeus, so might anyone with a poetical sense of history assert that George W. Bush sprang from the lips of Monica Lewinsky.
The model for my book was a little-known work, The American Democrat, by James Fenimore Cooper. It was published in 1838, halfway between the publication of the first and second volumes of Tocqueville’s Democracy in America, to which the slender book by the author of The Last of the Mohicans provides a useful, eye-opening gloss. I highly recommend it. It may change the way you see this country.
The prescriptive part of the book dealt with various ways to restore equity to our political economy: to grade the playing field, if you will. Some of my ideas seemed pretty far-fetched, such as “breaking up” Washington by moving various executive departments to other cities (Commerce to Chicago, Agriculture to Omaha, Justice to New York, etc.), leaving Congress, the Supreme Court, and State and Treasury. I thought this might make it harder and more expensive for lobbyists, and also provide local stimulus. Long ago I realized how ominous a sign it was for the nation’s future that its hottest real estate market was in and around Washington.
I had thought long and hard about taxes. At the top of my agenda was a belief in which I have never wavered: that private exploitation of “the Public Capital,” as I called it, must be fairly priced, and that the only way to do that is through taxation. Only this way can the citizenry be recompensed for—among other things—industrial-scale tax breaks, subsidies, bargain financing, legislative corruption and bailouts, the latter by then becoming a regular feature of the financial landscape. The editorial pages of The Wall Street Journal will call this kind of thinking “redistributive,” but I think of it as a matter of simple equity. To paraphrase Balzac (and Mario Puzo), in this country, most great fortunes involve a tax preference or a bought congressman or regulator.
We have now seen for certain what was then only suspected: that cuts in top marginal rates benefit the wealthy more than the economy on a long-term basis (you don’t see the rich firing themselves), and that Milton Friedman, the god of economic inequality, is basically full of crap if what you’re looking for is long-lasting democratic capitalism.
Progressive tax rates only make sense, however, if a cardinal principle is observed: only tax as rich what is rich. Take capital gains. The average small investor is locked in, psychologically as well as financially, by the present capital-gains structure. If I were king, I would shorten the capital-gains holding period to, say, three months, and institute a sliding scale of imposts: 5 percent on the first $100,000, up to 35 percent on gains in excess of $10 million. Treat income the same way, with higher marginal rates (up to a maximum of 50 percent local, state and federal) kicking in at seven digits.
All sorts of good ideas present themselves. By now, it should be apparent that retained earnings are too valuable to be entrusted to management. Dividends ought to be deductible at the corporate level, which would see to it that managements with big spending plans have to go back to their stockholders for financing. A state like New York should shorten its tax-residency threshold to three months: If the Park Avenue crowd likes Palm Beach so much, let them enjoy it in August. Let them decide which they love more: their money or this great city.
While the computer has brought innumerable benefits, one of them seems to me to be a decidedly mixed blessing: Technology has enabled Wall Street to profitably trade ridiculously infinitesimal fractions of money. We need a tax on financial transactions big enough to discourage in-and-out trading that seeks to inflate paper-thin margins through massive leverage. We need to follow the principle of one man, one deduction. If an LBO artist can deduct interest on margin borrowings, let the great unwashed and indebted deduct interest on credit card bills. Money people borrow to exist on should get the same break as money borrowed to do what Jefferson called “legerdemain tricks on paper.”
A system in which news of 600,000 jobs lost produces a 200-point gain in the DJII because the increase in unemployment will accelerate the bank bailout suffers from acute moral disconnect. Maybe life is not supposed to be fair, but we can do better. Bring on the bulldozers!