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Monday, November 05, 2007
A Great Shifting of the Winds
One of the constants of party politics in the United States is that neither major party has a permanently stable constituency. To take some obvious examples, the Southern whites who were voting Democratic in the 1950s do not by and large vote that way anymore, and the blacks who were voting overwhelmingly Republican prior to the New Deal now vote overwhelmingly the other way. The GOP used to be the choice of most voters in New England and along the Pacific Coast; now, both regions are reliably Democratic while other former Democratic strongholds like the South and Midwest are now Republican territory. A corollary to this principle is that party platforms can differ radically over time. It was not all that long ago that the Republican Party sold itself as a party of isolationism and protectionism. Currently, the party is the natural home for free trade advocates and interventionists, positions now derisively lumped under the label “neo-conservatism.” The New Deal coalition built by FDR combined with the radicalism of the 1960’s and 70’s has given us a Democratic party committed to the special interests of minorities, the poor, academic progressives, as well as some sectors of the middle class, particularly union members. The conventional wisdom of the past two or three decades is that the GOP was therefore the party of the affluent, white middle class as well as businesses and the very rich.
Now, that that all appears about to change:
A legislative proposal that was once on the fast track is suddenly dead. The Senate will not consider a plan to extract billions in extra taxes from megamillionaire hedge fund managers.
The decision by Senate majority leader Harry Reid, the Nevada Democrat, surprised many Washington insiders, who saw the plan as appealing to the spirit of class warfare that infuses the Democratic party. Liberal disappointment in Mr Reid was palpable at media outlets such as USA Today, where an editorial chastised: “The Democrats, who control Congress and claim to represent the middle and lower classes, ought to be embarrassed.”
Far from embarrassing, this episode may reflect a dawning Democratic awareness of whom they really represent. For the demographic reality is that, in America, the Democratic party is the new “party of the rich”. More and more Democrats represent areas with a high concentration of wealthy households. Using Internal Revenue Service data, the Heritage Foundation identified two categories of taxpayers - single filers with incomes of more than $100,000 and married filers with incomes of more than $200,000 - and combined them to discern where the wealthiest Americans live and who represents them.
Democrats now control the majority of the nation’s wealthiest congressional jurisdictions. More than half of the wealthiest households are concentrated in the 18 states where Democrats control both Senate seats.
This new political demography holds true in the House of Representatives, where the leadership of each party hails from different worlds. Nancy Pelosi, Democratic leader of the House of Representatives, represents one of America’s wealthiest regions. Her San Francisco district has more than 43,700 high-end households. Fewer than 7,000 households in the western Ohio district of House Republican leader John Boehner enjoy this level of affluence.
Please, do read the whole thing. In my opinion, this article lucidly demonstrates what I would call the most politically important (and seemingly unnoticed) demographic shift of the last 15 years - the movement of the very rich from the Republican column to the Democrat column. There are many reasons for this shift. One is that these individuals tend to be overwhelmingly socially liberal. This is not a recent trend, as urban elites have often been on the “cutting edge” of social “reform” (yes, those are scare quotes), but what is more recent is the emphasis the GOP has placed on social issues. This, however, is far from the only factor. Much more importantly, the affluence produced by the rise of the financial markets seems to have created a situation where for the first time, the rich no longer care how much their incomes are taxed. Much of that can be explained by the fact that income from investments in things like hedge funds is taxed at a lower rate than simple wage income (hence, the Democrats’ recent proposal to raise investment taxes), so the very rich are not as sensitive to a rising income tax as for most of them the majority of their income does not come from their wages. More generally, these individuals may have accumulated such vast quantities of money that they simply are insensitive to future tax increases.
The effects of the movement on our politics could be profound. For one, it is rare that a constituency exists for higher taxes per se. Certainly, the media often claim that polls show the public is willing to pay higher taxes for any given social program, but what those polls in fact indicate is that the public wants to be the beneficiaries of government programs without having to directly pay for it - hence, the popularity among politicians of “hidden” taxes like the sales tax and property tax as well as claiming the program will be paid for “by the rich.” The last time there was a constituency specifically for higher taxes was probably during the New Deal era, and that of course produced the greatest expansion of government this country has ever seen. That such a constituency, limited though it may be, seems to exist now should strike fear into the heart of anyone who believes in small government. Furthermore, this movement will likely have strong reverberations on the platform and agenda of the Democratic Party. Harry Reid’s defeat of the hedge fund taxes is one example, and the Democrat’s idea to fund health care for middle and upper middle classes through a cigarette tax, which would affect mainly the poor, is another. These may be only the beginning as the former example may signal the coming of a somewhat paradoxical situation in which Democrats push for higher income and business taxes, which inevitably snare the middle class, while maintaining or lowering investment taxes to appease their new wealthy constituents.
This paradox, if it should come to pass, creates interesting strategic opportunities for Republicans. We may already have a concrete example of this in the recent Massachusetts special election in which Republican Jim Ogonowski held Democrat Niki Tsongas to 51% in a heavily Democratic district. As Michael Barone notes, Ogonowski campaigned on two major issues: immigration and taxes. Setting aside immigration, a subject which could cover an entire book, Barone points out that the tax issue seems not to have worked for Republicans in some years. The most interesting part, though, is that an anti-tax message did not gain Ogonowski headway with high income voters as one might expect; in fact, he ran slightly behind Bush among these voters. Instead, he gained votes in the suburban districts, which are much more sensitive to tax increases. This would seem to confirm my thesis that high income voters are becoming insensitive to tax rates and presents a troubling problem for the Democrats, as both parties must be competitive among middle class voters in order to win.
All of this suggests that economic populism may be very short-lived in Democratic circles. As the Financial Times article notes above, the Democrats are now much more dependent on large donations from wealthy individuals and organizations than Republicans are, which helps to explain why Democratic fundraising is outpacing Republican fundraising by a wide margin this cycle. Indeed, Hillary Clinton, who among the Democratic candidates receives by far the most such donations, has not signed on to the high-flying populist rhetoric of John Edwards nor paid any attention to his and Obama’s calls for her to abandon funds received from lobbyists and corporations. It also suggests that the current Democratic majority in Congress is resting on a coalition made of members whose interests are fundamentally antagonistic in a way that the social/fiscal conservative divide simply does not match. This coalition seems to be inevitably heading towards an implosion. It will be interesting to watch.
Comments
A most interesting analysis.
By way of anecdotal evidence, I’ve long wondered why a particular friend who has been successful in the free market (having worked hard, persevered, and taken big risks) is so hostile to the free enterprise system. He seems utterly without suspicion or antibodies when it comes to government programs, politicians (Kennedys = sainthood incarnate), and taxes (“pay our fair share like the Europeans). He lives extremely well and I can’t tell you his net worth, but he exhibits the blithe indifference toward taxation and government control of which you speak, seemingly contrary to his “natural” self interest.
I think you have hit the nail on the head.
Posted by Colonel B. Bunny on 11/06/2007 at 03:24 AMCan’t remember where I read it, but it went something like this - “the biggest threat to capitalism is a successful capitalist who’s getting lazy.”
Posted by .(JavaScript must be enabled to view this email address) on 11/06/2007 at 06:39 PMWall Street has been strongly democratic for at least 20 years. The rich do have an interest in preventing others from getting rich—longer lines at Vail, etc. It may make good economic sense.
Perhaps exchanging some income tax for a wealth tax might make sense for Republicans.
Posted by .(JavaScript must be enabled to view this email address) on 11/14/2007 at 02:19 PM
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