How much more equitable can our nation become under President Joe Biden? Maybe more than we might have imagined just a year ago.
“It’s time we address the structural inequalities in our economy that the pandemic has laid bare,” Biden said as he introduced his economic team on December 1.
The new President comes into office with a wellspring of public support for taking on plutocratic privilege. Many of the nation’s wealthiest people haven’t just dodged the coronavirus bullet. They’ve vastly increased their personal fortunes during the crisis—and most Americans know it.
Biden has a mighty “big stick” to swing against corporate profiteering: federal government contracting.
In the nine months after COVID-19 shut down normal life, the collective wealth of 651 U.S. billionaires soared by more than $1 trillion, a 36 percent leap, according to Americans for Tax Fairness and the Institute for Policy Studies. That $1 trillion boost in billionaire fortunes would be enough to underwrite $3,000 stimulus checks for every one of America’s roughly 330 million people.
Meanwhile, the national poverty rate has registered the single largest annual jump in at least the past sixty years, almost double the previous record hike.
Even with Georgia voting to give the Democrats a functional Senate majority, Biden will not have an easy time advancing the bolder planks in his campaign platform. No bill that backs his proposal to tax millionaire capital gains at the same rates as wage income, for instance, has a shot at passing in the 117th Congress. Nor does any move to eliminate the “step-up” loophole that lets heirs to grand fortunes pocket every dollar, untaxed, of the unrealized capital gains they inherit, as Biden has also advocated.
But the first President from the First State could still have a big impact on inequality, starting with tax-law reform.
Most of the income our wealthiest Americans collect—everything from the profits on their wheeling and dealing to the dividends they harvest—faces no automatic withholding. That allows for income-underreporting. In 2020, the Internal Revenue Service will fail to collect an estimated $600 billion in taxes due, with the rich “disproportionately responsible” for this gap, finds a new Tax Notes federal analysis. Unpaid taxes now total more than all the income taxes paid by the bottom 90 percent of American taxpayers.
Under a new administration, the IRS could subject the tax returns of America’s wealthiest people to more careful scrutiny. Over recent years, the opposite has happened. The IRS has essentially stopped auditing the tax returns filed by extraordinarily wealthy people. In 2015, more than one of every three taxpayers with incomes greater than $10 million were audited by the IRS; the audit rate in 2018 was under 7 percent.
The audit rates for business partnerships—the source of the Trump family fortune—run even lower. Between 2015 and 2018, partnership audit rates fell by half, to a miniscule 0.2 percent.
Audits don’t just identify tax cheats, adds Victor Fleischer, a highly regarded tax analyst at the University of California, Irvine School of Law. Audits also help the IRS identify and correct the imprecisions in the tax code that the rich are exploiting to “legally” sidestep their full tax burden.
“These sorts of advances,” observes Fleischer, “can only happen by shifting IRS resources to where the money is.”
The new Biden Administration could do that shifting. According to the Tax Notes analysis, shifting less than $100 billion into the IRS enforcement budget over the next decade would generate up to $1.4 trillion in additional tax revenue, “primarily from high-income individuals.”
Enforcing existing tax laws could, in short, deliver much more than chump change. But it will fall far short of achieving the fundamental redistribution of U.S. wealth we saw in the mid-twentieth century, when tax rates on income above $200,000 ($2.5 million in today’s dollars) ran above 90 percent. The current top rate sits at just 37 percent.
Upping that rate anytime soon may be legislatively next to impossible, but the Biden Administration could focus instead on building an economy that generates less inequality in the first place.
Corporations generate inequality on any number of fronts. They regularly squeeze their workers to enhance their own bottom lines. One example: their refusal to make the investments necessary to maintain safe workplaces. We witnessed that phenomenon most plainly last spring, when giant corporate meatpackers brazenly exposed their workers to deadly COVID-19 outbreaks.
Biden’s Department of Labor could earmark resources for identifying and prosecuting major corporate safety violators. It could also take the same approach to monitoring federal wage and hour laws to prevent the now-chronic wage theft that denies workers an estimated $17 billion a year, just on minimum wage violations alone.
The Trump Administration spent four years undoing collective bargaining rules that give unions a fair shot at gaining a fair share of the wealth they create. The Biden Administration needs to come out swinging against all these moves to tilt the deck against labor’s capacity to organize and mobilize effectively.
Biden also has another mighty “big stick” to swing against corporate profiteering: federal government contracting, a $600 billion-a-year economic sector. His administration could deny contracts to companies that violate worker rights to organize and bargain collectively. It could also, as Max Moran of the Center for Economic and Policy Research’s Revolving Door Project has argued, bar any company that outsources jobs or pays less than a $15-per-hour minimum wage “from doing any business at all with the federal government.”
An even stronger step: The Biden Administration could deny contracts to companies that compensate their top execs at jaw-dropping multiples of what their typical workers earn. In 1965, major American corporate CEOs on average received 21 times the pay of typical workers in their industries. As late as 1989, CEOs were pocketing only 61 times typical worker pay. The 2019 average ratio: 320 times. In 2018, according to Institute for Policy Studies research documents, fifty major U.S. CEOs “earned” more than 1,000 times their median-worker pay.
The United States already denies federal contracts to companies that discriminate by race or gender in their employment practices. We’ve made it clear that we don’t want our tax dollars subsidizing racial and gender inequality. Why should we let our tax dollars subsidize economic inequality?
In 2019, Senator Bernie Sanders, Independent of Vermont, released a Workplace Democracy Plan that included a ban on federal contracts to firms with CEO-worker pay ratios greater than 150 to one, a standard that would exclude the nation’s five biggest defense contractors. In his 2020 presidential campaign, Sanders pledged to honor that commitment, via executive order, if elected.
The Biden Administration might find that denying contracts to firms with huge pay divides is too heavy a lift. A more modest step in this direction would require all contract bidders to reveal their CEO-worker pay ratio—only publicly traded companies must currently do so—and give low-ratio companies preferential treatment in the contract-bidding process.
And any move that elevates the importance of curbing the chasm between executive and worker pay would, in turn, help encourage pay-ratio organizing at the grassroots level. In 2018, Portland, Oregon, became the first jurisdiction in the United States to tax corporations with CEO-worker pay ratios over 100:1 at higher rates. This past November, voters in San Francisco overwhelmingly passed a similar measure.
Other Biden Administration executive actions could also help nurture and stoke grassroots energy. The Securities and Exchange Commission has the statutory power to kill the notorious “carried interest” loophole that lets hedge fund and private equity kingpins sidestep billions in taxes. The SEC could also require companies to set up “performance bonds,” notes Graham Steele, the director of Stanford’s Corporations and Society Initiative, which make their executives personally foot the cost of the fines and penalties that government agencies assess for corporate misbehaviors.
Major chunks of the windfalls that corporate execs pocket come from engaging in endless merger games that leave workers without jobs and consumers without choices. A Justice Department and a Federal Trade Commission so inclined, says Sandeep Vaheesan, a former regulations expert at the Consumer Financial Protection Bureau, could put the kibosh on mergers that only enrich the already rich.
Getting tough on billionaires with steps like these will determine just how much egalitarian progress the Biden Administration ends up achieving. The bolder Biden is, the more pressure he’ll feel from the grassroots to be bolder still.
Back in the New Deal era, Franklin Roosevelt faced constant grassroots pressure. And grassroots activists, in turn, had plenty of allies within the Roosevelt Administration. This inside-outside dynamic gave progressivism a powerful one-two punch throughout the New Deal years.
Today, a similar combo for the Biden years could be in the offing. His economic team includes Bharat Ramamurti, Senator Elizabeth Warren’s lead adviser on economic policy, as deputy director of the National Economic Council, and Joelle Gamble, a senior Roosevelt Institute adviser, as a special assistant to the President for economic policy.
“For almost every role so far,” The Intercept reports, “Biden has chosen someone more progressive and less entrenched in Wall Street than the same official under Obama.”
All we need now is that unrelenting outside pressure.