And once Ronald Reagan took office the campaign against unions was aided and abetted by political support at the highest levels. In particular, Reagan’s suppression of the air traffic controllers’ union was the signal for a broad assault on unions throughout the economy. The rollback of unions, which were once a powerful constraint on inequality, was political in the broadest sense. It was an exercise in the use of power, both within the government and in our society at large.
To understand the Great Divergence, then, we need to understand how it was that movement conservatism became such a powerful factor in American political life.
8 THE POLITICS OF INEQUALITY
For six years, from 1994 to the end of the Clinton administration, a Republican Congress and a Democratic president waged a bitter power struggle. The impeachment drama of 1998 is the event most people remember. But the government shutdown of 1995, which was about matters of state rather than personal behavior, was more revealing. It was openly a fight about different visions of government and society.
The shutdown occurred primarily because Newt Gingrich, the Speaker of the House, was trying to impose a plan that would sharply cut Medicare’s funding[1] and, equally important, give healthy seniors an incentive to drop out of Medicare, undermining both the program’s universality and its financial base. In effect Gingrich wanted to subject Medicare to slow death by strangulation. Gingrich had enough votes to get his plan through Congress, but he didn’t have the votes to override a presidential veto. So he tried to force Clinton’s hand by denying the federal government the funds it needed to keep operating.
Now, a federal shutdown doesn’t literally mean that all federal offices are locked up and closed. About half the federal workforce stayed on the job, and the most essential services were maintained. But the rawness of the event was still remarkable: Republicans were willing to play chicken with the government’s ability to function in their drive to take down one of the pillars of the U.S. welfare state.
As it turned out, Gingrich had misjudged both Clinton and the voters. Clinton held firm. The public blamed Gingrich, not the Clinton administration, for the standoff, and the Republicans eventually backed down. Clinton’s impeachment three years later, which seems otherwise a bizarre event, is best understood as Gingrich’s attempt to take revenge. The 1995 shutdown demonstrated just how partisan American politics had become—and unlike the impeachment the 1995 confrontation showed what the partisanship was really about.
Many figures in both politics and the press suffer from a malady some liberals have taken to calling “Broderism,”[2] which causes them to mourn the passing of bipartisanship but to speak as if the inability of today’s politicians to get along is the result of mysterious character flaws. There’s no question that some of our leading politicians have character flaws in abundance—Clinton had his problems, and Gingrich, who was carrying on his own affair with a subordinate even as he denounced Clinton’s immorality, displayed a combination of grandiosity and hypocrisy rare even among politicians. But policy, not personalities, is the reason politics has become so bitter and partisan.
The great age of bipartisanship wasn’t a reflection of the gentlemanly character of an earlier generation of politicians. Rather, it reflected the subdued nature of political conflict in an era when the parties weren’t that far apart on basic issues. After the 1948 election Republicans decided that the achievements of the New Deal couldn’t be reversed, and stopped trying, while Democrats, who had made a revolution in the thirties and forties, settled down to a program of incremental reform. The result was a generation-long era of muted partisanship. That era ended, and bitter partisanship reemerged, when the Republicans changed their minds a second time. The reason there’s so much hatred between the parties today is that beginning in the 1970s the GOP became, once again, a party defined by its opposition to taxes on the rich and benefits for the poor and middle class, and willing to do whatever it takes to promote that agenda.
Understanding the nature of the partisan divide is one thing; understanding its causes is another. In fact the rightward march of the Republican Party poses two great puzzles: First, why would one of America’s two great political parties launch a crusade to dismantle the welfare state in an era of rapidly rising inequality, an era in which taxing the rich to pay for middle-and lower-class benefits should have become more popular, not less? Second, why has the Republican Party been able to win so many elections, despite its antipopulist economic agenda?
In this chapter I’ll try to resolve the first of these puzzles, reserving the second question for the next chapter. Before I get there, however, let me deal with a common objection: the claim that whatever they may say, the parties aren’t very different in what they do.
During the 2000 campaign Ralph Nader mocked politicians from the two major parties as “Republicrats,” indistinguishable representatives of moneyed interests. Even in that election, when George W. Bush somehow got the press to describe him as a moderate, most Americans disagreed, and at this point the vast majority of Americans view the parties as being very different indeed. Still, how the parties are perceived may not be a good guide to what they actually do. Are they really all that different?
When Nader first became prominent in the sixties, the parties really were as similar as he says. Up to the mid-1970s the parties were hard to distinguish in many ways: John F. Kennedy cut taxes, Richard Nixon raised them, and the votes on major pieces of legislation often involved significant crossing of party lines in both directions. For example, an important part of the support for the 1965 legislation that created Medicare and Medicaid came from Republicans, while significant opposition came from Democrats. In the final House vote, seventy Republicans voted yea, while forty-seven Democrats voted nay. But that was another political era.
To see how much things have changed, consider one easily measurable indicator of partisan differences: tax policy, especially tax policy toward the wealthy. Reagan, Clinton, and George W. Bush each started his administration with a major change in tax policy. Reagan and Bush reduced taxes on the rich; Clinton raised them.
Specifically, Reagan began his term with a sharp reduction in personal income tax rates, and a sharp cut in the effective tax rate on corporate profits. Both of these measures delivered disproportionately large benefits to upper-income households, which paid a much higher income tax rate to start with, and also owned most of the stocks that benefited from lower corporate taxes. By contrast Clinton raised the income tax rate on the highest bracket, while eliminating the upper limit on the Medicare payroll tax—mainly hitting the same elite group that was the prime beneficiary of the Reagan tax cuts. Bush cut taxes twice, in 2001 and 2003, exploiting the brief illusion of success in Iraq to push through the second round of cuts. The first cut sharply reduced the top income tax rate and phased out the estate tax, which falls only on the wealthy, while the second reduced taxes on dividends and capital gains, again mainly benefiting the highest-income Americans.
Table 6 shows the actual effective tax rate paid by the top 1 percent of the population—that is, the percentage of income people in that group (which currently corresponds to incomes of approximately $425,000 a year or more) actually paid in taxes—for selected years. Sure enough, the rich gained a lot under Reagan and Bush II, while losing a lot under Clinton. (In both the Reagan and Clinton years the initial changes in tax policy were eroded over time, as each president had to deal with a Congress controlled by the opposition party, but the point stands.)
| Table 6. Average Federal Tax Rates on the Top 1 Percent | |
|---|---|
| 1980 | 34.6 |
| 1982 | 27.7 |
| 1992 | 30.6 |
| 1994 | 35.8 |
| 2000 | 33.0 |
| 2004 | 31.1 |
1.
At the time Republicans insisted that they were
2.
After the