In last week’s State of the Union address, President Barack Obama came across as the ultimate class warrior. His domestic agenda consists of more spending on roads and infrastructure, new entitlement programs for community college and preschool, and tax preferences targeted to low- and middle-income earners. All of this he would pay for with new inheritance taxes on the wealthy, a hike in the capital gains tax, and a special levy on the biggest financial institutions.
But don’t be fooled. Obama may seem like the newest member of Occupy Wall Street—chanting “We are the 99 percent!”—but his record shows him to be a corporate liberal, and a closer look at last week’s proposals confirms it.
The corporate liberal offers the following deal: In exchange for greater authority—to tax, to regulate, to distribute—government will dispense benefits to the top and bottom of society. The poor will receive more generous social welfare benefits; the wealthy will be granted special provisions, exemptions, and benefits. Often those at the top get to reap a private profit for distributing benefits on the government’s behalf.
Obamacare is a perfect illustration. The government subsidizes health insurance, but it does so through private companies, which are not forced to participate. Instead, insurers agree to get involved because they believe it will make them better off. The government implicitly guarantees that insurers will profit in the individual marketplace.
Far from being a flaw in corporate liberalism, this is its dominant feature: The welfare state is expanded, and powerful corporate interests are drawn into a web of client-patron relationships. The more interests are drawn in, the more our Madisonian system resists reform, and the more ensconced in power corporate liberalism becomes.
This approach is very old and far from exclusive to the Democratic party. Perhaps its earliest large-scale incarnation was the War Industries Board during World War I. Later, corporate liberalism undergirded New Deal labor and agricultural policies. Today, the logroll that links food stamps to corporate-friendly farm subsidies supported by both parties is an instance of corporate liberalism. So is Medicare, another bipartisan program. Medical service providers don’t have to participate, but when they do they are barely regulated, and the government is effectively on the hook for provider profits.
Corporate liberalism is generally unpopular. Americans do not like the idea of Uncle Sam guaranteeing the status of private interests. So corporate liberals go to great lengths to distract voters from discerning the actual nature of the regime. Again, consider Obamacare: Its supporters regularly and viciously attacked insurance companies during the debate over the bill in Congress, even as the government was establishing a backstop for insurer profits.
Similarly, corporate liberals, at least the Democratic variety, can sound like down-on-the-farm populists when they talk about the top marginal tax rate for individuals. But for those at the apex of the economic pyramid, the cost of “paying their fair share” is a pittance compared with the windfalls they can reap from favorable regulations, tax preferences, and redistributive schemes.
This sleight of hand—essential to the corporate liberal’s public persona—was on display in the State of the Union. Obama talked like a populist about taxes, but note his timing. He is calling for massive new taxes on top individual earners from the most Republican Congress in generations—which will reject his proposals. Why not have asked for this in 2009 or 2010, when Democrats were in charge and such measures probably could have been enacted? And his plan to sock it to Wall Street—why now? The perfect vehicle was the Dodd-Frank bill, which Congress passed in July 2010, when Democrats had outsized majorities. Now Obama faces the most Republican Congress in 80 years.
Yet the president’s rhetoric was not empty. It served a purpose. By presenting a tax package with no chance of passage, Obama undermines the slim hope that this Congress will enact real tax reform. He may claim that he is committed to fairness, but his publicity stunt last week probably ensured that our deeply unfair corporate tax code will remain intact for at least two years. The sectors of corporate America that spend through the nose on lobbyists to protect their tax benefits must have been delighted.
The president’s ceaseless talk about fairness actually serves to obscure the fact that there are two types of tax fairness—vertical and horizontal. By insisting on greater vertical fairness, he has killed any hope of reforms enhancing horizontal fairness.