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A Single Nation of Justice and Opportunity

We will carry a message of hope and renewal to every community in this country. We will tell every American, ‘The dream is for you.’ Tell forgotten children in failed schools,‘The dream is for you.’Tell families, from the barrios of LA to the Rio Grande Valley:‘El sueno americano es para ti.’ Tell men and women in our decaying cities,‘The dream is for you.’ Tell confused young people, starved of ideals,‘The dream is for you.’

George W. Bush, Indianapolis, Indiana, 22 July 1999

While many of our citizens prosper, others doubt the promise—even the justice—of our own country. Sometimes our differences run so deep, it seems we share a continent, but not a country. We do not accept this, and we will not allow it. Our unity, our union, is the serious work of leaders and citizens in every generation. And this is my solemn pledge: I will work to build a single nation of justice and opportunity.

George W. Bush, Inaugural Address, 20 January 2001.

It’s your money.

George W. Bush, Tax Family Event, Kirkwood Community Center,
St Louis, Missouri, 20 February 2001

Hope, justice, and a tax cut

The first of the three quotations above is from Bush’s ‘Duty of Hope’ campaign speech, an inspiring address that offered hope to every American, and the key text for his philosophy of ‘compassionate conservatism’. Standing next to Bush as he delivered the speech was Indianapolis mayor Steven Goldsmith, a Republican lauded by conservatives for working with faith-based organisations to provide community services. Goldsmith subsequently became President Bush’s special adviser on faith-based and not-for-profit initiatives. The theme of the speech is that economic prosperity is not enough. Referring to Adam Smith’s famous ‘invisible hand’ that, through free competition in the marketplace, makes the self-interested strivings of individuals contribute to the common good, Bush says the invisible hand can work many miracles,‘but it cannot touch the human heart’. Noting that America’s prison population has tripled over the last fifteen years, Bush talks about the estimated 1.3 million ‘forgotten children’ who have one or both parents in jail, and are almost six times more likely than other children to go to prison themselves. He pledges that his administration will bring help and hope to these and other innocent victims of crime, leaving no one behind. In an important statement of his philosophy of government, he rejects the idea that the proper response to all these problems is for the government to get out of the way and leave people alone. No, he insists, the American national character ‘shines in our compassion’ and we have ‘a vision of the common good beyond profit and loss…Americans will never write the epitaph of idealism’.

The second quotation shows Bush carrying this spirit of idealism into the inauguration of his presidency. In a pair of statements that epitomises the social philosophy of compassionate conservatism, he said,‘America, at its best, is compassionate’, and ‘America, at its best, is a place where personal responsibility is valued and expected’. His pledge to ‘build a single nation of justice and opportunity’ links justice to the key American ideal of giving every individual the opportunity to succeed. As in his campaign speeches, he spoke of children at risk, and suggested that, whatever our view of the causes of this situation, we can all agree that the children are not at fault. And again he urged that this is not a problem that can be simply left alone: ‘In the quiet of American conscience, we know that deep, persistent poverty is unworthy of our nation’s promise…Where there is suffering, there is duty.’

The third quotation could have come from any of a large number of Bush’s speeches. As a candidate, in campaign speeches, and as president, when pressing Congress to enact the tax cut he wanted, he told Americans that ‘It’s your money’. His message was that when governments tax their subjects, they take money that belongs to the taxpayers and spend it—instead of letting the taxpayers decide for themselves how they want to spend it. Thus he turned the tax issue into a vote for or against ‘big government’. Here’s an example:

It’s your money. [My proposed tax cut] will give you a chance to set your priorities for your family. It says that we in the federal government have a fundamental trust in the people of America, and that’s where our faith should be—in the people. The best government is that which trusts America, and there’s no better way to make that trust explicit than to share your money with you.

On another occasion, Bush told Americans that they pay more in federal, state and local taxes than they spend for food, clothing and housing, and added: ‘This isn’t right, folks. We ought to send some of your money back to the people who pay the bills.’ When addressing Congress about the tax cut, he told the representatives that the existence of a budget surplus showed that the American people had been ‘overcharged’ and, on behalf of the American people, he was ‘asking for a refund’. Although some might want to use the money on ‘more and bigger government’, this was, in Bush’s view, the wrong choice. His preferred option was ‘to let the American people spend their own money to meet their own needs’.¹¹

It doesn’t take a great deal of reflection to appreciate that the line of thought expressed in the third quotation pushes against that expressed in the first two. To help children with parents in prison will take money, whether the assistance is given by a government agency or by faith-based and other community charities, assisted by government resources. Much more money will be needed to end ‘deep, persistent poverty’ in America and ‘build a single nation of justice and opportunity’, no matter how it is done. Some of this money may come from private charity, but realistically, most of it will have to come from taxes. If the money raised from taxes is ‘your money’, and needs to be refunded to the American people, from where is the money needed to fight poverty and achieve justice going to come?

Bush’s moral case for a tax cut

If it were not for the events of September 11, 2001, the Bush presidency might have been most notable for its sharp tax cuts. A big cut in personal taxation was one of Bush’s central campaign planks. He argued that it was not just an economically sound thing to do, but the right thing, the fair thing, to do. As a candidate, Bush said that he would cut taxes by $1.6 trillion over ten years. He favoured both a cut in income tax rates, and an end to the estate tax. At the outset of his presidency, he urged Congress to pass his tax cut, and the outcome was the Economic Growth and Tax Relief Reconciliation Act of 2001, which cut income tax rates and abolished the estate tax, for a total tax cut of $1.35 trillion over ten years.¹² Less than two years later, he urged Congress to cut taxes by a further $726 billion over ten years. The Senate insisted on reducing the size of the cut, but nevertheless the outcome was another major tax cut of $320 billion over ten years. Since that figure depends on some artificial ‘sunset clauses’, putting time limits on cuts that later Congresses will be under great pressure to maintain, the total impact of the second round of cuts could, over ten years, equal or even exceed what Bush asked for—one estimate is that it will cost $800 billion.¹³ Enacting so large a tax cut when the budget surplus had already been replaced by a deficit shocked many economic commentators. The conservative and usually staid London Financial Times commented:‘On the management of fiscal policy, the lunatics are now in charge of the asylum.’¹⁴ Whatever the cynics may say about politicians’ promises, tax cuts is one on which Bush delivered.

It is here, in Bush’s ideas about taxation, that his distinctively American philosophy of government emerges most clearly. European, Canadian or Australian politicians may also want to cut taxes, but it is hard to imagine them making a moral argument for a tax cut in the way that Bush argued for his initial tax cut. Bush’s language seems to echo the libertarian view that all taxation is theft, for if ‘it’s your money’, then isn’t it theft for the government to demand your money from you, under pain of fines or imprisonment if you refuse to hand it over? Indeed, Bush’s speech writer on economic issues, David Frum, has referred to Bush’s use of ‘It’s your money!’ as ‘folk libertarianism’.¹⁵ The best known recent defence of the libertarian view of the legitimate function of the state was put forward by the late Harvard professor of philosophy Robert Nozick. In Nozick’s view, unless there are historical injustices to correct, the state should be limited to the ‘night watchman’ functions of defending the nation from outside enemies, and providing law and order within it.¹⁶ But Bush does not want so minimal a state. In his inaugural address, after referring to the duty to relieve suffering, Bush said:‘Americans in need are not strangers, they are citizens, not problems, but priorities.’ He also supports federal spending on education, insisting only that schools receiving federal dollars should be tested to show that they are educating their students.¹⁷ So helping Americans in need and providing education for all children appear to be among his priorities. The proportion of the taxes you pay that go towards meeting these priorities, then, is presumably not ‘your money’ but the government’s money. So the government should give the taxpayers back only the money that is left over after the government has met ‘priorities’ or ‘needs’.

But how is this line between ‘your money’ and ‘the government’s money’ to be drawn? In arguing for his initial tax cut, Bush pointed out that the government was running a surplus. So one plausible interpretation of his position is that when the priorities or needs have been met, and there is still a surplus, then the government should remember that the money was yours in the first place, and return it to the people from whom it came. But the surplus that the United States government was running in 2000 was not a surplus after all needs and priorities acknowledged by Bush had been met, for he also talked about the unmet needs of, for example, disadvantaged children. If the government had spent more on ways of giving these children a greater opportunity to achieve the American dream and on other programs to overcome deep, persistent poverty, there would have been no surplus. There may have been a deficit, requiring a substantial tax rise to cover it.

Bush’s argument for a tax cut is therefore caught in a dilemma. If he is not taking the extreme view that the government has no right to tax at all, and if he also rejects the minimalist state view that the government is entitled to tax only to the extent necessary to keep the peace, at home and abroad, then his frequent appeal to the idea that ‘it’s your money’ is deceptive. For what this approach says is: ‘It’s your money, but the government can and should take your money to meet needs or priorities.’ Thus if the budget is in surplus, whether the surplus should be used for a tax cut, or for meeting additional needs or priorities, is a matter of judgment, of weighing up the pros and cons. It is that judgment, not the simple slogan ‘It’s your money,’ that decides whether there should or should not be a tax cut. The slogan presents a view of the problem so oversimplified as to be deceptive.

Is it really your money?

When Bush told American taxpayers that the budgetary surplus accumulated in recent years was ‘your money’, most of them would have taken that as a truism. Of course it was their money—where else did the government get its money from, but by taxing the money they earned? Yet this assumption rests on what New York University Law School professors Liam Murphy and Thomas Nagel—among the few philosophers who have paid attention to any of Bush’s ethical pronouncements— have called ‘the myth of ownership’.¹⁸ Ownership is not a natural relationship between a person and a thing. It is a social convention, and in societies with a legal system, it is defined by the law.

Take a simple example: if I collect berries in the forest, do I own the berries I collect? Today, perhaps it depends on who owns the forest. If I own it, I own the berries. If you own it, and you did not permit me to collect anything from it, then I have stolen your berries. What if the forest is in public ownership? Then laws and customs may determine ownership of forest products. Suppose that the use of the forest has been regulated by ancient customs, interpreted when necessary by a council of representatives of all the surrounding villages. Then my claim to the berries depends on the customs. The custom might be that all the berries should be picked together, and then divided equally among the villagers. In that case, I would not own the berries I collect. Alternatively, the gatherers of berries might be able to keep what they pick, after giving a percentage to the council, which uses the proceeds to pay the wages of foresters. The foresters ensure that the paths I use are not overgrown, and they protect honest villagers against brigands who would otherwise rob them of their pickings.

Suppose that the custom is for the council to receive one basket of berries in every ten gathered, but some pickers think that the council could provide the necessary services quite adequately if it received only one basket in twenty. Last Sunday I gathered twenty baskets of berries. Would an opponent of the ‘every tenth basket is for the council’ custom be justified in pointing to my twenty baskets of berries and telling me:‘They’re your berries!’? No. If the council had not paid the wages of the foresters I may not have been able to get through the forest to the places where the berries grow. Had I managed to achieve that, I may still not have been able to avoid the brigands and return with the berries I picked. Even if the council takes more than it needs, there is no sense in which the berries I picked are all mine.

The seventeenth-century philosopher John Locke—a major influence on early American political thought—argued that we gain a right to property by ‘mixing our labour’ with natural objects, as long as we leave ‘enough and as good’ for others. If I have carved a piece of wood into a chair, tilled the land, or gathered berries, they become mine—provided there is still wood, land and berries for others to do the same. But why does mixing my labour with something that was not mine make the entire object mine? Might not mixing what is mine with something that is not mine just as easily mean that I lose what is mine? (If I own some salt, and put it into a lake, I don’t make all the water in the lake mine.) There is no good answer to this challenge to Locke, or at least, none that shows the existence of a natural right to property. Nor is the requirement that when we appropriate objects from nature, we leave enough for others, one that can be satisfied today. The best justification of a right to private property is that we will all be better off if we recognise such a right. But if it is the common good that justifies the recognition of a right to private property, then the common good can also set limits to that right.

Now consider a modern society based on private property and free enterprise. Instead of gathering berries, I work for a large corporation that makes automobiles, much appreciated all over the world by those who can afford them. The corporation’s stock is listed on the national stock exchange, and it financed its modern factory by issuing bonds. For my labour, the corporation pays me a wage, on which I pay taxes. Let’s say my wages are $1000 a week, and from that I pay $200 in taxes. If an opponent of this rate of tax were to point to the $1000 cheque and say ‘It’s your money!’ that claim would be even more difficult to defend than the parallel claim about the berries. For the corporation could not make its cars without a legal system that fosters and protects mining rights, private ownership of land, an accepted currency, systems of transport, the production and sale of energy, the existence of an educated labour force, corporate oversight, the protection of patents and the prevention of monopolies, judicial resolution of disputes, national defence and the protection of trading routes. Even if it could make them, without security and at least a moderate degree of prosperity, few people would buy them. In other words, without taxes, and the system of regulation that could not exist without taxes, the corporation would not be able to pay me $1000 a week—and if, somehow, I did get paid, the money would be of little value because I could not be secure in my ownership of anything I bought with it.

Herbert Simon, a Nobel Prize-winning economist, has estimated the proportion of income in wealthy countries that is the result of social capital—including technology and organisational and governmental skills—rather than individual effort. Given the enormous differences between average incomes in rich and poor countries which cannot be explained by differences in effort he suggests that social capital is probably responsible for at least 90 per cent of income in wealthy societies like the United States. So for affluent countries, he argues,‘On moral grounds, then, we could argue for a flat income tax of 90 per cent to return that wealth to its real owners.’This moral argument does not make allowance for the effects of such a tax on incentives. That, Simon thinks, is a question to be settled by experimentation and observation, not by philosophical debate. But the argument that people in rich countries earn by individual productivity, unaided by social capital, only a small proportion of their gross income, and that it may be legitimate to impose very high rates of tax, remains.¹⁹

The conclusion to draw is that, if we put aside utopian fantasies that have no relevance to the real world, it makes no sense to talk of the money you would have if the government did not levy taxes. A system of government is conceptually prior to property rights—and a system of government requires taxation. Oliver Wendell Holmes, the great Supreme Court judge, is often quoted as saying,‘Taxes are the price we pay for civilisation.’And without civilisation, he might have added, you would have no money. Especially in a complex modern society, there is no way of sorting out what your property entitlements would be, if there were no government and no taxes. Bush’s tag line,‘It’s your money’, rests, as Murphy and Nagel point out, on a notion of a pretax distribution of resources that is ‘deeply incoherent’.²⁰

Fairness in taxation?

In addition to asserting that cutting taxes is the right thing to do because the government surplus is the taxpayers’ money, Bush also argued that the specific tax cuts he proposed were fair. As a candidate, there were two elements of the tax cuts on which he focused: a cut in income tax rates, and the abolition of what he called ‘the death tax’. Later, he also argued that it was unfair to tax dividends from corporations that had already been taxed.

Bush insisted that everyone should get a tax cut—the wealthy as well as those who were struggling financially. Moreover, he wanted marginal income tax rates dropped by a similar number of percentage points for all those who pay income tax. So the highest marginal income tax rate, of 39.6 per cent, was cut to 35 per cent, and the lowest rate from 15 per cent to 10 per cent. When Bush proposed this cut, Vice-President Gore pointed out that Bush’s tax plan gives the greatest benefits to the wealthiest 1 per cent of Americans. In the final presidential debate, Jim Lehrer asked Bush about that claim and received this reply:

LEHRER:What do you say specifically to what the vice president said tonight? He’s said it many times, that your tax cut benefits the top 1 per cent of the wealthiest Americans.

BUSH: Of course, it does. If you pay taxes, you’re going to get a benefit. People who pay taxes will get tax relief.²¹

Bush’s response was not truthful. Tens of millions of low-income Americans pay no income tax, but everyone who buys anything affected by sales tax is a taxpayer. These taxpayers get no tax relief under his plan. Because of the way Lehrer phrased his question, Bush was able to evade Gore’s real charge, which is not that his tax plan simply ‘benefits’ the top 1 per cent of the wealthiest Americans, but that most of the benefits go to them. Even cutting the lowest marginal tax rate would benefit the wealthy, because they pay that rate on a part of their income. So why cut the higher marginal tax rates as well?

After he was elected, Bush continued to defend the fairness of his planned cut in this misleading manner. In February 2001, he said:‘My plan…doesn’t single out some Americans for relief, while leaving others out. It’s tax relief for everybody who pays taxes. That’s what the times and basic fairness demand.’ Two days later, he reiterated that it was fair that ‘everybody who pays taxes should receive relief. And that’s why we drop all rates. We drop the top rate and we drop the bottom rate.’ A Bush spokesperson said that under the president’s ‘fair, responsible tax-relief plan, the typical American family will get to keep $1600 more of their hard-earned money’.²² It isn’t clear who is supposed to be ‘typical’, but for the four out of five income tax payers earning less than $73,000 a year in 2001, what they got, on average, is $350, and over the next ten years, their yearly savings won’t rise much from that figure, generally staying below $500. On the other hand, by 2010 the plan would allow the richest 1 per cent to keep, on average, another $45,000 of ‘their money’, which may or may not have been hard-earned. By that year 52 per cent of the total tax cuts will go to the richest 1 per cent. Of the total reduction of tax revenues in that year of $234 billion, the richest 1.4 million taxpayers will divide up $121 billion and the remaining $113 billion will have to be shared between the rest of the 139 million American income tax payers.²³ That will give the richest 1.4 million taxpayers, on average, over 100 times the tax saving that the rest get.

The 2003 tax cut also gives the greatest benefits to the rich. In 2005, a married couple with two children earning $41,000 a year will be paying $323 less tax than would have had to be paid if the 2003 tax cut had not been passed. A similar couple earning $530,000 will save $12,772. So the richer couple, earning more than twelve times as much as the couple on a lower income, saves nearly forty times as much in taxes. For most taxpayers, the cut will mean a rise in after-tax income of less than 1 per cent; but for those earning over a million dollars a year, the rise will be 4.4 per cent.²⁴ This is not an even-handed reduction of the tax burden for all taxpayers.

Bush apparently thinks that a fair tax cut is one that cuts marginal income tax rates by roughly the same number of percentage points at the top and at the bottom of the income scales. But cutting marginal income tax rates by roughly the same number of percentage points at the top and the bottom of the income scales does not contribute towards reducing those differences between Americans that he so movingly described in his inaugural address—the differences that ‘run so deep, it seems we share a continent, but not a country’. In fact it increases those differences by widening income inequalities, both in absolute dollars and in percentage terms. By denying the state the resources needed to reduce inequality, it also makes it less likely that those differences will be overcome in the foreseeable future. Why then does Bush think such a cut is fair? Since his exposition of fairness in taxation never goes beyond a few short phrases, we can only attempt a reconstruction that seems consistent with other things he has said about taxation.

If we were to take the ‘It’s your money’ line seriously, we might think of fairness in taxation as like the distribution of a stash that has been recovered from a thief. Suppose the thief stole $10,000, in varying sums, from many people, but before being caught he spent most of it, and the stash contains only $1000. We might then think that the fair thing to do is to give each of the thief ’s victims 10 per cent of the money he or she lost. Similarly, if Bush believes that the government has taken money it should not have taken, perhaps he thinks the government should return the money to those from whom it was taken, on a basis that is proportionate to how much was taken in the first place. That is not exactly what his tax cut does, but it seems to be what his language implies should be done.

If this is the intuitive notion of fairness that Bush is appealing to when he says that a fair tax cut is one that cuts all tax rates by a similar amount, it cannot be sustained. In returning the thief ’s ill-gotten gains, we may feel that it is not our role to inquire into the needs of the thief ’s victims, and on that basis, we may simply decide to give everyone the same percentage of what they lost. This may be a fair procedure to adopt if we lack the information we would need to bring about a more substantively fair outcome. Suppose, however, that we know that the $200 the thief stole from Angela means that she is facing eviction and homelessness because, through no fault of her own, she is $100 short with her rent. On the other hand, the $1000 that was taken from Barbara is less than she spends each week shopping for stylish clothes at expensive boutiques. Bush’s idea that we should return the money to everyone from whom it was taken, in some way proportional to what was taken from them, would mean that we should return $100 to Barbara and only $20 to Angela. Everyone benefits from this distribution, it is true, but is it fair that as a result of the thefts, Angela will be homeless, whereas Barbara may, at worst, have to do without that stunning little handbag she saw in a SoHo boutique? There is no inherent reason why giving back the same proportion of the money stolen is any fairer than trying to undo, as far as possible, the harms caused by the thefts, with the greater harms having priority over the lesser ones. If we choose the latter principle, we will make sure that Angela can pay her rent before we contribute anything towards Barbara’s penchant for wearing designer clothes.

There is more to be said about the fairness of Bush’s tax cuts, but first we need to look at another aspect of his view about unfair taxation.

The ‘death tax’ and equality of opportunity

Bush campaigned on the elimination of the estate tax, which he usually refers to as ‘the death tax’. The estate tax is effectively a tax on inherited wealth—and in America, it targets only the estates of those who die seriously wealthy. In 1999 tax was only payable on the top 1 per cent of estates by value. Because the tax is progressive, with the rate rising as the value of the estate rises, more than half of the total revenue raised by the estate tax was collected from estates not merely in the top 1 per cent, but in the even more rarefied strata of wealth to which only one American in 700 belongs—estates worth at least $5 million.²⁵ As Princeton University professor of economics Paul Krugman says,‘Tales of family farms and businesses broken up to pay the estate tax are basically rural legends; hardly any real examples have been found, despite diligent searching.’²⁶ Despite this, in the presidential debates Gore proposed amending the estate tax to exempt even more family farms and family businesses. But Bush insisted that, on the grounds of fairness, this was not enough: ‘Eliminate the death tax completely,’ he said, ‘because people shouldn’t be taxed twice on their assets. It’s either unfair for some or unfair for all.’²⁷

Again, Bush’s intuitive moral judgments are not self-evidently right. The objection to ‘being taxed twice on their assets’ presumably refers to the idea that people have been taxed on their income, and then they are taxed again on their accumulated wealth, built up from their after-tax income, when they die. But if dead people don’t talk, they don’t pay taxes either. Legally, the ‘death tax’ is a tax on the estates of people who have died. In effect, it is a tax on the heirs of the person who died. They are not being taxed twice on the assets they are receiving. One could, of course, imagine a system in which there is no estate tax, but where money gained by inheritance is treated as income for tax purposes. But for many taxpayers that would be worse than an estate tax, because inheriting even an estate of moderate size would put them in a high tax bracket for the year in which they inherited it.

In any case, even if the ‘death tax’ did tax people twice, there is no moral rule that says no one may be taxed more than once. Bush used the same argument about double taxation to promote his 2003 proposal for tax exemption for dividends, arguing that the corporations that paid dividends had already paid corporate taxes on their profits. (This was another tax cut that favoured the rich, for 85 per cent of stocks and bonds, by value, are held by people in the top 10 per cent of the income spectrum.²⁸ In the end Congress reduced tax on dividends for most taxpayers to 15 per cent, but did not abolish it entirely.) There are many taxes that tax people twice, or to be more precise, tax a particular stream of income twice. When people buy goods or services, the money they are spending is what was left to them after paying income tax, so sales tax also ‘taxes people twice’. Few people object to it for that reason. If it is not wrong to tax people on what they spend when they are alive, even though they have already paid income tax on the money they are spending, why should it be wrong to tax what people leave when they die?

Bush’s inaugural address holds out exactly the image of a just society that provides a moral foundation for the estate tax—the idea of ‘a single nation of justice and opportunity’. He was right to say that the differences between prosperous and poor Americans ‘run deep’. They run much deeper than they do in other developed nations, and they have become deeper over the past twenty years. Although America is one of the world’s richest nations, the proportion of the adult population living in relative poverty is more than twice as high in the United States as it is in France, Germany or Italy—19 per cent as against about 8 per cent. In Australia the figure is around 12 per cent. American children do even worse—fully one quarter of them live in poverty, compared with about a tenth or less in the major nations of continental Western Europe. Nor is this only because the wealthy United States has a higher benchmark below which people count as poor—on the contrary, those in the poorest 10 per cent of the American population are worse off, in absolute terms, than are those in the poorest tenth of the populations of Austria, Belgium, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden and Switzerland. A Swedish family with children that is at the threshold of that poorest 10 per cent will have an income 60 per cent higher than a similar family at the threshold of the poorest 10 per cent of Americans. The Swedish family will also have the security of a safety net of income support and free health care services that far surpasses anything available to the poor in America.²⁹ The public provision of such services has long been taken for granted in all the nations of Western Europe.

Not coincidentally, Americans have the lowest life expectancy at birth of any major industrialised nation, being expected to have lives that are nearly three years shorter than those of Swedes, two years shorter than Canadians, and shorter, too, than Japanese, Germans, French, British, Dutch and Italians. Matched against the European table, American life expectancy would fall somewhere between that of Greece and Portugal.

At the other end of the scale, the richest 1 per cent of Americans hold more than 38 per cent of the nation’s wealth, a concentration unmatched in any other developed nation. And the gap between the rich and the rest of society is growing wider. The Congressional Budget Office has reported that between 1979 and 1997, the after-tax income of the top 1 per cent of Americans rose 157 per cent, while the income of those in the middle-income range rose by only 5 per cent, and that of the poorest fifth of the population actually fell. US census data show an increasing share of income going to the top 20 per cent of the population, and especially to the top 5 per cent. In 1970, according to Fortune magazine, the average annual compensation of the top 100 chief executives was thirty-nine times the pay of an ordinary worker. By 1999, it had risen to more than one thousand times the pay of ordinary workers.³⁰

Such deep differences in income and wealth raise, as Bush correctly noted, a serious doubt about whether America is a just society. Indeed, for those who support an egalitarian ethic—one that says that people should be equal in wealth—it is evident that America is very far from being a just society. But equality of wealth has never been prominent among American values. Instead the distinctively American form of equality has been equality of opportunity. Bush paid tribute to this idea in his inaugural address, when he proclaimed that the grandest of all American ideals is ‘an unfolding American promise that everyone belongs, that everyone deserves a chance’. In other contexts he has said that equal opportunity is ‘what America is all about’ and that ‘every child must have an equal place at the starting line’.³¹ According to the American ideal, what matters is that everyone should have an equal opportunity to be successful, whether that means becoming rich, or being elected president. Given equal opportunity, the fact that one person is rich and another is poor is not itself a sign of injustice. Some choose to work hard and save what they earn in order to get on, while others are less industrious, or spend what they earn as soon as they get it. Advocates of equality of opportunity generally think it right that those who work and save should be rewarded for their effort and for curbing their spending. But if the person who is poor did not have the same opportunity to succeed as the person who is rich, then the society is unjust.

Although the ideal of equal opportunity enjoys wide support among Americans, all the evidence suggests that even by this standard, the nation is a grossly unjust society. After all, a nation with a particularly high percentage of its children living in relative poverty will have great difficulty in providing every child with ‘an equal place at the starting line’. Some children have plenty of nutritious food, a warm place to sleep in winter, and air-conditioning in summer. From their early years of schooling, they have their own room, desk and Internet-linked computer. Others have none of these advantages. How can children living in such different circumstances have an equal start in life?

America has always prided itself on providing education to all its citizens. Giving extra funds to schools in disadvantaged neighbourhoods would help, though even that would not overcome differences in the home environment. In contrast to most developed nations, which fund schools from national or at least state taxes, in the United States school funding is usually local and tied to property taxes. This means that schools in wealthy districts receive more, per child, than schools in poor districts—precisely the reverse of what would be needed to give each child an equal place at the starting line. There are, admittedly, some federal and state funding programs that mitigate the effects of this ‘the more you have, the more you get’ funding system but the federal government would need to spend much more on elementary and high school education to overcome the disadvantage for children living in poor areas.

To take advantage of the best economic and career opportunities on offer today, a college degree is virtually essential. In 1994, the last year for which figures are available, a student aged eighteen to twenty-four from a family with earnings in the top quarter of the population, was ten times more likely to gain a degree by the age of twenty-four than a student from a family with earnings in the bottom quarter. Worse still, this 10:1 ratio had climbed sharply since 1979, when it was only 4:1.³² America must yield to countries like Canada, Germany, the Netherlands, Sweden and the United Kingdom in terms of the likelihood of a poor person rising out of poverty in any given year. Moreover those members of the poor in America who do manage to escape poverty are more likely to fall back into it within five years than their counterparts in those countries.³³

Real equality of opportunity is extraordinarily difficult to achieve in any society with sharp inequalities of wealth, because rich, educated, well-connected parents can always give their children advantages that the children of poor, uneducated parents will lack. Nevertheless, if we want to enhance equality of opportunity, it is hard to think of a better way to start than a tax on inherited wealth. Such a tax makes society fairer because it taxes people who are receiving a benefit they have done nothing to deserve. An inheritance is a windfall, something that is just as likely to come to the idle as to the hard-working. Conservatives who worry about the disincentive effects of welfare on the poor should have no difficulty in accepting that a similar effect can follow from receiving what Warren Buffett has called ‘a lifetime of food stamps based on coming out of the right womb’.³⁴ Several studies suggest that people who grow up knowing that they will never need to earn their own living consume more and work less—in plain old-fashioned language, they are more idle and wasteful—than those who do not have such an assurance.³⁵ But even if that is not the case, as long as people can pass great wealth on to their children, there can never be real equality of opportunity.

Some of America’s wealthiest people oppose the abolition of the estate tax. An organisation called Responsible Wealth has initiated a petition for its retention. Launched by William Gates Snr, father of the world’s wealthiest person, the petition was signed by 120 millionaires and billionaires, including Gates Snr, the investor and philanthropist George Soros, CNN founder Ted Turner, Steven C. Rockefeller and other members of the Rockefeller family, Ben Cohen of Ben and Jerry’s, and heirs of the Roosevelt family. Warren Buffett, the world’s fourth-richest person, was not a signatory, but he has supported the idea, telling the New York Times that the estate tax played a critical role in promoting economic growth by helping to create a society in which success is based on merit rather than inheritance. Repealing the estate tax, he said, would be equivalent to ‘choosing the 2020 Olympic team by picking the eldest sons of the gold medal winners in the 2000 Olympics’.³⁶ Gates Snr told a Senate Finance Committee hearing on the estate tax:‘While we may not be able to ensure that all children start their lives on a level playing field, that is something we should strive for and the estate tax keeps us closer to that ideal.’³⁷ Evidently, the sense of justice of these wealthy individuals is more powerful than their desire to pass on their own wealth intact to their heirs. One can only wonder why this sense of justice is not shared by the president who spoke so eloquently about justice and opportunity in his inaugural address.

Bush’s choice

Bush’s conception of ‘a single nation of justice and opportunity’ cannot be reconciled with his opposition to taxes on a small number of especially high value estates and on dividends, nor with his support for giving most of the budget surplus that existed when he was elected to the presidency back to taxpayers who are not in need, nor with his continued support for tax cuts favourable to the rich after that surplus disappeared. If we ‘do not accept’ and ‘will not allow’ the deep inequalities between Americans that Bush described in his inaugural address, we should have seen the budget surplus—when there was one—as a result, not of too much taxation, but of too little spending. It is impossible to achieve the priorities that Bush himself speaks about—priorities like ensuring that every American child has an equal place at the starting line—without resources.

To this, Bush and his supporters will no doubt respond that to imagine that one can fight poverty or bring about equal opportunity by more government spending is to repeat the mistakes of earlier generations. In his foreword to Melvin Olasky’s Compassionate Conservatism, Bush said that it was a mistake to think that compassion means government ‘spending large sums of money and building an immense bureaucracy to help the poor’. The result of this spending was ‘we hurt the very people we meant to help’.³⁸ That, however, is a myth. Studies of national tax and spending policies have shown that societies in which governments tax more, as a proportion of gross domestic product, are also societies with lower income inequality. Higher welfare spending does reduce inequality. And since, among the richer nations (for example, the twenty-three higher-income members of the Organisation for Economic Co-operation and Development) the more equal ones have, on average, a higher income per capita, more redistribution by the state leads to a lower rate of absolute poverty as well as to greater equality and a lower rate of relative poverty.³⁹ In any case, more government spending on fighting poverty and promoting equal opportunity does not necessarily mean programs delivered by the government. If fighting poverty and helping every child to get an equal start is better done by faith-based and private charities than by the government, then that is where the money should go.

Since Olasky has been the dominant influence on Bush in this area, it is worth looking at the book to which Bush wrote the foreword. Much of Compassionate Conservatism is a kind of travelogue through poverty in America. Travelling with his son Daniel, Olasky visits faith-based and other non-profit organisations fighting poverty in run-down urban areas. Recounting his journey, he is able to provide the reader with inspirational stories of the work of heroic people fighting against violence, drugs, and a general feeling of hopelessness. These people really do make a difference—but as Olasky himself points out, their limited resources mean that the difference they make is on a very small scale in comparison with what needs to be done.

Here are some examples. Melvin and Daniel Olasky visit the Fair Park Friendship Center, in South Dallas, run by the Reverend Stephan Broden. Its ‘summer education and evangelism program’ for elementary school-age children is ‘doing wonderful but limited service, as thousands of children roam the streets’. In West Dallas, Kathy Dudley, a dedicated and hardworking Christian community leader, ‘has a yearning to do more, and she knows that more resources are needed’. Another ‘legendary poverty fighter’ from Dallas is Ben Beltzer, head of the Interfaith Housing Coalition. The efforts of Beltzer and those like him need government money, Olasky writes, but without red tape that hamstrings their work.

Then father and son go to Indianapolis, to see the impact of Mayor Goldsmith’s efforts to provide government support for faith-based charities. Goldsmith’s ‘Front Porch Alliance’ gets praise for helping to cut government red tape, but there is still not enough money to do what needs to be done. A program run by the ‘seemingly tireless’ Reverend Jay Height at his Shepherd Community Center only reaches a small number of people. This leads Olasky to raise the question of ‘using taxpayer funds to expand good programs that could reach many more’. Heading for the nation’s capital, Olasky mentions that there are 129 different faith-based organisations focusing on youth in Washington D.C., and asks,‘Imagine what could happen if the government learned how to help, not hinder, such groups.’

Once in Washington, Melvin and Daniel meet Hannah Hawkins, who helps abandoned children. She won’t accept government money because then she couldn’t pray with the children, which prompts Olasky to say that if only the government officials would give Hawkins funds without strings attached, her kids could have ‘new play equipment, new books, help with utilities, and so forth…’ In other words, the need for more resources, and the idea that governments would be able to provide these resources if only they were not so inhibited about funding faith-based organisations, is a constant refrain in the pages of the book that Bush describes, in his foreword, as a clear summary of the principles of compassionate conservatism by its leading thinker.⁴⁰

One might think, then, that the highest priority of the new compassionate administration pledged to build a single nation of justice and opportunity would be to provide very substantial additional funds for faith-based and other non-profit charities. Since the budget was in surplus when Bush took office, these funds were available even without tax increases. Instead, the tax cut was a higher priority. Now, having got the tax cut, the Bush administration says that it has to cut back spending. Education, for example, was one of Bush’s priorities, and one on which he got swift legislation through Congress. Subsequently, Bush said he would spend only $22 billion of the $28 billion that the legislation authorised to be spent in 2002.⁴¹ Another specific measure that Bush pledged to take if elected was to allow taxpayers who do not itemise their deductions to deduct contributions to charity. Usually, those with high incomes claim each specific contribution, but those on lower incomes take a set deduction without listing what they have given. People on lower incomes therefore do not reduce their taxes by giving to charity. Bush sought to change this, and so encourage more charitable giving. But as the Washington Post reported, his tax cut limited his ability to deliver on his own campaign promises. Because the tax cut had already reduced expected tax revenue, the deduction had to be limited. For most of the households affected, the maximum saving on next year’s taxes was $7.50. By 2010, this would rise to a saving of $30 a year. That isn’t going to provide many of the resources that, as Olasky saw, the charitable organisations need.⁴² Indeed, the very modest increase in charitable giving that this change may achieve is likely to be overwhelmed by the much greater decrease that results from the abolition of the estate tax. John J. DiIulio Jnr, the man Bush appointed to direct the most tangible of his compassionate conservatism initiatives, the White House Office of Faith-Based and Community Initiatives, made this point very bluntly: ‘Repeal [of the estate tax] could undercut another administration priority: encouraging private contributions to charities, religious and nonreligious alike, that help the poor.’⁴³

In his foreword to Compassionate Conservatism, Bush urges us to ‘share our resources—both material and spiritual—with those who need them most’. How much sharing of our material resources it would take to get really serious about creating a single nation of justice and opportunity is anyone’s guess, but it seems reasonable to suppose that it would have taken all of the budget surplus that existed in 2000, and more. That surplus was a substantial material resource that could have been shared with those who need such resources most. It could have been used to rally Americans to the cause of compassion, and to give faith-based and other non-profit charities the support they need to fight poverty effectively. It could have paid for initiatives sufficient to give the forgotten children in failed schools, the families from the barrios of LA, and the men and women in America’s decaying cities, reason to believe the president who told them:‘The dream is for you.’ Instead, Bush chose a tax cut that only accentuated the economic inequality that had already been growing so rapidly in America since the 1970s. The number of Americans living in poverty rose in 2001 and increased again in 2002.

Worse was to come. In 2003, when it was clear that the budget surplus had turned into a substantial deficit, and that more spending was needed for the war with Iraq, Bush nevertheless successfully pushed Congress to pass another huge tax cut. Now, with no surplus, Bush could not so easily argue that ‘it’s your money’. Instead, he promoted his tax cut as a means of helping to speed up economic recovery. In his 2003 State of the Union address, Bush said:‘the economy grows when Americans have more money to spend and invest; and the best and fairest way to make sure Americans have that money is not to tax it away in the first place.’⁴⁴ But as of this writing, despite all the tax cuts, it seems probable that there will be fewer Americans on the payroll when Bush finishes his first term of office than there were when he began it. The last time that happened during any presidential term was during Herbert Hoover’s presidency, from 1929 to 1933—and Hoover faced a much more serious economic downturn than Bush has. Bush’s response to this situation is:‘If Congress is really interested in job creation, they will make every one of the tax relief measures we passed permanent.’⁴⁵ The tax cuts still have, under existing legislation, several years to run. It is difficult to see how making them permanent will help Americans who are out of work now.

Bush might have done more to create jobs if, instead of cutting taxes, he had stimulated the economy by increasing government spending. Since the poor will almost certainly spend their money rather than save it, increasing the various kinds of benefits they receive is more likely to give a quick boost to the economy than tax cuts that go mostly to the rich. It would therefore have been both better and fairer than the tax cuts Bush proposed. In any case, two weeks later Federal Reserve Chairman Alan Greenspan sharply disagreed with the president’s economic argument for a tax cut, suggesting that ‘There should be little disagreement about the need to reestablish budget discipline’, and warning that anything that exacerbated the budget deficit was poor economic policy.⁴⁶ Greenspan’s stellar economic credentials, and doubts about the wisdom of Bush’s actions among many other leading economists, and some of his own party members, did not cause Bush to hesitate in touring the nation to promote his further tax cut—and in rejecting a compromise proposal from the Senate as a ‘little bitty’ one.⁴⁷ Running a large deficit is ethically dubious because it is like one generation having a party and leaving it for another to clean up the mess. The fact that the next generation will consist of a smaller proportion of taxpayers supporting a higher proportion of elderly people makes the situation even worse. George Akerlof, professor of economics at the University of California, Berkeley and the 2001 Nobel laureate in economics, has described the current deficit as as ‘a form of looting’ and warned that in future, if America is to avoid the threat of bankruptcy, Medicare and Social Security will have to be cut back heavily.⁴⁸

Why was Bush still arguing for a large tax cut after the surplus had disappeared and against the economic advice of Greenspan and many others? If the ethical justification he offered for his 2001 tax cut—when the budget was in surplus— was inadequate, an ethical justification for his 2003 tax cut seems totally absent. Unless, as the Financial Times speculated, the real agenda was deliberately to bring about what Akerlof has warned is likely to happen: a fiscal crisis that would provide a justification for slashing federal spending on popular social programs like Medicaid, Medicare, and Social Security.⁴⁹ If that speculation turns out to be true,‘compassionate conservatism’ will have turned into its very opposite: a conservatism that increases the power and affluence of the rich, and is prepared to be utterly heartless to the poor and elderly.

A concluding note: is equal opportunity enough?

Although the purpose of this chapter has been to demonstrate the inconsistency between Bush’s tax policy and his support for equal opportunity, it would be a mistake to believe that the ideal of equality of opportunity offers an adequate conception of a just society. Even if every child did have an equal place at the starting line, that would not make the society just. The metaphor of the starting line suggests that life is a race. In any athletic competition, natural differences in ability and temperament will play a major role in deciding the winner. I am quite sure that I could never have been a successful footballer, no matter how hard I trained, and I very much doubt that I could have made it as a concert pianist, either. I might, perhaps, have been more successful in a profession requiring some mathematical ability, or language skills—areas that some with more sporting or musical talent than me might not have done well in. We no more deserve our natural abilities than we deserve to inherit the wealth of our parents. Our society rewards people who are good at sport, or financial analysis, or who are beautiful and can act or sing well, but gives very little to those who have nothing to sell in the marketplace except their physical labour—and even less to those incapable of labour. There is nothing inherently just about this arrangement. Recognising that the rewards people get are significantly influenced by the good fortune of inherited abilities should lead us to look beyond equality of opportunity. Even in a society in which everyone does start with an equal opportunity to prosper as far as their natural abilities allow them to do so, it may be just to relieve the distress of those who end up at the bottom. By this measure too, most developed nations, including the nations of the European Union, Canada and Australia, are closer to being just societies than is the United States. The policies Bush is pursuing will broaden the ‘justice gap’ between these different societies, and take the United States further still from Bush’s own announced goal of becoming ‘a single nation of justice and opportunity’.