The 2 percent solution, or, the tyranny of the majority returns with a vengeance

Many headlines recently have told us that the current President of the United States is attacking “Reganomics,” “the free market,” even capitalism (or at least “American capitalism”) itself. The market itself seems to agree, since every time the President opens his mouth the market seems to drop another one or two hundred points. As I write on this snowy afternoon, it has shed another 250 points today and is trading below 7000 for the first time since 1997. Since January 1, the market has given up more than 2000 points and is now trading at about 50 percent of its high. How’s that for a referendum on Hope and Change?


Several commentators have speculated about what the response from the legacy media (formerly known as the mainstream media) would have been had a new Republican presided  over this dégringolade. I think we know that answer to that, and there is some grim satisfaction to be had from the thought that, as Larry Kudlow observed a few days ago, there is “a growing sense of buyer’s remorse” among the liberal Wall-Street types who did so much to put this President in office.

Will that remorse coalesce into a public-spirited rejection of the President’s policies? Mr. Kudlow rightly observed that the administration’s tax proposals amount to a declaration of “war” on “investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.” And that’s just for starters. Mr. Kudlow went on to note that the President’s cap-and-trade program on carbon emissions will amount to “a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.”

It gets worse. Sure, the President has declared war on entrepreneurs, investors, capitalism, the free market, etc. And yes, his so-called “green” policies are really pink policies, i.e., ones that are arrived at not by pragmatic economic calculation but by politically correct top-down fiat.


But those are subsidiary battles, necessary skirmishes on the road to his ultimate end. At the end of the day, the President has two big targets: freedom and prosperity. He doesn’t like either, and he has framed a radical program that that will go very far indeed in stamping them out. As The Wall Street Journal pointed out last week when the President’s proposal to raise taxes on those making more than $250,000 was announced, the revenues he could collect from “the wealthiest 2%” of the population “can’t possibly raise enough revenue to fund” his spending plan. “Roughly 3.8 million filers,” the Journal noted,

had adjusted gross incomes above $200,000 in 2006. (That’s about 7% of all returns; the data aren’t broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% — about 1.65 million filers making above $388,806 — paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

So, even if the State were to tax everyone making $500,000 or more at 100%, it wouldn’t be enough to pay for the items on the President’s shopping list. “[T]he only way to pay for Mr. Obama’s ambitions,” the Journal concluded, “is to reach ever deeper into the pockets of the American middle class.”

But raising revenue isn’t really the point. The chief goal of the President’s 2 percent solution is, first, to punish success and then to render its repetition impossible. What we have here is an perfect example of what James Piereson has called “punitive liberalism,” i.e., the distinctly illiberal pursuit of vengeance against class enemies through policies that may be counterproductive but that have the advantage of penalizing a part of the population that so-called liberals find distasteful. I wrote about this dimension of the President’s platform during the campaign (see “Obama’s punitive liberalism, or why treating success as a form of failure is wrong“).


Raising the marginal income tax rate on successful middle class people (in many areas of the country, a family income of $250,000 hardly qualifies you as “rich”) is just the beginning. There are also proposals to limit further the amount of interest you can deduct from your mortgage and the amount you can deduct for charitable contributions. The net effect of those proposals will be 1) to further depress the housing market and 2) to squeeze charities that depend on private contributions.

There are other features worthy of note–raising the tax on capital gains, for example, which will discourage investment, and hence slow job growth.

What many critical observers may not sufficiently appreciate, however, is the extent to which the President regards all this as a good thing. Prosperity leads people to think that they have lives and choices apart from the engorged teat of the State. Our new socialists want to discourage that troubling independence. Their ultimate aim to to make everyone a ward of the State. In an earlier post, I drew on Friedrich Hayek to explain this:

The biggest challenge we face now is not to our stock portfolios or 401K accounts (now renamed “201K accounts” by one wag) but rather the psychological conditions for political liberty, among which a spirit of individual initiative, i.e., taking responsibility for oneself and one’s family, figures prominently. “The most important change which extensive government control produces,” Hayek observes, “is a psychological change, an alteration in the character of a people.” It doesn’t happen all at once. You don’t, in a modern democracy, go to bed free on Friday and wake up in chains on Saturday. It takes, Hayek notes, “perhaps. . . one or two generations.” Where do you suppose we are in the process? The crucial point, Hayek says, is that “the political ideals of a people and its attitude toward authority are as much the effect as the cause of the political institutions under which it lives. This means, among other things, that even a strong tradition of political liberty is no safeguard if the danger is precisely that new institutions and policies will gradually undermine and destroy that spirit.”

If you ask where it all tends, what the change or alteration that socialism (i.e., “extensive government control”) brings about in the character of a people, you need look no further than Hayek’s title: The Road to Serfdom.


In Federalist 10, James Madison wrote eloquently about providing safeguards against “faction,” especially the tendency of “popular government,” i.e. democracy, to degenerate into what Tocqueville would later call the “Tyranny of the Majority.” “To secure the public good and private rights against the danger of such a faction,” Madison wrote, “and at the same time to preserve the spirit and the form of popular government, is then the great object to which our inquiries are directed.” It has worked pretty well for more than two hundred years. And now? Madison noted that the protection of the rights of private property was “the first object of government.” Many past democratic regimes perished because they failed to balance popular rule with the protection of those rights. “Such democracies,” he reminded his readers.

have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions. (My emphasis.)

A large-based representative government was Madison’s scheme for addressing this problem, a scheme in which the various contending interests in society would counterbalance each other and conduce to the common good. Such a government, he thought, would have a good chance of cooling the “rage . . . for abolition of debts, for an equal division of property, or for any other improper or wicked project.”


The Federalist Papers were written in 1787-1788, at the birth of this great country. How sad it will be if this paean to ordered liberty were to reach future generations as an operating manual for a defunct human possibility.


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