distort the social safety nets of entire nations. That has been a complaint in some African countries, where the richly funded, relentlessly focused Gates programs on AIDS medicine and tuberculosis and malaria vaccines have lured local doctors and nurses away from providing desperately needed, but less glamorous, everyday care. Dr. Peter Poore, a pediatrician who has worked in Africa for three decades, warned
The impact of the philanthro-capitalists on global health and U.S. education is occasionally controversial—not everyone believes in more testing in schools, or the particular approaches to AIDS care in Africa. But there is little debate about the aims—it is hard to find anyone who argues that U.S. schoolchildren need less education or that Africans deserve fewer doctors and less medicine. But some idea-driven plutocrats venture into more obviously contested terrain.
The plutocrat-as-politician is becoming an important member of the world’s governing elite, ranging from pragmatic problem solvers with a yen for the public stage, such as Mike Bloomberg or Mitt Romney, to emerging market billionaires whose wealth emboldens them to challenge authoritarian rulers, like Russia’s Mikhail Khodorkovsky or Egypt’s Naguib Sawiris. The plutocratic politician can use his own money to bankroll his campaign directly, and also to build a network of civic support through the less explicitly political donations of his personal foundation.
Some farsighted plutocrats try to use their money not merely to buy public office for themselves but to redirect the reigning ideology of a nation, a region, or even the world. Soros’s Open Society Foundations may not have toppled communism, but they had a powerful impact on the emergence of democracy and pluralism in much of Eastern Europe and the former Soviet Union. At the other end of the ideological spectrum, conservative billionaires like the Koch brothers have assiduously nurtured a right-wing intellectual ecosystem of think tanks and journals that has had a powerful impact on electoral politics and the legislative agenda in the United States and beyond.
Your own view of these explicitly political plutocratic ventures depends on your own politics. If you support drug legalization, you are probably a fan of the Soros millions dedicated to that cause. If you back gay marriage, you likely cheered Republican billionaire Paul Singer’s contribution to the campaign to legalize it in New York state.
Where things get really complicated is when the philanthro-capitalists use their money to finance a political agenda that dovetails with their personal business interests or with the interests of the plutocratic class as a whole. The Koch brothers, for instance, have pushed for less government regulation of industry, including state efforts to protect the environment. They are lifelong libertarians who are genuinely skeptical about climate change. They also happen to own a company whose assets include oil refineries, oil pipelines, and lumber mills—all businesses that would benefit from a weakened EPA.
Then there are the class interests of the plutocrats more generally. Balancing the budget isn’t an idea that belongs to a particular socioeconomic group or political party—the Germans, with their generous social safety net, are as hawkish about deficits as the U.S. Tea Party. But cutting so-called entitlement spending is a policy that would have a disproportionate impact on the poor, who depend most on these programs—and it is also an idea that plutocrat Pete Peterson has devoted $1 billion of his fortune to advance.
Jeffrey Winters, a political scientist at Northwestern University, believes America’s super-elite has been particularly effective at using the tools of a political democracy—where, in theory, the majority should rule—to protect its minority privilege. The first permanent federal income tax in the United States was explicitly devised as a tax on plutocrats. When it was first mooted in 1894, it was to be levied on the top 0.1 percent—eighty-five thousand of the sixty-five million Americans. Resistance in Congress, whose members included two millionaires, was predictably intense. One representative warned that this “was not Democracy, it was Communism.” Another fumed, “It is a shame that the successful should be made the legal prey of the unsuccessful.” It took nineteen years and an amendment to the Constitution, but the tax did eventually become law in 1913. This was, after all, the height of the Gilded Age and the dawn of the Progressive Era. America was getting rich, but it was also getting worried about the disproportionate wealth and power of its plutocrats.
Over the subsequent century, though, the 0.1 percent fought back. Driven up by the costs of World War I, the initial tax rate on the very rich was high, reaching a peak of 77 percent in 1918. By the early twenty-first century, the effective tax rate at the very top had fallen to less than a third of that level. Strikingly, as the tax rate at the top fell, it rose on those lower down the income distribution—in the political fight over tax rates, the plutocrats have outfoxed the merely wealthy. In 1916, millionaires—that era’s super-rich—were hit with a published income tax rate of 65 percent, nearly 35 points higher than the rate for the merely affluent. Capital gains were taxed at the same level as ordinary income, and most Americans paid no income tax at all. Today, that fiercely progressive curve has been reversed. Within the 1 percent, the richer you are, the lower your effective tax rate: in 2009, the top 1 percent paid over 23 percent of their income in tax, the top 0.1 percent paid just over 21 percent, and the top four hundred taxpayers paid less than 17 percent. Capital gains, an important source of income for the plutocrats but less significant the lower you go down the income distribution, were taxed at just 15 percent in 2012.
Winters argues that America’s oligarchs have achieved these low effective tax rates thanks to the services of a professional army of lawyers, accountants, and lobbyists. Collectively, he calls this group of courtiers the “income defense industry.” They certainly benefit from the intellectual antitax agenda elaborated over the past several decades at some of the think tanks financed by plutocrats.
But if America really is ruled by an oligarchy, it is a very badly disciplined clique indeed. After all, some of the most prominent plutocrats, most notably Warren Buffett, have highlighted the low effective tax rate they pay and have called on politicians to raise it. As he likes to put it, “There’s class warfare, all right. But it’s my class, the rich class, that’s making war, and we’re winning.”
THE 0.1 PERCENT VS. THE 1 PERCENT
When Anders Aslund, a Swedish economist who has studied and advised most of the leaders in the former Soviet Union, visited Kiev in late 2004, at the height of the Orange Revolution, he returned to his home in Washington, D.C., with a surprising observation.
Most reports depicted the Orange Revolutionaries, with their determined, subzero encampment in the capital city’s central square, either as western Ukrainians rebelling against the government’s pro-Russian stance or as idealistic students who were unwilling to stomach political repression. Both characterizations were true, but Aslund saw a third dynamic at play. The Orange Revolution, he told me, was the rebellion of the millionaires against the billionaires. Ukraine’s crony capitalism worked extremely well for the small, well-connected group of oligarchs at the very top, but it was stifling the emerging middle class. This rising petite bourgeoisie was finally fed up and it was fighting for more equitable rules of the game.
That battle of the millionaires versus the billionaires has been playing out across the world. It was a decisive factor in the Tahrir Square protests, whose most visible organizer was Wael Ghonim, an MBA-trained Google executive based in Dubai, which quickly won the support of the country’s well-heeled military elite. It was on show in India, where veteran social activist Anna Hazare’s anticorruption hunger strike was hailed as the political awakening of the prospering Indian middle class. And it can be seen in Moscow, where the unexpected revolt against Vladimir Putin’s “party of crooks and thieves” was catalyzed by a blogging real estate lawyer and drew fur- clad professionals onto the streets.
In the United States, Occupy Wall Street has drawn the political battle lines somewhat differently—between the 99 percent and the 1 percent. But when you drill down into the data, you can see another, even steeper division inside the 1 percent itself. The ultrarich of the 0.1 percent have pulled far ahead of the merely rich, who make up the other 0.9 percent at the tip of the income pyramid. The divide is cultural and it is economic—and if it becomes political it could transform the national debate.
The wider public discussion about income inequality hasn’t much touched on the divisions within the 1 percent. That is partly because it can be a little stomach churning to consider the gradations of wealth at the very
