The Politics of Oligarchy: Taxation, Financial Regulation, Power Resources, and the Super-Rich in the United States, 1918-2012

Abstract

The rise of the super-rich in the United States during the last thirty years has rekindled concerns about oligarchic political influences. Following recent theoretical work by Winters (2011), we conceptualize oligarchy as a defense against threats to income accumulation by the super-rich. We focus on two threats: taxes and financial regulations. In addition, we consider the potential role of countervailing power resources: Democratic Congressional power and unions. Using annual multiple time-series data covering 1918 through 2012 and Vector Autoregression (VAR) analysis, we find that the pre-tax income of the top 0.1% decreases in response to shocks in capital gains tax rates and marginal income tax rates, but not estate tax rates. Financial deregulation, the loss of Democratic seat share in Congress, and declines in labor union membership have likewise enhanced the income share of the top 0.1%. While tax rates on regular incomes and capital gains do not respond to the power of oligarchs, estate tax cuts, financial deregulation, and declines in Democratic seats in Congress accelerate following a windfall for the top 0.1%. Overall, the results imply that as oligarchs get richer, they minimize income and wealth loss due to the estate tax while enhancing their ability to extract rents in financial markets. But at the same time, the power resources of labor and society have important impacts on oligarchic incomes and top tax rates.