Tariffs and Taxes, Democracy and Oligarchy
Once upon a time in America, tariff revenue funded the government. As the country industrialized, a laissez-faire economic model gave rise to concentrated economic power, concentrated political power, and the Gilded Age. It was an era of extreme inequality, of the Homestead Steel Strike, of the Triangle Shirtwaist Factory Fire. Robber barons like Andrew Carnegie lobbied for tariffs for just the reason Adam Smith set out in Wealth of Nations in the 18th century: rent-seeking.
The Gilded Age coincided with the emergence of the Jim Crow era, a near century-long effort to reject the 14th amendment's promise of equality.
And the Gilded Age was a time when regulation was not a thing. That’s how Upton Sinclair came to write The Jungle, a fictionalized version of what he had learned as a “muckracking” journalist, investigating the exploitative, stomach-turning conditions of the meatpacking industry. As a result, we got the 1906 Food and Drug Act.
In 1913 – in response to the excesses of the Gilded Age – the United States adopted an income tax. It was such an important lever in addressing extreme inequality that oligarchs decided they could no longer afford their Newport, Rhode Island palaces, humbly referred to as “cottages.”
As we experience a second Gilded Age, we face a central question in America: what kind of society do we want to be? Do we want to return to the depredations of the first Gilded Age and the Jim Crow Era, where people burn to death in factory fires; meatpacking conditions are so sickening, morally and literally, that we ultimately put ranchers out of business; where we aggravate racial injustice despite a Constitution that prohibits it?
Or do we want to continue the project of perfecting our union, to ensure that every person can have their interests represented in our economy, in our politics, in our governance?
Tariffs are often compared to taxes. Sure, ok. People like Grover Norquist hate taxes. But most people not named Grover Norquist – and certainly most Democrats -- recognize that taxes are a tool. They can be used to incentivize the things we want, and disincentivize the things we don’t want. So, too, with tariffs.
The question isn’t “tariffs or no tariffs,” just like it’s not “taxes or no taxes.” The neoliberal era is over. The question is: what we are trying to achieve, with our tariff regime, and with our tax regime?
Are we trying to line the pockets of the Andrew Carnegies of the world? More gilt for the second Gilded Age?
Or, this time around, do we see that -- used intentionally -- tariffs can advance the interests of all working people, and protect our democracy?
Robber barons were able to pocket the rents from tariffs during the Gilded Age because labor had no power, and antitrust laws were in their infancy. Workers weren’t cut in on the deal. But the genius of the New Deal is that it changed the balance of power, to strengthen the hand of working people and curb the power of corporations. What followed was the Golden Age of Capitalism.
We also need to be clear: Thanks to segregationists in Congress, the New Deal did not deliver economic justice for all. That is unfinished business.
The version of globalization we created in the 1990s did real damage to the New Deal balance of power. It favored capital over labor, incentivizing exploitation with the justification that it was good for the consumer. The corresponding hollowing out of our communities has eroded the fabric of our democracy.
What if tariffs could, like taxes, help us fix this problem? What if tariffs could be used to correct for a system that incentivizes exploitation, and instead incentivize fair competition? Adam Smith wouldn’t object – he did not loathe tariffs, but he did loathe the "mean rapacity, the monopolizing spirit of merchants and manufacturers" and argued that the well-being of the working class was the appropriate measure of the economy:
With that in mind, let’s imagine a package designed to deliver results for working people throughout America -- while acknowledging that this is but the beginning:
“The liberal reward of labour, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backwards.”
Investment in our industrial base to restore and build manufacturing competitiveness (including in the inevitable green economy), with a particular focus on investments in underserved areas;
Tariffs to protect the rebuilding of our industrial base against foreign anticompetitive practices;
Laws to strengthen the right to organize and bargain collectively, to increase the leverage of working people to benefit more directly from those tariffs, recognizing the historic relationship between labor rights and civil rights; and
Enforcement of antimonopoly laws to discipline the Andrew Carnegies of our time.
Compare that to swapping the income tax for tariffs.
The Gilded Age was a time of extreme inequality because every lever of the U.S. government was used to advance the interests of the haves, and to keep the have-nots in their place. FDR flipped the script.
We’ll be celebrating our 250th birthday in 2026. Let’s make sure that when the time comes, we have honored the founders’ antipathy for monarchy and aristocracy, and that we have charted a course to reclaim government for the people - for all the people.
We have fought this fight before.
We can do it again.
And, this time, finish the job.