Mike Davis Date: Tue, Mar 24, 2020 at 7:11 PM
Yesterday two Democratic House committee chairs, Carolyn Maloney (NY) and Gerry Connolly (VA) warned: ‘Based on a number of briefings and warnings this week about a critical fall-off in mail across the country, it has become clear that the Postal Service will not survive the summer without immediate help from Congress and the White House.’ The Democrats are pushing debt forgiveness and financial aid for this most vital part of our public infrastructure. But there’s an additional step that can be taken that doesn’t add to the deficit or compete with other priorities: an excess profits tax.
Since we are now in ‘wartime’ according to the White House, it’s important to recall some fiscal lessons from previous wars. One month before entering the First World War but with the nation already mobilizing for the conflict, President Wilson signed an excess profits tax designed to curb war profiteering and raise revenue from the rich. By 1918 corporations were being taxed from 30 to 80 per cent of their estimated excess profits. Simultaneously the maximum income tax rate was hiked to 77 per cent, a 1,100 per cent increase over the 1916 rate. The government also took over the railroads for the duration. At the end of the war, the railroad unions fought a heroic battle for their permanent nationalization. Meanwhile the excess profits tax remained in effect until the inauguration of Harding in 1921.
The tax, however, had been unevenly and loosely implemented, allowing banks and corporations, especially munitions makers, to disguise profits. In 1934 a special Senate committee headed by North Dakota’s Gerald Nye labelled them ‘merchants of death’ and exposed their role in pushing the country into war. (The young Alger Hiss was one of the committee’s lawyers.)
At the same time, the Vinson-Trammell Act of 1934 provided that shipbuilders and aircraft manufacturers selling to the Navy had to agree to limit profits to 10 per cent of the contract price. They were required to return any excess to the Treasury. This law was later extended to other categories of public contracting and in the summer of 1940 a new excess profit tax granted broad powers to the Army and Navy, limiting profits (fixed fees) to 7 per cent of estimated cost.
The United States, you’ll remember, declared economic war on the Axis with the passage of Lend Lease in March 1941. Twenty months later after Pearl Harbor, the several War Powers Acts passed by Congress preserved the 1940 excess profit tax and its limit of 7 per cent. In addition FDR struck back against the ‘economic royalists, signing an executive order in October 1942 that authorized a 100 per cent ‘super-tax’ on incomes over $25,000 (about $300,000 today). Although Congress repealed it six months later, it was very popular with the public.
Meanwhile as the wartime Office of Price Administration gained expertise in estimating production costs and profits it assumed statutory authority to revisit and renegotiate procurement contracts. Its power to force compulsory refunds of excess profits – vigorously opposed by business – enhanced the effectiveness of the 1940 law and was consolidated by the Renegotation Act of 1943.
As the Cold War threatened to turn hot in 1948 a more limited version of the 1943 act was revived, then expanded with the outbreak of the Korean War. During the oil crisis at the end of the 1970s,the Democratic majority in Congress revived the excess profit tax idea, but the ultimate Crude Oil Windfall Profit Tax Act of 1980 was only a pale imitation of the previous laws.
The pandemic has produced a profiteer whose power to exploit the emergency far exceeds that of the steel industry or munitions makers during the last century’s world wars. His name is Jeff Besos. Amazon’s business volume and earnings, of course, are growing at almost incalculable speed, but there’s a bigger story. The current crisis is almost certainly an extinction event for tens, perhaps hundreds, of thousands of small businesses and franchises. This will hugely expand Amazon’s domination over retail distribution, particularly as home delivery permanently increases its scope. Amazon is becoming the largest single monopoly in world history.
Today’s progressive Democrats should be at least as bold as Wilson, Roosevelt and Truman and draft a new excess profits tax bill in the House, with Amazon particularly in mind. Here’s a revenue stream that could not only save the Postal Service but rebuild it after years of cuts and unfair competition with Fedex and UPS.
Socialists, of course, need to go much further and recognize that Amazon has become an essential infrastructure – like privately-owned power and communications systems. Some progressives like Elizabeth Warren urge trust-busting and forceful regulation. But the
Debsian solution is this: nationalize the infrastructure of the digital age, including Amazon and private delivery, and operate it as a series of democratically administered public utilities.