Winters, Jeffrey A. 2011. Oligarchy. Cambridge University Press.

Notes

In-text annotations

Front matter

"Democracy does not displace oligarchy but rather fuses with it" (Page 3)

Preface

"When Michael Bloomberg was running for his third term as mayor of New York, he was compared unfairly in the media to the Roman oligarch Marcus Licinius Crassus, who had “deployed his wealth in the service of his political ambitions” (Hertzberg 2009, 27). Drawing on a fortune estimated in 2010 at $18 billion, Bloomberg had “spent more of his own money than any other individual in United States history in the pursuit of public office" (Page 13)

"For modern American oligarchs like Bloomberg, buying public office with private funds is driven more by vanity than motives of oligarchic survival." (Page 13)

"If direct rule is much less vital for American oligarchs than for their Roman counterparts, why even label someone like Bloomberg an oligarch? This book argues that the answer lies in the very different ways that oligarchs defend their wealth in a civil oligarchy like the modern United States. A clearer insight into Bloomberg’s oligarchic behavior was provided a year later in an expos ́e (Roston 2010) detailing how the Bloomberg Family Foundation had moved hundreds of millions of dollars into “various offshore destinations – some of them notorious tax-dodge hideouts.”2" (Page 13)

"The political inequalities that arise from wealth inequalities are qualitatively different from others that have been effectively addressed in recent decades through democratic participation and social movements. Indeed, the APSA study was prompted by the worrying fact that the distribution of wealth was becoming more unequal during the same decades when all the other indicators of injustice were showing significant improvements." (Page 15)

"Oligarchic theory explains how and why this occurs. The starting premise is that concentrated wealth in the hands of individuals empowers them in ways that produce distinct kinds of oligarchic politics that are not captured within a generic pluralist framework. In place of viewing ultrawealthy actors as one among many competing interest groups (in this case “the rich”), the theory developed in this work argues that whatever other forms of power may exist in society, extreme wealth has a profound influence on the capacities of oligarchs to defend and advance their core interests. The unusual aspect of oligarchic politics is that massive fortunes produce both particular political challenges – the need to defend wealth – and the unique power resources for pursuing that defense. This approach helps explain why those most able to pay are also the ones most empowered to avoid doing so, and why ordinary democratic participation is an ineffective antidote." (Page 15)

"Recognition of this fact does not amount to a denial of pluralist democratic politics across a range of issues in contexts like the United States, nor to claims that electoral democracy is a sham. It is, rather, an acknowledgment that under conditions of extreme economic stratification, there is also an oligarchic realm of power and politics that engages different power resources and merits separate theorization. This separate realm of minority power and politics involving concentrated wealth is unusually resistant to remedies based on widening participation." (Page 15)

"“I’ll tell you, sometimes I feel like funding a revolution,” an exasperated oligarch in Southeast Asia told me. It was a classic expression of oligarchic power that would be immediately familiar to Crassus. Instead, it was spoken late in 2007. After a quick calculation, the oligarch realized that it would only cost him about $20 million to $30 million to put 100,000 demonstrators on the streets of his capital for a month – a sum he considered cheap. In this instance, the oligarch did not rent a regime-destabilizing crowd. He was merely venting his frustration. Nevertheless, what is striking – and what this book helps explain – is how he could reasonably make such a calculation in the first place" (Page 16)

1 The Material Foundations of Oligarchy

"Mention of oligarchs is especially plentiful in the literature on postcolonial and postcommunist countries. However, the term occurs less frequently in advanced-industrial contexts, largely because oligarchy is generally thought to be overcome by electoral democracy. The dominant view among Americanists, for instance, is that pluralist democracies almost by definition cannot be oligarchic.3 The literature examining the many dimensions of minority power and influence in the United States, even when oligarchs are mentioned, centers almost entirely on elite rather than oligarchic forms of power – an important distinction further explained later in the chapter." (Page 24)

"Oligarchs are distinct from all other empowered minorities because the basis of their power – material wealth – is unusually resistant to dispersion and equalization. It is not just that it is difficult to disperse the material power of oligarchs. It is that massive personal wealth is an extreme form of social and political power imbalance that, despite significant advances in recent centuries on other fronts of injustice, has managed since antiquity to remain ideologically constructed as unjust to correct. Across dictatorships, democracies, monarchies, peasant societies, and post-industrial formations, the notion that it is wrong to enforce radical redistributions of wealth is remarkably durable. The same cannot be said about attitudes toward slavery, racial exclusion, gender domination, or the denial of citizenship." (Page 26)

"An understanding of oligarchs and oligarchy begins with the observation that extreme material inequality produces extreme political inequality. This statement generates considerable confusion and controversy because most interpretations of democracy see political equality in terms of access to and participation in the political process. A nation becomes democratic and overcomes political inequality when it extends rights to all members of a community to participate freely and fully, to vote, speak, assemble, gain access to information, dissent without intimidation, and to hold office even at the highest political levels.8 Material inequality among citizens is widely recognized as" (Page 26)

"an important political issue, but not as a major source of unequal political power.9 In fact, massive wealth in the hands of a small minority creates significant power advantages in the political realm, including in democracies. Claiming otherwise ignores centuries of political analysis exploring the intimate association between wealth and power. In 1878, de Laveleye wrote that “the philosophers and legislators of antiquity knew well, by experience, that liberty and political equality can only exist when supported by equality of conditions.”10 The same basic nexus of material and political power was echoed more recently by Robert Dahl (1985, 4), who referred to the wealthy robber barons that arose in the United States in the second half of the nineteenth century as a “body of citizens highly unequal in the resources they could bring to political life.” The simple claim is that the distribution of material resources across members of a political community, democratic or otherwise, has a profound influence on relative power. The more unequal the distribution is, the more exaggerated the power and influence of enriched individuals becomes, and the more intensely the material gap itself colors their political motives and objectives. The study of oligarchs and oligarchy centers on the power of wealth and the specific politics surrounding that power. This emphasis on the political implications of material disparities – on the “inequality of conditions” – makes oligarchic forms of minority power and exclusion different from all others" (Page 27)

"Oligarchs are actors who command and control massive concentrations of material resources that can be deployed to defend or enhance their personal wealth and exclusive social position. The resources must be available to be used for personal interests even if they are not personally owned.11 If extreme personal wealth is impossible or absent, oligarchs are also absent. Three points are immediately relevant. First, wealth is a material form of power that is distinct from all other power resources that can be concentrated into minority hands. Second, it is important that the command and control of the resources be for personal rather than institutional gain or operation. Oligarchs are always individuals, never corporations or other collectivities. Third, the definition of oligarchs remains constant over time and across cases. These factors are what consistently define oligarchs, what distinguish them from elites, and what set oligarchy apart from other forms of minority domination." (Page 28)

"Moreover, oligarchs alone are able to use wealth for wealth’s defense. Throughout history, the massive fortunes and incomes of oligarchs have attracted a range of threats, including to private property as a concept or institution. The central political dynamic for oligarchs across the centuries turns on the nature of these threats and how oligarchs defend their wealth against them. Wealth defense for oligarchs has two components – property defense (securing basic claims" (Page 28)

"to wealth and property) and income defense (keeping as much of the flow of income and profits from one’s wealth as possible under conditions of secure property rights)" (Page 29)

"Oligarchy refers to the politics of wealth defense by materially endowed actors. The defense of riches by oligarchs involves specific challenges and capacities not shared by other forms of minority domination or exclusion." (Page 29)

"In oligarchic theory, the focus is on the power of actors who deploy material resources politically with important economic effects. Both approaches are materialist, but in different ways. Neither oligarchs nor oligarchy is defined by a particular mode of production or surplus extraction. Nor is oligarchy defined by a particular set of institutions, which is why it is so resistant to institutional reforms. A feudal lord could be an oligarch but is clearly not a capitalist. A business owner could be a capitalist, and yet possess personally far too little material power to be an oligarch. A CEO of a large firm might deploy massive material resources on behalf of shareholders, but still receive a personal salary that falls far short of what he or she would need to wield oligarchic power. Such an individual is a member of the corporate elite, but not an oligarch." (Page 31)

"A major problem in the theory of capitalists as a power group is that, depending on their sector, scale, or even nationality, their political interests as investors often clash or are crosscutting. A theory of oligarchs and oligarchy centered on wealth defense is prone to far less dissent and conflict on the core set of political objectives linked to securing property and preserving wealth and income. Oligarchs may disagree about many things, and, depending on the situation, they may even fight violently to grab each other’s fortunes. Nevertheless, they still share a basic ideological and practical commitment to the defense of wealth and property, and, in the presence of some sort of state, to policies that advance their wealth-defense agenda" (Page 32)

"A high concentration of material power in the hands of some actors is hardly new, but neither is it an artifact of the early modern era. The rise of contemporary institutions and politics, including the emergence of democracy, has neither eliminated oligarchs nor rendered oligarchy politically obsolete. This is because there are virtually no constraints built into electoral democracy that can effectively limit the material forms of power wielded by oligarchs." (Page 32)

"Democracy and oligarchy are defined by distributions of radically different kinds of power. Democracy refers to dispersed formal political power based on rights, procedures, and levels of popular participation. By contrast, oligarchy is defined by concentrated material power based on enforced claims or rights to property and wealth." (Page 33)

"This is why democracy and oligarchy are remarkably compatible provided the two realms of power do not clash. Indeed, democracy and oligarchy can coexist indefinitely as long as the unpropertied lower classes do not use their expanded political participation to encroach upon the material power and prerogatives of the wealthiest." (Page 33)

"It is useful to think of five main individual power resources: power based on political rights, the power of official positions in government or at the helm of organizations, coercive power, mobilizational power, and finally material power" (Page 34)

"In general, mobilizational power in the sense of the augmented power of masses of actors is exceedingly difficult to sustain and requires draining commitments of personal time and energy. It also requires horizontal and personal networks on a scale oligarchs never need to match to be influential. On the other hand, there is no social force more overwhelming than mobilized masses. No matter how difficult they are to sustain, even “mobilizations of the last minute” are explosive enough to briefly trump all the other power resource categories combined." (Page 39)

"Of course, mass mobilizations are not always targeted at people who hold minority power at the top of society. Oligarchs and elites try to harness the power of the mobilized for their own agendas, and often succeed in doing so. However, genuine People Power from below can be unpredictable and devastating to oligarchic and elite interests. Such moments are rare and transient, and minority power (oligarchic and elite) predominates during the long periods of what might be termed “the politics of the ordinary” – the long periods that fill the space between episodes of crisis and mobilization" (Page 40)

"Oligarchs are the only citizens in liberal democracies who can pursue their personal political objectives indirectly and yet intensively by exerting determined influence through armies of professional, skilled actors (the middle and upper class worker bees helping produce oligarchic outcomes) who labor yearround as salaried, full-time advocates and defenders of core oligarchic interests. Their day job is wholly devoted to winning constant victories for oligarchs – and they compete vigorously to attract the payments oligarchs offer to defend their" (Page 40)

"wealth and incomes. These professional forces and hired defenders require no ideological invigoration to keep going, and they are not prone to mobilizational fatigue, disorientation, or crosscutting agendas. They are paid handsomely to give their maximum effort year after year, decade after decade. No social or political force pursuing policies that threaten oligarchic interests can match this focus and endurance" (Page 41)

"By way of illustration, Winters and Page (2009) estimate the relative material power of actors in the United States. Using wealth data, they calculate that the average American in the top 1/100th of 1 percent of the population has 463 times the material power resources of the average individual in the bottom 90 percent. One 1/100th of 1 percent would be an oligarchy of some 30,000 people, all of whom could fit comfortably in a modest football stadium. Were American oligarchs to be defined at a much higher material threshold, Winters and Page calculate that the richest 400 Americans could deploy on average about 22,000 times the material political power of the average member of the bottom 90 percent, and each of the top 100 or so has nearly 60,000" (Page 41)

"times as much. It is the single most unequally distributed power resource in American society, and also the one most resiliently resistant to dispersion and equalization." (Page 42)

"A consistent pattern in human history is for very small minorities to amass great wealth and power.25" (Page 43)

"However, because of the conflicts just mentioned, material domination by the few has never been easy. “Concentrated economic power,” observed the New Deal liberal Adolf Berle (1959, 98), “raises at once the question of ‘legitimacy.’” People persist in asking, “Why should this man, or this group, hold power . . . ?” For long stretches of history, that question was answered with a shocking degree of naked violence. This does not mean that other means have not also been employed. Brute force alone can be a costly and unreliable instrument for maintaining stable economic domination. “If a few Great Ones had title to every last penny in the world, would they feel secure?” asked Charles Merriam (1938, 858). If these same wealthy few “commanded an army containing every able-bodied man and woman in a given state, would they be or feel more secure – or shiver a little as they reviewed their own?” Ideological hegemony thus plays an important role for oligarchs in defending their material dominance. There is, according to Berle, “no instance in history in which any group, great or small, has not set up some theory of right to power.” Yet, there should be no illusions. All such theories, ideologies, and norms serving to secure property claims – including “trust,” the benignsounding obsession of formal theorists – are erected ultimately on coercive capacities.26 Property and violence are inseparable.27" (Page 43)

"In the study of oligarchs and oligarchy, it is important to draw a sharp distinction between a property claim and a property right. Property is a fluid thing, its status shifting throughout history between claims and rights, with the two sometimes mixed in the same system.28 Both are secured by violence and coercion. However, the distinction arises in the locus of enforcement – that is, who or what provides the coercion that makes a property claim or right secure. There are two broad possibilities: property can be enforced personalistically against the community; or it can be enforced impersonally either by the community (when distribution is fairly equal), or in the name of the community (when distribution is highly unequal). The first is a property claim; the second two are property rights. The first is enforced individually and personalistically; the second two through collectivities" (Page 44)

"As the history of medieval Europe demonstrates, a sharp increase in an oligarch’s fortune always required substantial new investments in greater defenses – walls, fortresses, castles, towers, vassals, knights, militia, mercenaries, and costly alliances against enemies. Failing to do so would invite ruinous attacks as there was no reliable state or external authority to offer defense and security. The situation is very different for disarmed oligarchs who benefit from property rights that are strongly defended externally and impersonally by a coercive state." (Page 45)

"It is taxation on new wealth that poses the greatest threat to contemporary oligarchs who are already partially secured by states that guarantee strong property rights. The establishment of secure property rights shifts the emphasis within wealth defense from property to income defense. The rise of bureaucratic states and the reliable enforcement of property rights through impersonal legal regimes solve the threat of taking and encroachment by punishing anyone who attacks the wealth and property of others. One of the most remarkable aspects of this defense is that it is scale-blind. Property rights to a mind-boggling fortune – a constant source of social tension throughout history – are defended using the same methods and principles as property rights to lawn chairs. In return for the state providing this “public” service, oligarchs are willing to disarm. However, now the armed state poses threats and makes demands of its own in the form of taxes on wealth and income." (Page 46)

"Wealth defense under the modern state system no longer involves oligarchs arming themselves and fighting to defend property claims, or deploying material resources to hire the coercive capabilities of others. Income defense, by contrast, involves hiring very different kinds of capacities to prevent valued resources from being taken. The struggle for oligarchs shifts to deploying material resources to specialized professionals (lawyers, accountants, tax avoidance consultants, lobbyists) to keep as much of their wealth and income as possible out of state hands, thereby shifting the costs of the state and even of property defense for oligarchic fortunes to poorer actors in the system. This burden falls particularly hard on the middle and upper-middle classes, whose material resources are large enough to fund the state (including welfare policies),31 but not large enough individually to purchase the armies of professionals needed to shift the financial burdens upward to oligarchs." (Page 46)

"Oligarchy has a very different character under conditions where fortunes are not only highly secure, but defended institutionally by a state that maintains a permanently organized apparatus for violence and holds a reliable monopoly on the means of coercion. This shift in the locus of property defense from" (Page 46)

"wealthy individuals to an external guarantor dramatically changes the character of oligarchy, but does not eliminate oligarchs or oligarchy itself. Oligarchy becomes less visible as the political engagement of oligarchs, freed from the heavy burden of property defense, shifts away from direct rule and coercive-martial functions to the gentler problem of income defense – how much of one’s growing wealth one may keep. It is a shift from the materialist core of wealth defense to its margins: from avoiding confiscation to avoiding redistribution" (Page 47)

"A more genteel form of oligarchy does not imply its absence. There are two reasons for this. First, although income defense is far less politically spectacular than property defense and direct rule by oligarchs, it remains a realm in which the sums of money being withheld from the treasury are massive and the political-economic stakes for oligarchs are high. This will be particularly evident in Chapter 5 when examining oligarchs and the Income Defense Industry in the United States. Since ancient times, taxation has always been a central and conflictual matter in political economy. It has links to important notions of justice, fairness, morality, legitimacy, and citizenship. The second reason is that property defense is a settled issue most of the time in the rich democracies. The separation of property defense from oligarchs, and the fact that the state defends the modest possessions of the barely propertied in like manner, creates the appearance that property defense is no longer a core oligarchic issue. Indeed, the absence of the more frontal and visible aspects of oligarchy lead to the mistaken impression that there are no longer any oligarchs – only ordinary citizens who happen for the first time in history to enjoy politically neutral fortunes. This illusion is shattered the moment the state falters in its defense of property. There is a direct correlation between the visibility and directness of oligarchic engagement in political systems and in violence on the one hand, and the settled or unsettled state of property rights and claims (and who or what is enforcing them) on the other.32" (Page 47)

"When the property regime in modern states has been disrupted by serious threats to oligarchs and their wealth, and all options for capital flight to safety have been exhausted (Winters 1996), the character of oligarchy reverts to its more martial form. The evidence of this is seen in cases in the twentieth century whenever democratic systems produced political results that threatened basic property rights." (Page 47)

"The rise of the modern state in the seventeenth and eighteenth centuries ushered in the single most dramatic transformation in the long history of oligarchy. It marked the first time oligarchs were disarmed and no longer ruled directly" (Page 50)

"The predominant form of wealth at the time was landed estates, and Harrington argued that because the source of the inequality was material, only a material solution could address it. He supported enacting laws that would limit the amount of property any one person could own, so that “no one man or number of men, within the compass of the few or aristocracy, can come to overpower the whole people by their possessions in land." (Page 51)

"Wherever there is great property there is great inequality,” Smith (1776) writes. “The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.” For Smith (Book V), there was no more compelling explanation for the rise of the state than wealth defense – the oligarchic need for a guarantor of highly unequal distributions of riches in society. “Civil government, so far as it is instituted for the security of property,” Smith notes, “is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.”39" (Page 51)

"In his writings on factions, Madison (1787) is partly concerned with political conflicts based on religion. However, the two factions that most trouble him are the rich and the poor: “The most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society.”" (Page 51)

"“I am conscious that an equal division of property is impracticable,” he writes to Madison. “But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property.” Like Jefferson, de Tocqueville was obsessed only with the European version of oligarchy based on birth and continuing across generations. He lauded the finality and genius of abolishing primogeniture, which acts automatically to subvert aristocracies of wealth that plagued Europe for centuries.41" (Page 52)

"The remedies and safeguards put in place by figures like Jefferson worked well to block what they were narrowly designed to prevent – a European oligarchy that had a particular kind of cohesion because it spanned generations – but did nothing to halt the rise of an American oligarchy grounded on concentrated material power that is deployed to great effect in the present without the necessity of spanning generations" (Page 52)

"The first elite theorists – Mosca, Pareto, and Michels – acknowledge a place for material power, but seek in their writings to shift the analytical attention to other aspects of minority power among influential actors at the helm of governments and empires. Although all three discuss oligarchs and oligarchy, they use these terms interchangeably with elites, aristocrats, governing elites, and ruling classes. This diffusion of meaning and mixture of terminology commenced the loss of clarity and precision surrounding the materialist conceptualization of oligarchs and their power resources." (Page 53)

"The truly dramatic transformation of the modern nation-state was the change it represented in the regime of property defense. Oligarchs always struggled mightily with the dangers and burdens of defending their claims, and they accepted being fully disarmed once centralizing states demonstrated both the ability and commitment to provide this crucial aspect of wealth defense. The long and violent struggles and negotiations that resulted in this new form of government have been well analyzed and do not need to be recounted here.44 The important point for present purposes is that this change in the form and function of the state marked a major change in oligarchy, but not its end" (Page 55)

"In a pure-form civil oligarchy, oligarchs surrender a major part of their power to an impersonal and institutionalized government in which the rule of law is stronger than all individuals. With property defense well provided by the state, wealth defense in a civil oligarchy is focused on income defense – the effort to deflect the potentially redistributive predations of an anonymous state." (Page 58)

"It is important to recognize that there is no necessity for a civil oligarchy to be electorally democratic. The United States and India are procedurally democratic; Singapore and Malaysia are soft-authoritarian. All are civil oligarchies" (Page 58)

"Ruling and sultanistic oligarchies are consistently nondemocracies, but they also range widely from being tamed and untamed oligarchies. Meanwhile, civil oligarchies are by definition systems with an impersonal government under a legal regime that is stronger than individual oligarchs. Civil oligarchies successfully punish oligarchs who engage in pathological behaviors.4" (Page 60)

5 Civil Oligarchies

"These two shifts – oligarchs submitting to laws in exchange for states guaranteeing property rights – occurred in tandem over centuries and, together, constitute the single most important transformation in the history of oligarchy. Finally, although oligarchs are relieved of the violence and political burdens of defending property themselves, the emergence of a state apparatus that takes on these roles raises novel threats to oligarchs in the form of taxation and possibly redistribution focused on incomes. In civil oligarchies where existing property and fortunes are secure – no matter the scale of wealth or the degree of stratification within a given society – oligarchs for the first time devote virtually all of their material power resources to the political challenges of income defense.2" (Page 230)

"civil oligarchy cannot exist without a strong system of laws. However, the key question is not whether laws work or are enforced in a general way across a society. The salient political issues of law arise more narrowly with regard to oligarchs and elites. This is evident in a host of countries like Indonesia and the Philippines. They are recognized as having serious rule-of-law problems, and yet daily civic life for the vast majority of ordinary citizens is reasonably orderly. This is because most people submit routinely to the same legal systems that oligarchs distort and intimidate just as routinely. The great bulk of ruleof-law problems originate in the defeat of laws by the powerful. The “low” rule of law at the mass level is relatively easier to achieve because average citizens lack the power resources individually to bend legal outcomes or block prosecutions altogether.3 A legal system might be riddled with imperfections of organization, inefficiency, poorly trained personnel, or laws on the books that are simply “bad” for a variety of reasons. Such a legal infrastructure would produce many injustices and inconsistencies." (Page 231)

"The ultimate test of a legal system is not its routine or systemic performance, but whether it is stronger than the most powerful actors in society – signifying the achievement of “high” rule of law. If the law tames oligarchs and elites, it will consistently tame everyone else. The reverse relationship does not always hold." (Page 231)

"The United States is presented as an example of how disarmed oligarchs who do not engage in direct rule pursue their objectives of income defense by using their enormous power and resources to shape political outcomes in their favor. Singapore offers insights into how one civil oligarchy arose through a deliberate process of taming oligarchs by strengthening legal institutions." (Page 232)

"The case is significant because Singapore’s civil oligarchy was founded and strengthened by a single dominant figure, Lee Kuan Yew, who could have opted instead to found a sultanistic oligarchy. It is also noteworthy that taming oligarchs through strong laws in Singapore has not been accompanied by advances toward democracy. Indeed, the Singaporean case is analytically challenging because the same legal infrastructure that so reliably defends property and adjudicates oligarchs on the merits also produces distorted outcomes against dissenting political elites, whose power resources tend to be mobilizational rather than material" (Page 232)

"In 2005, Citigroup (Kapur et al., 2005, 22) offered its high net-worth clients in the United States a concise statement of the threats oligarchs confront. “Organized societies have two ways of expropriating wealth,” according to analysts in the Investment Research division: “through the revocation of property rights or through the tax system.” The good news for oligarchs is that “in developed capital markets, governments have learnt the lessons of level playing fields, regulatory certainty, and the sanctity of property rights.” States are still capable of “revoking property rights.” However, such moves are “exceptional and generally counterproductive,” and, according to Citigroup’s economists, highly unlikely under present conditions in advanced capitalist countries. “The more likely means of expropriation is through the tax system,” they warn" (Page 234)

"According to the authors, a “plutonomy” is an economy with a stratum of ultra-rich citizens at the top who drive spending. “At the heart of plutonomy is income inequality,” which is made possible by “capitalist-friendly governments and tax regimes.” A danger to this arrangement is that “personal taxation rates could rise – dividend, capital gains, and inheritance tax rises would hurt the plutonomy.”8 Thus, the bad news for oligarchs in the United States is that the same government that so reliably defends property rights also poses grave and constant threats to oligarchic incomes. Annual gains for oligarchs from compensation and capital income are typically thousands of times the entire net worth (even including home equity) of the average American. Since ancient times, taxation has always been a central and conflictual matter in political economy. Tax rates and burdens are a direct reflection of power. Although discussions of taxation can be mind-numbing, who pays taxes and how much they pay is linked to important notions of justice, fairness, morality, legitimacy, and citizenship." (Page 234)

"At the center of civil oligarchy in the United States is the expression of material power by oligarchs to defend their incomes against taxation. The politics of income defense unfolds on many levels. Oligarchs seek to drive down their “nominal” or “marginal” tax rates, which are the highly visible published percentages everyone pays in their tax brackets. They also benefit from pushing down the bottom threshold of the highest bracket" (Page 234)

"As important as these policy objectives may be, by far the most intensive use of these power resources is to widen the spread between the published tax rates for oligarchs and what they actually pay. In the jargon of tax specialists, this is the difference between the nominal tax rate and the effective tax burden. This Income Defense Spread is a key measure of income defense success for oligarchs." (Page 235)

"First, data are presented documenting the concentration of wealth in a few hands to establish a pattern of extreme material stratification in the United States that is characteristic of all oligarchies. Second, it is argued that these oligarchs are keenly aware of the threats posed to their material interests, and that they engage a portion of their wealth to defend against these threats. They must do this individually to reap the benefits of income defense, and the great majority of oligarchs participate in the process according to a common logic of threat management.10 Third, pursuing income defense in a civil oligarchy consists of two components. One is hiring the services of armies of professionals – lawyers, accountants, lobbyists, wealth management agencies – who have highly specialized knowledge and can navigate a complex system of taxation and regulations, generating a range of tax “products,” “instruments,” and “advice” that enable oligarchs to keep scores of billions in income annually that would otherwise have to be surrendered to the Treasury.11 Collectively these professionals comprise an extensive and entrenched Income Defense Industry" (Page 235)

"The crucial theoretical linchpin in this argument is that oligarchic interests and the active deployment of oligarchic power resources explain the entire enterprise and propel it. Both as service providers and as political agents, the Income Defense Industry exists only because of the substantial material threats oligarchs face and the material power they exercise to counter them. This argument specifies the interests oligarchs have and traces the mechanisms through which power is used – and political outcomes are achieved – to address those interests." (Page 236)

"An appreciation of the asymmetries in power between oligarchs and other members of society begins with an estimate of differences in the material positions of actors across the social formation (Fraser and Gerstle 2005). The notion is that regardless of the other ways in which political power might be equal – such as one-person-onevote or an equal right to speak or participate – yawning differences in material power create enormous inequalities in political influence and account for key political outcomes won by oligarchs. Winters and Page (2009) present data based on income and wealth in the United States that offer a glimpse of the extent of material power concentration." (Page 236)

"Material Power Index (MPI), reflects each successive income level as a multiple of the average income among the bottom 90 percent of America taxpayers. Crossing the threshold to the top 10 percent of incomes is four times the average at the bottom, but still a modest average income level of slightly more than $128,000 a year. The MPI then starts a trend of roughly doubling at each successive threshold to seven, fifteen, then thirty-two. Even at more than thirty times the average income of the bottom 90 percent of Americans, an average annual income of $1 million for those in the top onehalf of 1 percent is still too modest to qualify as oligarchic. These citizens are certainly rich. However, their material power resources are still insufficient to engage anything beyond the cheap foot-soldier services of the Income Defense Industry" (Page 236)

"The MPI for the 400 highest American taxpayers is many magnitudes greater than the indices even for the top of the Athenian trierarchy, and is nearly identical to the concentrated wealth of Roman senators. The degree of material concentration in the United States is vastly greater if estimates are based on wealth rather than income. Depending on whether home equity is included, the MPI of the wealthiest oligarchs in the United States shown in Table 5.2 ranges from 21,000 times to 108,000 times that of the average household in the bottom 90 percent of the society." (Page 238)

"What matters politically is the threshold of wealth above which actors are able to afford the costly services and interventions of the Income Defense Industry. Focusing on who is able to hire the armies of professionals in the Income Defense Industry provides a clear indication of the level at which wealth takes on oligarchic characteristics. Such a method also adjusts to the costs of these political services across countries as well as within them over time. Thus, in a civil oligarchy, not just any rich person is an oligarch. Oligarchs are those rich enough to convert their money into the professional firepower needed to defend their wealth and incomes. Johnston states that “this can sometimes be an outlay of $10 million to avoid $30 million in taxes, and other times spending only $1 million to save the same amount.”15 The KPMG “mass market” tax shelter scandal, examined in greater detail later, suggests that discount tax products cost about $350,000. However, the same case shows that income defense on the cheap exposes borderline oligarchs to extreme legal risks and costly penalties – a danger rarely faced by oligarchs able to pay retail." (Page 239)

"Although mobilizational power can be transformative for a group or society, one of its weaknesses is that both the actors who mobilize and the social forces that become mobilized must invest enormous personal time and effort in building this power resource. Because they are so demanding, mobilizations are difficult to sustain. Oligarchs using material power resources do not face this problem because they can set in motion armies of actors – whether thugs, militias, demonstrators, or income-defense professionals – based on remuneration rather than ideological commitments" (Page 239)

"In a civil oligarchy, the burdens of political engagement for income defense are rarely borne by oligarchs themselves, but fall instead to others they set in motion. Collectively these actors constitute a lucrative Income Defense Industry whose participants are motivated by the profit-making opportunities generated by the threats oligarchs face and desire to overcome. Johnston (2003, 7) reports that in 2003 there were 16,000 lawyers specializing in trusts and estates, which is only one component of the industry. The Income Defense Industry skims a share of the tens of billions of dollars in income defended annually. Oligarchs get to keep the rest. A report by the U.S. Senate (2003, 2) on the tax shelter industry states that “respected professional firms are spending substantial resources, forming alliances, and developing the internal and external infrastructure necessary to design, market, and implement hundreds of complex tax shelters, some of which are illegal and improperly deny the U.S. Treasury of billions of dollars in tax revenues.”" (Page 240)

"The report defines an abusive tax shelter as “a device used to reduce or eliminate the tax liability of the tax shelter user,” which is accomplished through “complex transactions” that permit the taxpayer to “obtain significant tax benefits in a manner never intended by the tax code.”16 More than complex, they are transactions that would never occur if wealthy taxpayers were not engaging in income defense. Graetz (2002, 278) describes an abusive tax shelter as “a deal done by very smart people that, absent tax considerations, would be very stupid.” For decades, these devices had been “custom-designed for a single user.” However, an alarmed Senate discovered that some income-defense providers were creating shelters that were “prepared as a generic ‘tax product’ available for sale to multiple clients” (U.S. Senate 2003, 1). It was the widening of the industry’s clientele to the lower reaches of the American oligarchy that triggered congressional hearings.17" (Page 240)

"Because trust and confidentiality are vital in the services oligarchs receive from income-defense providers, relationships are often initiated by referral. The industry serves what are called High Net-Worth Individuals (HNWIs), defined on the low end as clients with at least $2 million in investable financial assets, and Ultra High Net-Worth Individuals (UHNWIs), defined as those with $30 million in assets and above.18 The industry is multifaceted and global in its spread and integration.19 Nearly every major U.S. law firm has a division of specialists devoted exclusively to “wealth preservation,” “wealth management,” “estates and trusts,” and “tax planning.”" (Page 241)

"Withers notes that some of its clients “are worth more than major public companies.” With an emphasis on defending income by navigating through a globally complex tax regime, Withers specializes in “wealth structuring” to help their clients “preserve their wealth now and for future generations.”" (Page 241)

"Serving oligarchs does not end with devising strategies for maximum wealth defense. It includes advocating their cases aggressively against tax prosecutors when those strategies and instruments are challenged as illegal. “As part of our U.S. practice,” Withers states, “we represent clients whose financial affairs are being audited by the taxing authorities and regulators, and appear before the courts in tax matters.” The firm is especially proud of its track record in achieving favorable settlements out of court and shielding its wealthy clients from embarrassing public exposure.25 Services designed to defend income and wealth are expensive in part because the techniques employed are complex and sometimes risky. Whereas the discount end of the wealth services industry is populated by “product pushers,” HNWIs and UHNWIs “do not tolerate such treatment” (Research and Markets 2010). Instead, they expect highly personalized “relationship managers” to devise customized strategies and instruments for income defense." (Page 242)

"Central to the debates in elite theory are arguments about elite “rule,” which necessarily implies that democracy in the United States is a fa ̧cade for minority control and constitutes mass deception" (Page 243)

"The most direct and personal form of oligarchic engagement in income defense lies in their dealings with the Income Defense Industry, which supplies the concrete means of tax evasion and avoidance. Oligarchs participate barely at all in fighting the political battles at the heart of income defense. A minority of oligarchs takes an active role leading highly public battles, but most do not. The political trench warfare that makes income defense possible, that maintains the system’s basic architecture, and that constantly adapts it to changing conditions is fought by the same Income Defense Industry that survives by managing (but never entirely removing) the threats oligarchs face. This indirect mechanism of political influence demands a high degree of coherence, organization, planning, and coordination. However, none of these burdens falls to oligarchs themselves beyond the provision of the financial resources that set the political apparatus in motion. Even that role is accomplished as atomized principals propelling a phalanx of organized and integrated agents moving in a common direction against minimal resistance." (Page 243)

"Capital income earned by the ultra-rich is much harder to track. It is typically described as “nonmatchable,” as if this were some immutable financial law of nature. What this interpretation misses is that the difficulty in taxing the rich is itself a political outcome reflecting prior exercises of oligarchic power" (Page 244)

"What is “matchable” by the IRS depends on decisions made and enforced about information collected. It would be impossible to tax the incomes of 200 million Americans without first designing and building a tax infrastructure that provides detailed and reliable information on masses of people who move and have shifting or multiple sources of income. It is no surprise that a tax architecture designed to track compensation income for the many is poorly suited to track capital income for the few. Presumably, an infrastructure designed primarily to track and tax the changing material fortunes of oligarchs would be ill equipped to tax hundreds of millions of workers making small wages – who would then constitute the “nonmatchable” category.28 Nonmatchable taxpayers are twelve times more likely to misreport their incomes to the IRS (Bloomquist 2003, 3). This first aspect of uncertainty is not only a long-term and cumulative expression of oligarchic power (especially given that the federal income tax began in 1913 solely on the wealthy), but ensuring that the system remains capital-income disabled requires constant political effort." (Page 244)

"The Internal Revenue Code is, according to a tax judge trying to sort through the morass, “a sprawling tapestry of almost infinite complexity” (Moldenhauer 2007, 1, n2). The resulting confusion of the regulations permits those defending oligarchic incomes to transform matters of questionable legality into murky disputes of interpretation. The instrument for doing this is the “tax opinion letter” (or “tax letter”) – perhaps the most important weapon in the income defense arsenal and something most taxpaying mortals have never heard of.30 A single tax opinion letter from a leading firm can range in price from hundreds of thousands of dollars to millions, depending on the complexity of the tax contortions being attempted. When everyone from the mass affluent down to the actual masses engage in tax evasion or “abusive avoidance,” there is little porosity for interpretation (or what the IRS calls “doubt about liability”). They face charges in criminal courts and prison sentences if they go too far." (Page 245)

"By contrast, oligarchs, who are armed with enough resources to fight cases for years, routinely negotiate compromises and settlements through income defense professionals. Going to court, much less to jail, is the exception rather than the rule." (Page 246)

"The system is so complex, Kotlikoff and Rapson (2006, 6) observe, that “no one can claim to fully comprehend its provisions.” The frustrated tax judge agrees. “To thread one’s way through this maze,” he writes, “the business or wealthy taxpayer needs the mind of a Talmudist and the patience of Job” (Moldenhauer 2007, 1, n2). In fact, oligarchs need neither. They deploy an armada of income defense providers to thread through a maze the industry helped create and on which it thrives. President Barack Obama (2009) emphasized the vital political role the Income Defense Industry plays for oligarchs when he described the labyrinth as “a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals.”" (Page 246)

"central tenet of interest-group pluralism arguments is that for every set of actors lobbying for one agenda there are others lobbying in other directions. The sum total of this activity leaves no one with a permanent advantage. This competitive mechanism is virtually nonexistent for the Income Defense Industry. Because there is no industry countervailing the one serving oligarchs, the droning network of firms tirelessly dispatching thousands of lobbyists and professionals faces very little resistance, and the lion’s share of the industry’s" (Page 246)

"micro-interventions occur off the political radar screen and with no debate.34 The few public interest organizations arguing for “tax justice” on behalf of average citizens are outstaffed and outfunded by ratios that parallel the MPIs for oligarchs reviewed earlier. In addition, most of their focus is on battling over the published tax rates and brackets. The Income Defense Industry, assisted ideologically by think tanks and movements funded by oligarchs who remain mostly unseen (Phillips-Fein 2009), vigorously fights this much more visible part of the battle." (Page 247)

"These efforts have achieved major reductions in marginal tax rates on the rich while the burdens on average households have mounted since World War II. However, the industry has only managed to erode progressivity in the tax brackets, never fully eliminate it. Eliminating progressivity is reserved for a very different and far less visible kind of political effort – the one aimed at increasing the Income Defense Spread for oligarchs. Operating virtually unopposed, these efforts have not just eliminated progressivity, they have successfully inverted the entire system so that effective tax rates are strongly regressive. The further up the oligarchic scale one climbs, the lower the effective tax rate becomes. It is not just that oligarchs have lower tax rates than the merely rich or the" (Page 247)

"upper-middle class. They often have lower rates on their incomes than secretaries, teachers, and electricians." (Page 248)

"The most contentious part of winning such political outcomes comes not from having to defeat activists defending the interests of average citizens. Although the implications for the majority are huge, neither they nor anyone working on their behalf is significantly involved in this realm of politics. The real fight unfolds in the stratospheric border-zone separating oligarchs from the merely wealthy strata directly below them. That is, what little political resistance oligarchs confront arises entirely within the top 1 percent of incomes, with the highest 1/10th of 1 percent fighting against the lower 9/10ths of 1 percent. Democratic theory provides a persuasive account of why tens of millions of Americans who are uneducated and poor are underserved by a political system that responds far better to citizens who are highly educated, paid well, and can form networks to advance their agendas. What democratic theory cannot explain is why a mere 150,000 oligarchs comprising roughly 1/10th of the highest 1 percent of U.S. incomes consistently delivers political defeats to the 1.35 million citizens making up the remainder of the top 1 percent. The merely rich have financial resources, they are highly educated, and they outnumber oligarchs by a ratio of nine to one. The former should be no match for the latter. Yet tax burdens have shifted downward from the ultra-rich to the mass affluent." (Page 248)

"The Income Defense Industry exists and wins victories for oligarchs because they have the concentrated material resources – individually not collectively – to fund it. The collective income of the bottom 9/10ths of 1 percent is roughly equal to that of the top 1/10th of the same percent, but individual incomes for the bottom 9/10ths are far more modest. Not only is the drop-off in incomes steep beyond the top 1/10th of 1 percent, but whenever the Income Defense Industry has attempted to move down-market and respond to the income defense demands of the merely rich by offering cheaper generic tax shelters to those who cannot afford custom services, legislators and tax enforcers have reacted harshly. Nearly every episode of “cracking down” on tax evasion by the rich has targeted those at or below the oligarchic cusp." (Page 248)

"The federal income tax was deliberately imposed on the wealthiest Americans in 1913 because of a highly effective but short-lived episode of mobilizational power. Its impact on oligarchs, substantial at first, was undone because of an even more effective and long-term campaign of material power set in motion by oligarchs. The fate of the income tax across the twentieth century offers a microcosm of the battlefront in the sometimes uneasy fusion of oligarchic and democratic power in the United States.36" (Page 249)

"The struggle began in 1894 during the populist movement and immediately followed a severe economic crisis (oligarchic power in civil oligarchies is far more effective during ordinary times and vulnerable during crises). Under the leadership of William Jennings Bryan in the Democratic Party, and supported by the Populist Party, poor citizens burdened by heavy consumption taxes mobilized behind a movement to impose an income tax on the wealthiest Americans.37 The first such tax had been imposed in the 1860s, but only as an emergency measure to fund the Civil War. The tax’s significance declined by 1868 and was repealed in 1872. The 1894 initiative was different because the rich were being specifically targeted for a tax during peace time. The ultrarich viewed the federal income tax as proof of the kind of dangers latent in extending suffrage to the unpropertied masses. The material threats to oligarchs were enormous, direct, and unprecedented.3" (Page 249)

"Members of Congress (including at least two millionaires) defending the interests of the rich on the floor of the House attacked the bill as “class legislation” – an apt description.39 The tax would only affect 85,000 out of 65 million Americans, roughly the richest 1/10th of 1 percent. Opposition to the bill was fierce. One representative attacking the law argued that “the men who would be reached by the income tax were only such men as those who controlled the manufacturing and transportation industries of the country,” the same men who were “making the country worth living in.” Another opponent said that the bill would “impose a tax on a man because he was rich,” adding that this “was not Democracy, it was Communism.” Yet another opponent decried the legislation as a predatory move by the many poor against the rich few. “Those who demand its enactment,” he argued, “are they who by its provisions are exempted from paying it.” “It is a shame,” he concluded, “that the successful should be made the legal prey of the unsuccessful.”" (Page 249)

"Although the bill passed, oligarchs mounted an immediate defense through legal teams that aggressively carried the fight up to the Supreme Court, which struck down the tax in a 5–4 decision in 1895.40 It would take an additional eighteen years of struggle for popular forces to pass the Sixteenth Amendment to the Constitution in 1913. It prevented oligarchs from fighting the federal income tax through the courts and marked one of the most extraordinary and direct democratic challenges to oligarchs in U.S. history" (Page 250)

"Once the need for war financing had subsided, changes in exemptions allowed the lowest strata of wealthy Americans to avoid having to file returns, and the filing rate dropped again to less than 10 percent between 1925 and 1936. However, the burden never returned to oligarchs alone. A significant portion of the tax bill had been effectively shifted downward to the mass affluent and the moderately wealthy. On the eve of World War II in 1939, the filing rate inched up to slightly less than 14 percent of households. By 1942, what had begun in 1894 and 1913 as a wealth tax became a mass tax, with more than 63 percent of households compelled to file returns and pay income taxes (following the Great Depression, all workers had to begin paying a 2 percent Social Security tax). According to Herber (1988, 393), “The original impetus behind the Sixteenth Amendment, its provision for ‘fairer’ tax burdens for lowand middle-income persons, was being violated without challenge.” The filing rate for households never again dropped below the 80 percent level after 1945" (Page 250)

"The explanation for the dramatic change shown in Figure 5.1 is not just that World War II was expensive. It is that the income defense capacities of oligarchs had improved significantly after 1913 while investments in the tax infrastructure and design emphasized extracting resources from many people with modest incomes rather than a few with massive ones. Indeed, the government’s response to mounting oligarchic resistance to a tax intended exclusively for them was not to design better systems to track and tax oligarchic incomes, but rather to lower rates on the wealthiest while lowering the threshold of the highest bracket to force the merely rich to pay more. The state retreated from the richest actors with strong defenses and pursued those less wealthy with weaker capacities" (Page 251)

"An explanation of how and why this happened begins with the dramatic tax cuts enacted in the 1920s. The cuts reflect an immediate and overwhelming assertion of oligarchic power. Smiley and Keehn (1995, 285) argue that the “primary motive for the tax cuts of the 1920s was the desire to reduce the tax avoidance by wealthier individuals that occurred as a result of the previous tax rate increases and that the tax cuts enacted did reduce tax avoidance.” Pushed by the war, published income tax rates on oligarchs had risen from 7 percent in 1915 to 67 percent in 1917 and peaked at 77 percent in 1918. Oligarchs responded by pursuing immediate avenues for wealth defense. Congressman Ogden Mills cited “strong evidence that wealthier individuals had successfully avoided the income surtaxes.” Although total dividends for the ultra-rich had increased between 1916 and 1921, taxes paid by oligarchs dropped sharply. “On incomes over $300,000,” Mills complained, “we collected as much at 10 percent in 1916 as we did at 65 percent in 1921” (Smiley and Keehn 1995, 288)." (Page 251)

"As tax rates increased, oligarchs fought not only to push them back down, but also to make sure they did not face higher rates than the merely wealthy. Oligarchs had far broader capacities for defending their incomes than the strata extending down to the mass affluent. The challenge was to eliminate progressivity among the rich by making sure those earning $1 million in the early 1920s did not have to pay a higher tax rate than those earning $100,000. Equivalent incomes in 2007 dollars would be $11 million and $1.1 million, respectively. In 1917, oligarchs making $1 million were assessed a published tax rate of 65 percent, which was almost 35 percentage points higher than that assessed on the average affluent American. However, by 1925 the gap had been closed to zero. That year the same top tax rate of 25 percent applied to everyone making $100,000 and above. Thus, although the federal income tax was still societally progressive in the 1920s, it was a major victory for oligarchs to eliminate all progressivity within the wealthy strata." (Page 252)

"Income defense for oligarchs was achieved in several ways between 1916 and the tax cuts enacted in 1921, 1924, and 1926. Assisted by tax lawyers and specialized accountants, oligarchs moved some of their wealth into tax-exempt securities at the state and municipal level. They also formed specially structured companies and partnerships to avoid the higher taxes. They started receiving dividends in the form of stock instead of cash, and then lobbied Congress and fought in the courts to frustrate efforts to tax the stock dividends. They also withdrew their compliance." (Page 252)

"Instead they retreated. “In the end,” write Smiley and Keehn (1995, 292), “Congress found the difficulties of dealing with tax avoidance that was taking place through the use of corporations and tax-exempt securities too formidable,” and in the early 1920s passed “a substantial reduction in personal income tax rates as the primary device to reduce tax avoidance.” The changes were especially dramatic on capital gains taxes. Until the 1921 tax cuts, capital gains were taxed at the same rate as all other income, a rate that stood that year at 73 percent. Starting in 1922, the highest tax rate on incomes dropped to 58 percent. However, far more dramatic was the reduction of the rate on capital gains to 12.5 percent, where it remained until 1934. The tax rate on other income continued to be reduced until it reached 25 percent in 1925. These reversals in tax rates reflect a major display of material power and income defense on the part of American oligarchs." (Page 253)

"From the 1890s through 1913, oligarchs had been on the defensive. They fended off the first attempt at taxing the ultra-rich via the courts, only to lose the fight over the Sixteenth Amendment to well-organized popular forces. Oligarchs responded to the new and rising tax on the rich by engaging in aggressive methods of income defense. The achievements were highly successful. Overall rates were cut and progressivity among the wealthy was eliminated, thereby shifting a greater share of the tax burden to the less wealthy strata possessing weaker means of resistance (despite their far greater numbers)." (Page 254)

"Following the Great Depression, new but modest national taxes were imposed on lower- and middle-income Americans. However, by the outbreak of World War II, the stage had been set for the income tax to be deflected away from oligarchs and applied even to those in the bottom half of all income earners in the nation. The remainder of the twentieth century saw rates fall for those in the highest bracket and rise for those further down. What began in 1913 as the most progressive material victory average Americans had ever won against the ultra-rich had been reduced in a matter of decades to a system that was dramatically less progressive." (Page 254)

"By the 1950s and 1960s, the system had become absolutely regressive for oligarchs because they alone among the wealthy could engage the services of an Income Defense Industry that could reduce their effective income taxes even below those paid by average citizens (an achievement beyond the reach of the merely wealthy). The focus turns to how this was done." (Page 255)

"The second half of the twentieth century witnessed an explosion of new instruments and techniques for widening the Income Defense Spread for oligarchs. One of the most significant developments especially after 1970 was the proliferation and use of offshore tax havens (Robinson 1995; Doggart 1997; Palan 2002). Of the $40.7 trillion in financial assets held in 2008 by the world’s 10.1 million high net-worth individuals (HNWIs), roughly one-third, or $13.6 trillion, is estimated to be held offshore.42 An International Monetary Fund study at the end of 2009 suggests a far higher level of $18 trillion of HNWI assets held offshore – a number the IMF believes is conservative.43 At this rate, the existence of the offshore world permits oligarchs to avoid and evade about $400 billion in taxes globally each year" (Page 255)

"Citing committee investigations and hearings, Senator Levin estimates that wealthy individuals using offshore tax havens cause annual losses to the Treasury of nearly $70 billion – a level equal to about seven cents on every dollar of taxes paid honestly.45 Johnston (2006) reports that “so many superrich Americans evade taxes using offshore accounts that law enforcement cannot control the growing misconduct.” Senator Levin admits that “the universe of offshore tax cheating has become so large that no one, not even the United States government, could go after all of it” (Johnston 2006)." (Page 256)

"The rates at which oligarchs defend their assets by placing them offshore vary geographically with the perceived threats to income and property.46 A 2003 report by the Boston Consulting Group (cited in Tax Justice Network 2010) estimates that North American oligarchs, enjoying secure property and moderate income tax predations, move roughly 10 percent of their assets offshore. European oligarchs, facing higher tax rates, make more aggressive use of offshore havens – relocating between 20 to 30 percent of their assets.47 In Latin America, where a larger number of fortunes are from corruption and the threats the rich face are as much to property as to income, oligarchs move assets offshore at a rate of 50 percent." (Page 256)

"Despite the evocative images conjured up by the term “offshore,” it would be wrong to think of offshore as disconnected and remote from mainstream nation-states. Geographically, many of the offshore tax havens are located on small island economies dispersed across the spectrum of time zones, but politically and economically the majority of tax havens are inextricably linked to major OECD states, and the term “offshore” is strictly a political statement about the relationship between the state and parts of its related territories." (Page 256)

"In the British economy, for example, the bulk of offshore transactions are controlled by the City of London, albeit that many City financial intermediaries operate out of centres located on UK Overseas Territories and Crown Dependencies. These centres have a tangible form, with functional banks, trust companies and law offices, but in practice they do not function autonomously from the mainstream economies. They are primarily of use to the City because they offer zero or minimal tax rates combined with secrecy arrangements (including nondisclosure of beneficial ownership of companies and trusts) and regulatory regimes which are more permissive than those prevailing in onshore economies." (Page 257)

"The Obama administration could tell the Caymans – now fifth in the world in bank deposits – to repeal its bank secrecy laws or be invaded; since the island nation’s total armed forces consists of about 300 police officers, it shouldn’t be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message. Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the IRS within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges." (Page 257)

"Most reasonable observers might expect that governments of onshore states would act collectively to prevent tax and regulatory degradation, but in practice key actors, notably Switzerland, the UK and the USA, act to restrain efforts at achieving global cooperation. The UK, for example, allows its Crown Dependencies to persist with facilitating tax evasion, despite the fact that it is ultimately responsible for ensuring the good governance of those islands." (Page 257)

"In the middle of massive public bailouts to the financial system and large bonuses on Wall Street, President Obama (2009) proposed stronger measures to counter “tax cheats” using offshore havens. A White House press release entitled “Cracking Down on the Abuse of Tax Havens by Individuals” admitted that “wealthy Americans can evade paying taxes by hiding their money in offshore accounts with little fear that either the financial institution or the country that houses their money will report them to the IRS.” Speaking in the Grand Foyer, Obama said, “For years, we’ve talked about shutting down overseas tax havens” and about “stopping Americans from illegally hiding their money overseas, and getting tough with the financial institutions that let them get away with it.”" (Page 258)

"Obama’s rhetoric was aggressive but his proposals were not. The president urged Congress to support efforts being discussed in the G-20 to sanction nations that maintained secrecy on bank accounts and corporate entities, and he sought funding to hire 800 additional IRS agents “to detect and pursue American tax evaders abroad.” However, there were a number of immediate problems. One was that the United States is listed as one of the largest and most opaque offshore locations in the world because of secrecy laws on forming corporations in Delaware and Nevada (Tax Justice Network 2009). Actors around the globe take advantage of this gaping hole in the U.S. system. Another is that although the Senate believes upwards of $70 billion is lost per year (a finding of one key committee on which the president sat as a senator), Obama’s proposals were projected to save a total of $8.7 billion over ten years – barely 1 percent of the losses. Finally, the proposal received a lukewarm response from Democrats and outright hostility from Republicans, who argued that denying corporations access to offshore havens would cripple their ability to compete globally" (Page 258)

"In testimony before Congress, Leonard Burman (2003, 3) of the Urban Institute argued that “these people who face the highest marginal tax rates have the most to gain from tax evasion, and the most opportunities to engage in it.” A crucial bridge for individual oligarchs between their onshore operations and offshore tax evasion is provided by “pass throughs.” According to Charles Rossotti, former commissioner of the IRS, “enormous amounts of money . . . flow through ‘pass-through entities’ – such as partnerships, trusts, and S-corporations.” Burman (2003) notes that these entities are “ideally suited to hiding income.” The irony is that Congress created tax benefits for S-corporations and limited liability companies (LLC) to help small businesses thrive against much larger corporations.50 The abuse of these entities would be easier to detect if it were illegal to own corporations in secret in the United States. Owners of pass-through entities would be more “matchable” if they had to declare who they were and perhaps supply a social security number in the states of Delaware and Nevada. In Senate testimony, Jack Blum (2009) argues that stemming tax evasion is impossible if the most basic information about beneficial ownership of corporations is allowed to remain secret." (Page 259)

"The single most important tool in the toolkit of people trying to hide money from law enforcement and tax collection is the anonymous shell corporation. These shell corporations have no physical place of business, use nominee officers and directors, and as a rule do no business in the place of incorporation. Their sole purpose is hiding where money is, who controls it, and where it is moving, from law enforcement and tax collectors. These shell companies should not be allowed to remain anonymous. States that offer corporations to individuals without insisting on information on beneficial ownership are undermining the efforts of law enforcement to prevent crime, recover stolen assets, and collect tax. [ . . . ] From our perspective gathering basic information about ownership for government use is essential to protect national security and to limit financial crime and tax evasion." (Page 259)

"The Senate’s complaint about generic tax products implies that if 600 oligarchs had shown up separately at the doors of Sidley Austin LLP and each requested an expensive, custom-written tax opinion letter supporting abusive tax shelters, the Senate would have been less alarmed. However, for Sidley Austin to serve the same number of oligarchs through a single marketing channel (in this case a wealth management firm called Presidio) and sell them all one generic tax opinion was unacceptable to the Senate.51 Tax shelters may be odious in a general way, but marketing them like hamburgers instead of caviar is a step too far. “There is a bright line difference between responding to a single client’s tax inquiry and aggressively developing and marketing a generic tax shelter product,”" (Page 260)

"Behaving more like a supermarket with an aisle devoted to greeting cards than an elite firm, KPMG “maintained an inventory of over 500 ‘active tax products’ designed to be offered to multiple clients for a fee”" (Page 261)

"In the case of BLIPS, OPIS, and FLIP, law firms and investment advisory firms helped draft complex transactional documents. Major banks, such as Deutsche Bank, HVB, UBS, and NatWest, provided purported loans for tens of millions of dollars essential to the orchestrated transactions. Wachovia Bank initially provided client referrals to KPMG for FLIP sales, then later began its own efforts to sell FLIP to clients. Two investment advisory firms, Quellos Group LLC (“Quellos”) and Presidio Advisory Services (“Presidio”), participated directly in the FLIP, OPIS, or BLIPS transactions, even entering into partnerships with the clients. In the case of SC2, several pension funds agreed to accept corporate stock donations and sign redemption agreements to “sell” back the stock to the corporation after a specified period of time. In all four cases, Sidley Austin Brown & Wood agreed to provide a legal opinion letter attesting to the validity of the relevant tax product (U.S. Senate 2003, 9)." (Page 262)

"The KPMG tax shelters functioned as “loss generators” for oligarchs. They created “phony paper losses for taxpayers, using a series of complex, orchestrated transactions involving shell corporations, structured finance, purported multi-million dollar loans, and deliberately obscure investments.” The shelters were provided to 350 clients between 1997 and 2001. Fake losses claimed on tax returns by these oligarchs totaled about $8.4 billion, or $24 million per client. Applied against their incomes, these losses reduced the taxes of each oligarch by an average of $8.3 million. For the group, this amounted to $2.9 billion in income defense.54 For its services, KPMG earned more than $124 million in fees, or roughly $350,000 for each tax shelter.55 Not only did all the firms and banks conspiring on behalf of these 350 oligarchs know that the “investments” they were concocting “had no reasonable potential for profit,”56 but KPMG calculated that even if they were fined for failing to" (Page 262)

"disclose the shelters to the IRS as required by law, they would still make far more in fees. “Based upon our analysis of the applicable penalty sections,” internal KPMG documents stated, “we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees. For example, our average [OPIS] deal would result in KPMG fees of $360,000 with a maximum penalty exposure of only $31,000” (U.S. Senate 2003, 5, 13)" (Page 263)

"Profits for KPMG should not obscure the bedrock oligarchic intent at the core of these arrangements. The motive force at the root of this entangled conspiracy is the determination of extremely wealthy individuals to defend their incomes. Each oligarch was able and willing to deploy substantial sums to ensure that they could add to their fortunes at a much faster rate than the published tax structure would permit. Pooled together, oligarchic resources for wealth defense formed a succulent market that seeded and then sustained “an armada of professionals” who devised the means through which oligarchs could “hide assets, shift income offshore, or use offshore entities to circumvent U.S. laws” (U.S. Senate 2006, 2). A hit man murders only because he is paid to do so. The buyer is equally guilty of contracting a murder whether he actively searches for an assassin, or one shows up and says, “I hear you want someone killed.”" (Page 263)

"Fortunately for oligarchs, things work differently when they are caught using shelters for criminal tax evasion. In the Senate documents, oligarchs are repeatedly portrayed (and in lawsuits portray themselves) as innocent victims of zealous income defense providers. Ungrateful that they got away with settlements with the IRS rather than criminal proceedings, many oligarchs angrily sued firms like KPMG and Sidley Austin for the taxes and penalties they had to pay. The basis of the suits is that the firms, which are paid handsomely to be masters of the tax code morass, bungled their job of creating tax shelters that would generate phony losses for oligarchs, evade taxes, but be structured with such elegance and complexity that the legal risks to oligarchs were almost zero. This is tantamount to suing one’s hit man for a sloppy murder. “Over a dozen taxpayers penalized by the IRS for using these tax products,” the Senate writes approvingly, “have subsequently filed suit against KPMG for selling them an illegal tax shelter” (U.S. Senate 2003, 5)." (Page 263)

"Burman (2003, 4) concurs that “tax evasion simply reallocates tax burdens from noncompliant to compliant taxpayers.”" (Page 263)

"Chandrasekhar added that “one of the very first things you learn in law school classes on taxes is a quote from a famous Supreme Court ruling that states, and I’m paraphrasing, that you are required only to pay the taxes you legally owe, not the maximum amount of taxes possible.”61" (Page 265)

"Winters: Why is the IRS so reluctant to go after wealthy tax evaders criminally? Chandrasekhar: Proving criminal tax fraud is a lot harder than winning unpaid taxes and penalties in a civil action by the IRS. To prevail in a criminal action, the government would not only have to prove that the taxpayer engaged in a transaction that in effect was tax evasion, but also that it was the willful intent of the taxpayer to do so. This is very hard to do when you have highly respected and reputable partners of a leading firm like KPMG admitting in Senate testimony and in guilty pleas that they produced tax products they knew were illegal and yet aggressively marketed them to wealthy taxpayers as legal, and backed the claim up with tax opinion letters from one of the most august law firms in New York." (Page 265)

"It is not that proving willful criminal intent is so difficult. It is that it would be costly in both time and money to win given the resources oligarchs can bring to a court battle. As Korpi’s (1985) “power resources” theory predicts, the potency of wealth as a power resource is expressed in the IRS’s calculation of the costs and hazards of litigation. It is enough to anticipate the use of an oligarch’s formidable financial resources for defense to get the IRS to compromise or retreat" (Page 265)

"Because the federal income tax began as a tax only on the wealthy, government data from 1913 until the late 1930s make it possible to analyze oligarchs and the struggles unfolding within the wealthiest strata over who would shoulder the burden. However, once the income tax became a mass tax, data on the richest taxpayers became obscured." (Page 266)

"This is only half of the story. As in other periods examined in the twentieth century, oligarchs are not just offloading tax burdens to those below them in society, but the mass affluent, represented in the top 1 percent of incomes, are significantly less successful in reducing their tax burdens than oligarchs." (Page 267)

"Johnston (2009) argues that the tax system has been “recalibrated to take from the poor, the middle class, and even the affluent and give to large corporations and the very richest of the rich.” Kenworthy (2009a) notes that data on the top .01 percent of households (about 10,000 families) show that this segment’s average inflation-adjusted pretax income “soared from $7 million in 1979 to $35 million in 2005, but the share of that income they paid in taxes didn’t increase.”" (Page 270)

"Indeed, a tax system that is flat or slightly progressive for the bulk of taxpayers from the 99th percentile downward becomes strongly regressive as one travels up the rungs of the top 1 percent." (Page 270)

"Johnston’s (2009) research shows, for instance, that in 2000, “people making between $50,000 and $75,000 paid the same share of their income to the federal government as those making more than $87 million, and that those making between $100,000 and $200,000 were taxed more heavily than those making $10 million." (Page 270)

"The marginal tax rate for cops and teachers is more than 40 percent – 25 percent for income taxes and another 15 percent for Social Security and Medicare taxes. The marginal rate for some hedge fund managers, five of whom earned more than $1 billion in 2007, has been zero. That’s because many of these speculators have been able to avoid taxes by operating through offshore partnerships under rules that let them defer income taxes. Executives, entertainers, and athletes also have been able to amass vast untaxed fortunes: For example, Roberto C. Goizueta, the CEO of Coca-Cola in the 80s and 90s, built a nest egg of more than $1 billion, but was able to defer taxes on most of it until he died." (Page 270)

"It is designed as an exact inversion of the original income tax of 1913. Instead of a threshold that exempts everyone below the ultra-rich from the tax, there is a ceiling that exempts everyone above a certain income from any further taxes. In 2010, the Social Security tax was 12.4 percent on the first $106,800 in earnings. The Social Security tax on someone earning $100,000 and $100 million is $12,400 and $13,240, respectively. The tax burden on the former is 12.4 percent and on the latter about 1/100th of 1 percent." (Page 271)

"The evidence is strong that wealth plays a significant role in shaping policy outcomes in the United States (Phillips 2002; Hacker and Pierson 2010). Larry Bartels (2005, 2008) and Martin Gilens (2005) show that wealthier constituents exert far more influence over government decisions than Americans of modest means, and that the effects of undifferentiated public opinion on decision makers are almost zero" (Page 271)

"The Center for Responsive Politics (2008) reports that historically less than 4 percent of Americans make contributions to political campaigns. The rate increased modestly during the 2008 presidential election. However, despite Obama’s success in getting small donations through the Internet in 2008 – rising to 6 percent of Americans donating online from 2 percent in 2004 (Rainie and Smith 2008) – the proportion of all federal election costs financed by large donations totaling $200 or more actually increased from 46.1 percent in 2004 to 49.8 percent in 2008 (Center for Responsive Politics 2010a)." (Page 272)

"The average contribution for all Americans captured in these data was $1,940. However, the average donation from the top 100 contributors was almost $235,000, and the highest single contributor gave more than $424,000. “For all their influence at the polls, guys like Joe the Plumber aren’t typically campaign contributors,” notes Sheila Krumholz, executive director of the Center for Responsive Politics (2008). “You’re more likely to see John the Bond Trader bankrolling these campaigns.” Of the roughly 1.4 million citizens contributing at least $200 to the 2008 elections, three-fourths of the contributions came from one-fifth of the donors, who in turn comprised 1/10th of 1 percent of American adults. This fraction overlaps with the number used as a rough approximation of the American oligarchy based on incomes. It is likely that the intersection between private (and corporate) wealth and campaign financing makes Democrats and Republicans far more receptive to the interests and complaints of the ultrarich.6" (Page 273)

"Graetz and Shapiro (2005, 239–41) provide an important example in the battle over the estate tax. The movement that succeeded in phasing out the “death” tax from 2001 to 2010 was indeed fueled by “money, money, money” – even though many of the players swept into the mobilization to repeal the estate tax were not oligarchs" (Page 273)

"However, the Income Defense Industry as a whole, and especially the core players huddled in Washington, DC, do not behave as simple instruments. Threats against the material interests of oligarchs, combined with enough uncertainty and complexity in the tax system for those threats to be overcome, are the lifeblood of the political trade in which the industry serves as a vital agent. This explains why powerful elements in the Income Defense Industry have fought to keep the estate tax. Their efforts are fundamentally propelled by the material power of oligarchs to pay to defend income and wealth. Having no estate tax would save an estimated $75 billion per year for oligarchs between 2014 and 2024 (Birnbaum and Weisman 2005). As long as certain basic tax threats remain in place, even if rates get lowered, the interests of the industry and those who finance it are aligned. Their interests diverge on permanently ending tax threats." (Page 275)

"Once again, the most contested battle was largely within the wealthiest strata. “The very rich and the merely rich are fighting over the fate of the estate tax,” Birnbaum and Weisman (2005) noted. Ordinarily, the superior material power resources of the ultra-rich and the income defense forces they could engage would tend to overwhelm the merely rich, a far larger constituency but with weaker material resources individually. However, the highly public battle over extending the Bush-era tax cuts late in 2010 undercut the ability of oligarchs to get their preferred result" (Page 275)

"The efforts at income defense on the part of oligarchs in the American civil oligarchy have unfolded under conditions both of the high rule of law and of participatory democracy. The oligarchic and democratic elements of the system have coexisted far more than clashed. This suggests that there is nothing inherently incompatible about civil oligarchy and liberal democracy as long as oligarchic property and incomes are threatened only by episodic rather than sustained class legislation of the sort attempted in 1894 and 1913. During the long periods between episodes of mass-mobilizational and occasional national crises of war and economic collapse, oligarchs have waged and won a steady battle to defend their incomes. Income defense by oligarchs has necessarily meant pushing the costs of government onto less wealthy strata. That political struggle has been waged by oligarchs – directly and through their agents – as much against the mass affluent as against the remainder of society." (Page 276)

"Singapore is illuminating as a twentieth-century example of how and why the high rule of law was put in place, and how this crucial political-economic transformation resulted in law without democracy, or authoritarian legalism" (Page 277)

"An important implication of this case and others like it is that high-growth capitalist development is tightly linked to secure property and tamed oligarchs, but has almost nothing to do with electoral democracy. Growth was unusually high for decades, for instance, when oligarchs were secured and tamed under Suharto’s sultanistic oligarchy and also under civil oligarchy in nondemocratic Singapore. It is not that democracy is a hindrance. Growth can occur with or without it. Neither, as the Suharto period demonstrates, is the rule of law absolutely essential. What matters is that the core political demands of oligarchs regarding wealth defense, particularly property defense, are satisfied. Conversely, investment and growth are inhibited when oligarchs are wild rather than tamed – that is, when they are compelled to expend significant resources on defense, coercion, and direct rule to secure their property, and yet still fail to manage threats effectively" (Page 278)

"There are several ways to achieve a tamed oligarchy. Depending on how they are organized, ruling oligarchs can operate collectively to tame themselves. Likewise, a sultanistic oligarch has the potential to secure oligarchs against threats from below while also protecting them and their property from each other. However, the most effective and durable form of wealth and property defense exists under civil oligarchy, in which oligarchs are both defended and tamed through laws enforced by an impersonal bureaucratic state – democratic or otherwise. Civil oligarchy is the only form in which oligarchs are by definition tamed. The key lies in the intersection of law, the locus of coercion and enforcement, and property. A legal order that fails to provide property defense will also eventually fail to tame oligarchs (who will attempt to re-arm in response to the threats); and a legal system that fails to tame oligarchs cannot effectively secure property (because oligarchs will threaten each other laterally). Warring, ruling, and sultanistic oligarchies are alternative solutions to wealth defense in the absence of a paramount legal regime" (Page 278)

"On the eve of the separation, as word circulated that Kuala Lumpur was poised to sever ties, Lee remarked that Singapore as an independent nation “is a political, economic, and geopolitical absurdity. . . . Our chances of survival are ten times higher if we form part of a Greater Malaysia than if we stay on our own.” Lee fought hard against independence for a nation he was certain to lead, and his view that Singapore was unviable on its own was widely shared. Singapore was born against its will in a state of alarm and paranoia about its security. “We faced tremendous odds,” Lee Kuan Yew (2000, 3) wrote in his memoir, “with an improbable chance of survival.” This backdrop is important because the transformations that occurred in the formative years of independent Singapore are inexplicable without an appreciation of the siege mentality that gripped the country’s leadership from the beginning and never dissipated in the decades that followed. It was an extreme example of what Woo (1991) refers to in the South Korean context as “defensive industrialization” by a “security state.” External threats not only shaped and propelled developmental motivations and policies. They changed the forces of internal discipline so that powerful oligarchs or elites who skim and steal to the point of debilitating the state and economy are seen not merely as immoral criminals, but as unpatriotic menaces to national survival." (Page 280)

"Lee Kuan Yew believed that if he did not establish an impersonal system of enforcement that restrained oligarchs and elites, guaranteed property, and enforced contracts, Singapore would be unable to attract capital and serve as a hub of production and commerce. Failing to do this risked triggering a process of national demise." (Page 281)

"Fraenkel (quoted in Jayasuriya 2001, 119) adds that capitalism “will accommodate itself to any substantial irrationality if only the necessary prerequisites for its technically rational order are preserved” – which is to say that a legalrational system securing property and markets can adapt to an almost infinite variety of political systems. Elaborating the essence of authoritarian legalism, Jayasuriya (2001, 119–20) argues that “at the core of the dual state is the parallel existence of both an economic order regulated by law and a political sphere unbounded by any legal parameters; in a dual state economic liberalism is enjoined to political illiberalism.” The theory of civil oligarchy advanced in this study would add to this only that political illiberalism is a common but hardly necessary feature of legal regimes that strongly defend property for oligarchs. Civil oligarchy is a form of wealth defense, not a form of the polity along an authoritarian-democratic continuum." (Page 289)

6 Conclusions

". The reason is that participation by itself strikes at the heart of elitism, but poses only a potential threat to oligarchs and the distinct basis of their power. It is only when participation challenges material stratification specifically – when extreme wealth held by oligarchs is dispersed as a democratic outcome – that oligarchy and participatory democracy finally clash" (Page 297)

"Violence and coercion are not omnipresent in the history of oligarchy, but neither are they ever absent. This is because the foundation of oligarchy is the extreme stratification of wealth, which is impossible without enforcement. During periods of peace, marked by economic and political institutions that structure transactions and clearly embody elements of cooperation and trust, the credible threat of violence is what bounds and informs behaviors. The state has a known capacity and willingness to act coercively to defend property rights. Highly unequal systems of wealth cannot function as civil oligarchies if this vital element breaks down or is absent. By downplaying material stratification and hierarchy, and especially the violence that sustains it, the NIE literature is ill prepared to address broad eras of human history and a good deal of contemporary political economy." (Page 306)

"Taming oligarchs through laws does not eliminate them. On the contrary, it keeps this empowered minority intact and places few limits on their capacities to use their wealth to defend their material interests. A campaign to tame oligarchs is a struggle that is unlikely to fire the spirits of those outraged by profound injustices between rich and poor. However, to those enduring the economic and political burdens of living among wild oligarchs, it is an achievement that can improve the absolute welfare of average citizens, even if the relative gap between them and oligarchs widens rather than narrows. Whatever its limitations, taming oligarchs through laws is better than allowing the societal hardships and pathologies of wild oligarchy to continue uncheck" (Page 307)

"The material power gap within a political community also matters. One thing that was apparent in the comparisons of Athens and Rome is that the concentration of wealth in the two ruling oligarchies was very different. Although a highly stratified society, Athens exhibited a much smaller material gap between oligarchs and the median citizen than was evident in Rome. This means that oligarchic “intensity” can vary greatly and that addressing oligarchy through decreasing that intensity is not only possible, but a worthwhile project as humanity struggles to develop the political means for addressing the extreme injustices of wealth more fully and permanently. Building a democracy and taming oligarchs through laws – two quite different achievements – are vital first steps along the path toward reaching that goal." (Page 307)