Part 13 of Passing the Buck, a 15-part series on why we make less but pay more.
The structural picture this series has been building was assembled over roughly fifty years, through a sequence of policy changes that, taken individually, were always defensible on some narrow technical or ideological ground, and that taken together added up to the most significant redistribution of economic power in the United States since the New Deal. This installment is the timeline. Not because the timeline is the whole story — it isn’t, the structural-economics story I have been telling is just as important — but because the policy choices are concrete and the actors are nameable, and the misimpression that the current arrangement is some natural outcome of impersonal market forces needs to be addressed directly. It isn’t. It was built. The choices were made.
1971: The corporate political mobilization
On August 23, 1971, Lewis Powell, a corporate lawyer who would shortly be nominated to the Supreme Court by Nixon, wrote a confidential memo to the U.S. Chamber of Commerce titled “Attack on the American Free Enterprise System.” The memo argued that the corporate sector was losing the political and intellectual war to consumer advocates (Ralph Nader is named several times), environmentalists, organized labor, the universities, and the mainstream press, and that the corporate response had to be organized, well-funded, and patient. Powell’s specific recommendations were to fund think tanks, endow business-school chairs, develop legal advocacy infrastructure capable of taking cases to the Supreme Court, and cultivate friendly media. The memo circulated widely within the Chamber of Commerce and corporate boardrooms for the next decade.
What followed was the construction, in the 1970s, of most of the institutional architecture that has dominated American political economy ever since. The Business Roundtable, an organization of the chief executives of the largest American corporations, was founded in 1972 as a lobbying-and-coordination body. The Heritage Foundation was founded in 1973 with funding from Joseph Coors and Richard Mellon Scaife. The American Enterprise Institute, which had existed since 1938, expanded dramatically in the mid-1970s on similar funding. The Cato Institute was founded in 1977 by Charles Koch. The Federalist Society, which has now nominated or vetted nearly every conservative Supreme Court justice of the past forty years, was founded in 1982. The corporate political action committee, which had been a relatively minor feature of American political fundraising before the 1974 Federal Election Campaign Act amendments, became the dominant private-sector political funding vehicle by the end of the decade.
The Powell memo was not, contrary to some readings, a master plan that everyone followed. It was an accurate diagnosis of where the corporate political project needed to go, and the people with the resources to follow the diagnosis did so. By the time Ronald Reagan was elected in 1980, the intellectual and political infrastructure to support a structural shift in American economic policy was already in place.
1981: The labor decoupling
On August 3, 1981, roughly 13,000 members of the Professional Air Traffic Controllers Organization went on strike against the Federal Aviation Administration, in violation of a 1955 law that prohibited strikes by federal employees. Two days later, after the strikers refused to return, President Reagan fired 11,345 of them and banned them from federal employment for life. (Clinton lifted the ban in 1993, by which point most of the original controllers were no longer in a position to return.) The PATCO union was decertified by October.
The legal mechanics of the firing were not unusual; previous administrations had had the authority to do something similar and had chosen not to. What was new was the political willingness to use it. The labor historian Joseph McCartin, whose 2011 book on the strike is the standard reference, argues that PATCO marked the structural turning point in American labor relations because of what corporate America learned from it. By 1982 the Wharton School was distributing a strike-management manual to business leaders that cited the federal response as a model. Major-private-sector work stoppages, which had averaged roughly 300 per year through the 1970s, fell to fewer than 30 per year by the late 1980s and have remained at that lower level since. Union density in the private sector, which had run above 30 percent in the immediate postwar decades, fell from 24 percent in 1979 to roughly 6 percent now. The wage growth that had previously tracked productivity decoupled from it during the same period; the EPI charts I cited in Part 1 are essentially a chart of this single change in the underlying balance of bargaining power.
The Reagan-era tax restructuring
The Economic Recovery Tax Act of 1981 reduced the top marginal individual income tax rate from 70 percent to 50 percent. The Tax Reform Act of 1986 reduced it further to 28 percent. The capital gains rate was reduced from 28 percent to 20 percent in 1981 (and to 15 percent under the 2003 Bush tax cuts, where it has remained, give or take). The corporate income tax rate was reduced in stages from 46 percent at the end of the Carter administration to 35 percent by the late 1980s, and then to 21 percent under the 2017 Tax Cuts and Jobs Act. Across the same period the payroll tax — the FICA contribution that funds Social Security and Medicare, which is paid by every worker but capped at an income threshold that excludes most income at the top of the distribution — was raised multiple times to address Social Security funding shortfalls.
The net effect of these changes, over forty years, has been a substantial shift of the federal tax burden from capital income to labor income, and from high earners to middle-income earners. Capital gains are taxed at roughly half the rate of equivalent wage income. The corporate tax base has been progressively narrowed by deductions and credits that the largest corporations are best positioned to use. The result is visible in the Internal Revenue Service’s own published statistics on effective tax rates by income decile, and it is also visible in the federal deficit, which has grown across both Republican and Democratic administrations since 1981 with the modest exceptions of the late 1990s and the early years of the Biden administration.
The SEC Rule 10b-18 change of 1982, which I have referenced in earlier installments, is in the same category. Stock buybacks had previously been treated by the SEC as a form of market manipulation; the Reagan-era SEC reinterpreted the relevant statute to permit them under a safe-harbor structure. Buybacks, which had been a marginal phenomenon in the prior decade, became progressively more common through the 1980s and 1990s and are now the dominant use of corporate free cash flow at the largest American companies. They are part of the same structural shift: capital income is favored over labor income, both in tax policy and in the corporate-finance architecture that determines how value created in the production process gets distributed.
The 1990s consolidation
The decade in which the Reagan-era structural shift was consolidated rather than reversed was the Clinton 1990s. The Democratic Leadership Council, founded in 1985 and chaired by Bill Clinton in 1990-1991, had explicitly set out to reposition the Democratic Party as a coalition of professional-class voters and business-friendly policy rather than its previous coalition of organized labor, urban voters, and the New Deal welfare state. The Clinton administration’s major legislative achievements — the North American Free Trade Agreement in 1993, the Telecommunications Act in 1996, the partial repeal of Glass-Steagall in the Gramm-Leach-Bliley Act of 1999, the Commodity Futures Modernization Act of 2000 that deregulated derivatives — were all passed with substantial Republican support and substantial Democratic support, and each contributed in a specific way to the structure this series has been documenting.
NAFTA, in particular, set the template for what “free trade” agreements would do over the following twenty-five years: lower tariff barriers without commensurate labor or environmental protections, with the predictable effect of giving large U.S. manufacturers credible threats to move production whenever wage negotiations got difficult. The Economic Policy Institute’s estimate of net U.S. job losses from NAFTA over the first twenty years runs around 700,000 positions, almost all in manufacturing, and concentrated geographically in the Rust Belt regions that have been the most politically volatile in subsequent elections. The exact number is debated. The structural mechanism is not. NAFTA, and the World Trade Organization framework established in 1995, and China’s accession to the WTO in 2001 (which Clinton supported and which George W. Bush implemented), together changed the bargaining position of American manufacturing labor in a way from which it has not recovered.
Gramm-Leach-Bliley passed the Senate 90-8 in 1999, with broad bipartisan support, and is generally regarded by financial historians as one of the structural preconditions of the 2008 crisis, because the wall it removed between commercial deposit-taking and investment-bank risk-taking had been preventing the kind of integrated balance-sheet exposure that brought down the major banks nine years later.
The 2000s: the bankruptcy law and the financial crisis
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it substantially harder for individuals to discharge unsecured debt in bankruptcy, applied a means test that pushed more filers into Chapter 13 repayment rather than Chapter 7 discharge, and reinforced the existing rule that federal student loans cannot be discharged in bankruptcy except in cases of “undue hardship,” which courts have interpreted extremely narrowly. The bill was passed with substantial bipartisan support, signed by George W. Bush, and was the culmination of nearly a decade of lobbying by the major credit card issuers. Then-Senator Joe Biden of Delaware, whose state hosts the headquarters of MBNA and several other major credit card issuers, was among its most active Democratic supporters. The result for American household balance sheets is that the structural debt loads documented across Parts 3 and 4 are harder to escape than they would otherwise be.
The 2008 financial crisis and the subsequent Troubled Asset Relief Program represent, in retrospect, the most consequential moment of the post-1981 period that did not produce a meaningful structural change. The federal response was to stabilize the banking system through roughly $700 billion in committed TARP funding (most of which was ultimately repaid), refuse to prosecute the executives responsible, refuse to break up the institutions that the crisis had revealed as both too-big-to-fail and structurally dependent on government backstop, and pass the Dodd-Frank Act, which created the Consumer Financial Protection Bureau and added some capital and liquidity requirements but did not address the fundamental concentration of the banking system. By 2024, the four largest U.S. banks were larger than they had been in 2008. The lessons the financial industry took from the crisis were that the federal backstop was credible, that the political will to break up the major institutions did not exist in either party, and that the regulatory response could be managed through subsequent lobbying. All three lessons have been confirmed by the seventeen years since.
2010-present: the campaign finance and antitrust environment
The Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission held that the First Amendment prohibited the federal government from restricting independent political expenditures by corporations, labor unions, and other associations. The decision opened the door to the modern Super PAC and to the dramatic expansion of independent-expenditure spending in federal elections. Total federal election spending, which had been around $5 billion in the 2008 cycle, was approximately $15 billion in the 2020 cycle and projected to exceed $16 billion in the 2024 cycle. The Citizens United framework also enabled the rise of so-called “dark money” funding through 501(c)(4) social welfare organizations that do not disclose donors. The aggregate effect on the structural environment is that the corporate sectors that this series has identified as the major beneficiaries of the cost-shifting framework have, in addition to their direct PAC contributions and lobbying expenditures, a much larger third channel through which to influence federal elections and policy.
Antitrust enforcement during this period followed the pattern I described in Part 6 and Part 11: the “consumer welfare standard” established in the 1970s and 1980s as the dominant judicial framework limited antitrust enforcement to cases where short-term consumer prices were directly raised, a high bar that most of the modern mergers in concentrated industries failed to meet. The Biden-era FTC under Lina Khan and the Antitrust Division under Jonathan Kanter attempted to revive a broader, structural conception of antitrust, with mixed results; the Kroger-Albertsons block was a significant win and the FTC’s broader attempt to challenge the dominance of the largest technology platforms is ongoing through litigation that will outlast the current administration. The current administration’s antitrust enforcement is, predictably, in a different posture; the Charter-Cox approval I described in Part 7 is the most concrete recent example.
The 2017 Tax Cuts and Jobs Act, which lowered the federal corporate tax rate from 35 percent to 21 percent and made roughly two-thirds of the individual tax cuts temporary while making the corporate cut permanent, was the largest single transfer of tax burden from capital to labor in the post-1986 period. The provisions are now permanent and unlikely to be reversed in any politically realistic scenario.
The pattern
What that fifty-year timeline produces, when you read it as a connected sequence rather than as discrete legislative events, is a coherent shift in nearly every dimension of American political economy: from labor to capital in the tax code, from competitive to concentrated in product markets, from regulated to unregulated in consumer finance, from public to private in social insurance, from prohibited to permitted in stock buybacks and corporate political spending, from organized to disorganized on the labor side, from accountable to unaccountable in the financial system. None of these changes was inevitable. Most were contested at the time. The contesting side, organized labor and consumer advocacy and the kind of structural-reform politics that had built the New Deal, was outspent, out-organized, and progressively out-resourced over the period.
The corporate side won, not because it had a single coordinated plan from 1971 forward, but because its individual victories accumulated and reinforced one another. Each tax cut funded more political donations. Each deregulation increased the resources of the deregulated industries to lobby for the next one. Each weakening of labor reduced the political power of the only organized force on the other side. Each merger approval made the resulting company more capable of resisting the next regulatory effort. The mechanism is straightforward, even though no single actor needed to be aware of it for it to work.
The relevance for any contemporary reform effort is that the timeline cuts in both directions. The fifty-year transfer of economic power from labor to capital was the product of coordinated political action by the side that wanted it. Reversing or even arresting the transfer would require coordinated political action by the side that wants that, on a similar timescale and at a similar level of patient resource commitment. There are no shortcuts. The current arrangement was not built in a hurry, and it will not be unwound in a hurry.
The next installment looks at what the alternative actually looks like in countries that made different choices, and what is or is not transferable from those examples to the American context.
Even that's Odd 
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