‘I appreciate depreciation’

We​ are used to hearing that neoliberal political economy is about shrinking the state, and it is true that for many people in the US and the UK the experience of the years since Reagan and Thatcher has been one of continual cuts. But it is more accurate to say that neoliberalism has involved reconfiguring the state to empower markets and finance. The story of recent decades isn’t just one of increasing hardship for those who depend on wages and public services, but of state-sponsored extravagance for those who own assets.

This extravagance is on display in the tax cuts given to rich individuals and corporations. But, especially in the US, investors, financial asset-holders and homeowners have also benefited from a shadow regime of tax breaks, credits, exemptions and deferrals that reduce the amount of tax individuals and businesses have to pay. Governments might deploy these to meet a perceived economic need – promoting saving, spending, investing etc – or use them as ‘incentives’ to encourage or discourage particular kinds of behaviour. Tax incentives might encourage participation in the labour market by actively penalising unemployment, or reward marriage by privileging the nuclear family (though only the right kind of family, as shown by the restriction of child tax credit in the UK to first and second children). Most of all, such schemes benefit asset-holders, by lightening the tax burden on businesses or creating inducements to property ownership, thus creating a cross-class electoral coalition of homeowners. As Melinda Cooper says in her new book, these tax provisions are ‘functionally equivalent to traditional public spending’. They are ‘tax expenditures’ – state subsidies effectively, not for recipients of the social wage but for those who have assets. If you own shares, you will have benefited from tax advantages applying to capital gains; if you own your home, you will have done well out of tax subsidies as well as successive governments’ actions to fuel the property-price boom. The sharing of these financial benefits with the middle classes, in the form of rising house prices and retirement accounts whose value is linked to the stock market, have served to legitimise the otherwise stark inequalities of the neoliberal settlement.

Cooper sees the development of this regime over the last fifty years as ‘one long counterrevolution’. She tells the story as it unfolded in the US. In the late 1960s, faced with decreasing gains from investment and rising inflation spurred by military spending in Vietnam, business interests came together to resist demands for social spending made by those – Black Americans, welfare mothers, the unemployed – who had been excluded from the New Deal settlement, which had privileged industrial workers and households headed by white men. The movement to curb state spending eventually led to a series of monetary and fiscal experiments, beginning in 1979 with the dramatic increase of interest rates under the Federal Reserve chair Paul Volcker and continuing with Reagan’s tax reforms, which together brought about an enormous wealth transfer to high earners and the already well-off. Eight years earlier, Nixon had removed the dollar from the gold standard, which meant that the state had much greater control of the money supply. Now, policymakers wanted to rewrite the tax code in order to determine who would, and who would not, benefit from the potential abundance.

Cooper focuses on two schools of economists and policymakers who were especially influential in shaping this counterrevolution. ‘Public choice’ theorists at the University of Virginia called for ‘constitutional limits to the tax and spending powers of the state at every level of government’: their insistence on a combination of tax cuts and balanced budgets was a ‘recipe for austerity’. Supply-side neoliberals, by contrast, supported tax cuts without spending restraints or debt limits: there was no need to worry about debt, they argued, since global investors would always be ready to extend cheap credit to the US. The only real constraint was the spectre of inflation: rising labour costs and welfare spending were a problem; tax incentives for ‘wealth creators’ or spending on the military, police and prisons were not. Despite their ideological differences, the two schools could agree on one thing: the need to contain public spending that did not promote the accumulation of private wealth.

The policies promoted by these schools helped bring about a shift in the organisational logic of capitalism. In the mid-20th century, public corporations prized stability and pursued long-term growth through industrial investment. By the 1980s, investors’ financial returns were coming from assets instead. They were unruffled by the slashing of workforces and suppression of wages, and treated corporations as vehicles for generating capital gains via share price fluctuations and clever accounting. At the same time, the family unit was becoming increasingly valuable as a tax shelter for homeowners and businesses alike. Tax and inheritance laws confer a unique status on the family, enabling it to be used to insulate capital gains from taxation. Financial instruments for the super-rich take advantage of this status, such as the ‘family office’, a private investment fund which, as well as providing tax advantages, is allowed to operate with a secrecy no longer afforded to banks and hedge funds, because of legislative changes made after the 2008 financial crisis. The middle-class family, meanwhile, benefits from tax breaks and inheritance protections for property. The result is a set of economic arrangements that make it possible to use the family as an instrument for profit while at the same time generating beneficial material conditions for families. ‘There is no better instrument for the long-term hoarding of wealth,’ Cooper writes, ‘than the legal haven of the family.’

In Family Values: Between Neoliberalism and the New Social Conservatism, published in 2017, Cooper detailed the way in which the uneasy alliance between neoliberals and social conservatives was forged through a defence of the family, conceived of as a social unit that facilitates market freedom by removing the responsibility for welfare from the state. In Counterrevolution, she again demonstrates that capitalism’s transformations are never merely a matter of economics, narrowly conceived, and that fiscal politics are always also moral politics. When neoliberal policymakers attack abortion and promote conservative visions of sexuality and the family, it is not only to maintain women’s subordinate status, but because the family is central to the reorganisation of economic life they have overseen in the last half-century, which has engendered a new form of ‘dynastic’ capitalism.

Irecently rewatched​ a scene from Sex and the City, a show that is as much about money and the continuing hegemony of the family as it is about sex. Samantha, who sleeps her way around New York’s rich and famous, sits in a Manhattan cocktail bar. The camera follows her gaze as she looks over to a table in the corner, where Donald Trump is sitting with another businessman: ‘Listen Ed, I’ve gotta go, but think about it.’ ‘Samantha, a cosmopolitan and Donald Trump,’ Carrie Bradshaw says in voiceover. ‘You just don’t get more New York than that.’ Carrie didn’t mean this, but Trump, who has benefited hugely from dynastic capitalism, embodies the extravagance that is one aspect of neoliberal New York.

In the immediate postwar decades, New York was governed as a comparatively social democratic city-state, financing its expenditures with short-term debt. But by the 1970s, as Cooper relates, tax revenue had dropped, as white-collar workers moved to the suburbs and industrial and finance capital looked elsewhere for cheaper conditions. At the same time, the federal welfare funds that supported poorer people who had moved to the city in search of work were gradually being withdrawn by the Nixon administration. By 1975 New York faced a fiscal crisis. The new Ford administration made federal assistance subject to a ‘brutal restructuring programme’. Wages were frozen. Hospitals and libraries and fire stations were closed. Rubbish piled up. Public-sector workers were fired and rehired at lower pay grades. But the cuts weren’t enough to force a recovery, and government advisers were soon suggesting measures that turned the city into a supply-side ‘urban laboratory’. Concessions to the public sector would be replaced by public incentives for ‘the kind of project that would best prop up commercial investment’: transit infrastructure, renovations or the building of new housing on vacant land. Property developers, more than manufacturers, would benefit from tax abatements. Spending on such things as health, education and affordable housing, it was thought, ‘could best be accomplished by recapturing a small portion of the capital gains accruing to private interests’ – in other words, trickle-down.

The host of measures taken by the Reagan administration to inflate asset prices at the start of the 1980s enabled the next phase in New York’s transformation into a post-industrial city: a boom in Manhattan’s commercial real estate. The Economic Recovery Tax Act of 1981 introduced massive personal and corporate income tax cuts. The estate tax exemption was raised to enable the smooth inheritance of intergenerational wealth; capital gains tax was lowered from 28 to 20 per cent. The interest-rate hikes under Volcker caused unemployment in the US to climb above 10 per cent by September 1982 – twelve million were out of work, a 50 per cent increase since July 1981, and thirteen million underemployed – but falling inflation and the new tax code enhanced the profits of investors in financial assets.

Novel accounting practices and legal and financial instruments emerged to take advantage of the new regime. One key element of Reagan’s business tax cuts was the accelerated depreciation schedule. Investors had long been able to claim tax relief on assets that were expected to lose value over time. These ‘losses’ could in turn be used to offset taxes owed on other income. In the past, investors had been expected to make a realistic assessment of the ‘useful life’ of an asset, but Reagan introduced ‘a set of depreciation schedules that were so generous they allowed some investors to avoid all forms of taxation’ indefinitely. A piece of machinery could now be written off as having lost its value after between three and five years, even if it still worked fine. The depreciation on a commercial property could be claimed after fifteen years (before Reagan, it had been forty), even if the market value of the building had increased. Accelerated depreciation, combined with reduced rates of capital gains tax, allowed a property seller to make a huge profit and pay a lower rate of tax on an asset they could claim had depreciated in value. This wasn’t just a recipe for tax avoidance but, as Cooper writes, amounted to ‘the active instigation of private capital gains on the part of government’. These changes to the tax code put property speculation at the heart of American capitalism. Real estate, which had serviced industrial production, was now a direct source of income.

Tax schemes like these facilitated Donald Trump’s massive accumulation of personal wealth. As he wrote in his memoir, The Art of the Deal (1987), ‘I appreciate depreciation.’ Speculators like Trump benefited from other tax workarounds too: the ‘leveraged buyout’ of public companies, for instance, which was not only profitable but allowed companies to avoid corporate income tax and write off interest on their debt; or the use of mortgage interest payments to offset taxable income where investments were operating at a loss. But even by the standards of the time, Trump was unusual in the degree to which he exploited the new opportunities to make money from ‘fictional losses’. So long as New York property prices kept rising faster than the interest rates on the money he owed, banks would keep lending to him and he could keep expanding his empire. But in 1986 Reagan responded to criticism of the iniquities brought about by his legislation with the Tax Reform Act, which among other things increased tax on capital gains and lengthened the depreciation period for real estate. The resulting slump in commercial real-estate values led, by the end of the decade, to a collapse in the savings and loan industry and the biggest tax-funded bailout in US history (up to that point). Trump was considered ‘too big to fail’ by the banks with greatest exposure to his losses, and when he finally filed for bankruptcy he was able to keep his personal assets and have his business assets ‘reorganised’ rather than liquidated. His business losses in the early 1990s were more than $250 million a year, and in 1995, he declared losses of close to a billion dollars. No matter: under yet another set of new rules introduced in 1993, real estate investors could once more use their losses to claim deductions on other sources of income. This would, Cooper writes, have granted Trump ‘a tax deduction large enough to liberate him from all federal income tax for almost two decades’. He had ‘found a way to leverage his losses into a bailout’.

By the time​ Reagan was elected in 1980, the right had been trying for years to dislodge segments of organised labour from the New Deal coalition of unions and liberals. Nixon had tried appealing to the ‘blue-collar worker’ with law-and-order populism, and in the same period conservatives pitted militant public-sector workers, including women and African Americans excluded from the industrial workforce, against private-sector workers, imagined as men who made things. The non-working poor and the female nurses, teachers or social workers who serviced them were painted as unproductive participants in a dependency culture. Reagan’s administration tried to prise blue-collar workers away from their unions by appealing to them not as wage-earners but as homeowners and taxpayers. The construction worker – the post-industrial face of blue-collar labour – was the paradigmatic target. The hope was to build a coalition embracing those who owned and built houses as well as those who made money from them as assets.

The material conditions enabling this coalition were created by extending tax cuts and exemptions from corporate elites to small businesses and asset-holders. A key moment was the passing of Proposition 13 in 1978, an amendment to the California constitution that permanently limited property taxes to 1 per cent of a property’s assessed value. In the US, local property taxes are the main source of funding for schools and other public services. The campaign for Prop 13 therefore pitted teachers, the majority of them women, against blue-collar male heads of household, who were eventually persuaded to vote in favour of the amendment. This made supply-siders feel that they had hit on a winning strategy, and a possible solution to post-industrial decline: capital gains could replace wages as vectors of social mobility, and workers could be convinced to vote in defence of their property rights alongside business interests – so long, Cooper notes, as ‘these interests were coded as small and anti-establishment.’

In the run-up to Reagan’s election and during his administration, further efforts were made to maintain the double consciousness of the blue-collar worker. Tax cuts were framed as a way of restoring male authority at home and stabilising the family in the face of an inflation-induced decline in the male wage. They could also be represented as countering the state-sponsored racial integration of suburbs and schools. Legal devices were made use of too. Misclassification – familiar today from the gig economy, where companies like Uber treat workers as independent contractors to avoid having to give them benefits like holidays or sick pay – was used by bosses to suppress wages and avoid social security, insurance and tax obligations. It also elevated the contract-dependent construction worker to the status of small-business owner, reinforcing the claim that blue-collar workers had interests in common with asset-owners, when in fact the construction industry was made up of dynastic family firms that treated their workers with paternalist authority while benefiting from tax reforms such as those that led to the creation of ‘pass-through’ ‘small-c’ corporations, which allowed large businesses to claim the status of small ones. But the best coalition-building strategy of all remained rising house prices, and it wasn’t Reagan but Clinton, in the mid-1990s, who took greatest advantage of this, enhancing public subsidies for private homeowners by introducing a capital gains tax exemption on the sale of primary residences, with added perks for married couples. The Democrats were making a bid for the fragile loyalty of suburban homeowners, on which they still rely.

Ever since this period, home ownership has been central to the legitimisation of neoliberal extravagance, with its benefits conferred on a widening class of asset-holders. The flipside of this extravagance is austerity. The influence of the Virginia School came in the combining of balanced budgets with regressive taxation measures at state and municipal levels. Put this together with low property taxes and the consequences are stark. The poorest municipalities, where home ownership rates and property values are low, often have little or no public money to fund public goods. This is one of the US’s great fiscal injustices; it means, for example, that the rich can be educated in state schools with abundant resources, while schools in poorer communities are permanently squeezed. Some districts in states with regressive tax systems – Alabama, South Carolina, Idaho, Wyoming and Mississippi – have resorted to the most punitive forms of revenue-generation imaginable: not just consumption and sales taxes, but fees for the use not only of public parks, pools and libraries – basic public goods that are sometimes wrongly dismissed as luxuries – but also for services that are usually considered necessary to a functioning society: public toilets, rubbish collection, sewage, courts, ambulances.

The elevation of home ownership has also played a key role in the conservative backing of the traditional family. Neoliberals who might differ on other matters, such as fiscal policy, can come together around the politics of the family. The family also has a fiscal politics of its own, particularly when it comes to abortion. Today, evangelical Protestants and Catholic ‘pro-lifers’ are united in their opposition to abortion, but that wasn’t always the case. Until the 1970s, conservative Baptists and fundamentalist Protestants did not oppose abortion, and anti-abortion Catholics tended to defend the welfare state. But these groups shared an anxiety that the traditional family was under threat: inflation was eroding the male breadwinner’s wage; feminism and its defence of reproductive autonomy was undermining ‘family life’; unemployment, especially Black male unemployment, was making it possible for women to become heads of household (the racist myth of the Black matriarch loomed large in the conservative imagination); the federal state was pushing women into work, confiscating families’ money through taxation and ploughing it back into ‘taxpayer-funded abortion’ (the phrase ‘right to life’ was first coined as a defence of the family wage).

In the 1970s anti-abortion campaigns took shape in opposition to the federal government’s supposed fiscal profligacy, especially the funding of ‘socialised medicine’ and, above all, Planned Parenthood and abortion services (presented by conservatives as drivers of the national debt). As Cooper shows, some of the arguments mobilised to deny women’s reproductive rights were drawn from campaigns against eugenics, notably Catholic social welfarism which, concerned with the lives of the poor as well as the unborn, opposed the state as an agent of genocidal violence and saw ‘the Black foetus as its most vulnerable target’. At the time, Black nationalists and Black and anti-imperialist feminists were fighting against coercive sterilisation campaigns that targeted Black and Indigenous women and the Christian right took up the Black feminist critique of state eugenics – while largely disregarding the lives of actually existing Black children and ignoring the feminists’ commitment to free abortion on demand. The defunding of family planning services for poor and minority women was carried out in the name of the family, the Black unborn and the balancing of budgets.

The anti-abortion movement, founded fifty years ago, gained its greatest victory so far with the overturning of Roe v. Wade in June 2022, since when millions of women have been denied the right to terminate a pregnancy freely. So far abortion has been banned entirely in twelve states and effectively banned (with a gestational limit of six weeks) in four more; there are stringent limits in three other states and bans have been blocked or temporarily suspended in another two. Anti-abortion activists have repeatedly revived the anti-eugenics arguments of the 1970s. With Trump’s re-election on a ticket with J.D. Vance, an obsession with the ‘great replacement theory’ is now at the heart of executive power. Like Trump, Vance is a creature of finance who presents himself as something else. He has benefited both from a fiscal landscape that privileges private investment vehicles and from the patronage of investors like Peter Thiel, yet during the election campaign he posed as the man best able to help Trump defend the blue-collar homeowning coalition and win back the construction workers’ unions that defected to Biden after the broken promises of Trump’s first term (in the event, most of them went with Harris). One of his few consistent commitments is to the procreative family, and he has campaigned for abortion to be illegal without exceptions for rape and incest. The Trump administration is so far enacting this pronatalism by squeezing access to healthcare through its planned cuts to Medicaid, which, alongside Supreme Court decisions denying access to gender-affirming care and allowing states to block Medicaid funding for Planned Parenthood, will defund abortion access. The protection of the reproductive family still requires the subordination of women, and the subordination of women can still be used by the state as an alibi in its support of capital. Family formation and capital formation go hand in hand.

Cooper’s​ account of the family – not only a reproductive unit or a means of pooling income, providing care and maintaining authority, but a tax shelter and vehicle for holding assets – is part of a larger story about the selective application of austerity and extravagance under neoliberalism. Today, she writes, capitalism is no longer based on returns on industrial investment, a ‘regime of accumulation organised around production and measurable in terms of growth’. Instead we have a ‘regime of asset price appreciation’ – managed largely through tax exemptions and expenditures, and based on capital gains – in which the private family wealth fund rivals the public corporation. The rentier and the debtor: this is, Cooper’s analysis suggests, the primary class division of 21st-century capitalism.

The scale of this transformation may be overstated. The family has long been a key organisational unit of capitalist social relations; the corporation persists, and public asset managers remain more powerful than private firms; and there have always been wealthy dynasties, though profitable new financial instruments have been made available to them. Public incentives to private investment were part of the logic of postwar American liberalism from the beginning, and were inscribed in earlier tax codes. Older class divisions endure, and the accumulation of capital continues through old-fashioned means of production, which coexist with the novel monetary and fiscal environments described in Counterrevolutions. Although Cooper understates these continuities, she also rejects the common diagnosis that capitalism is in a long downturn. This diagnosis is made across the ideological spectrum, from economic liberals to social democrats to the Marxist left (to which Cooper is otherwise sympathetic). Her response is that we are overlooking the boom that followed the crisis of 2008 and putting too much emphasis on long-term decline because we use outdated economic indicators that were developed to measure growth during the Fordist phase of capitalism. It is true that savings rates and industrial investment have plummeted, but new forms of investment have replaced them, and these can only be revealed by accounting for capital gains (especially those that remain unrealised).

The point of this argument is as much political as diagnostic. What Cooper wants to show is that state fiscal decisions have always been the product of antagonistic struggle – over the extent of the social wage, state debt, and the actions that capitalist actors and institutions are willing to permit. Austerity is a choice. The protection of the family at the expense of other ways of living is a choice. The transfer of public wealth to private wealth is a choice – it’s a choice to make housing a financial asset, for example. Is abundance possible for all? Cooper thinks it is, if only we can realise the possibilities afforded by control of the money supply.

While politicians have long insisted, in Theresa May’s words, that ‘there is no magic money tree’ – that we need to balance the books and live within our means – what Cooper wants us to learn from her history of the battles over the tax code in the US is that those limits are not as they are presented to us. ‘We do not lack the means,’ she writes, ‘to collectivise public debt issuance, to monetise that debt, to channel that money into collective spending on education, healthcare, welfare and the transition to renewable energy, or to redistribute the ensuing social wealth. What we lack is the political will.’ Historically, the terms and occasions on which balanced budgets can be transgressed have been set by capital, not labour. But what if we shook the magic money tree and distributed its fruits fairly: if we seized the instruments of wealth creation and socialised finance, could we finally find a way of getting everything for everyone?

The trouble, as Cooper well knows, is working out how to move towards supply-side socialism in a situation where the radical left is a long way away from power (with the democratic socialist Zohran Mamdani’s victory in the Democratic primary for mayor of what was once Trump’s New York, perhaps it is closer than one might think). But limiting the power of capital over the state isn’t just a matter of changing the ruling party, or limiting the influence of neoliberals, as Cooper sometimes seems to suggest. The relation of the state to capital runs deeper, and though there are political choices to make, they are rarely made in circumstances of our choosing. The project of using technocratic means to achieve radical abundance is beset with structural constraints. And, as Cooper’s book shows, the daily struggles of economic life under capitalism remain as much about the organisation and control of time, work and sexuality as they are about the supply and distribution of money. What her account documents is that the horrors of austerity have been the flipside of a commitment by the state to asset-owners; a commitment that could end. ‘Extravagance for everyone’ is a rallying cry that gets at the true meaning of the right to life – a demand long distorted by the anti-abortion movement. Call it the hope or the dream – too long deferred – of public luxury.