The War That Never Ended

It is easy to date the “official” American Civil War. It occurred between 1861 and 1865. It is far more complex to answer the question whether the Battle of Appomattox truly resolved what so deeply divided the United States of America back then.

At the crux of the matter was the so-called 3/5ths Compromise at the U.S. Constitutional Convention of 1787. The position of the states in the country’s South, where most slaves lived, was that slaves should count as much as “free men” but only when determining the number of each state’s seats in the U.S. House of Representatives.

According to the South, slaves should not be accounted for at all when it came to establishing every state’s tax obligations towards the federal government. These were determined at the time by the size of a state’s population. The South viewed slaves solely as the property of their owners. The North took the opposite view.

The outcome of this dispute was an agreement that slaves should be accounted for as 3/5 of a free person for both purposes — representation and taxation. As the years went by, and as the nation grew from 13 founding states to 34 states in 1860, this unholy compromise caused deep political imbalances.

As a result of that expansion, the South had a near-stranglehold on the House of Representatives and the presidency (with all its military and foreign policy powers) through the Electoral College.

The policy implications were far-reaching. First, the Supreme Court was stacked with Southerners. Second, Southern states were “undertaxed” and Northern states were “overtaxed.” Third, a succession of U.S. presidents from the South lowered tariffs, because cheap slave labor made the South’s plantation exports very competitive and low tariffs were adding to that competitive edge.

The North, on the other hand, had urbanized, industrialized and modernized. It wanted more protectionism and higher tariffs in order to become competitive with rapidly developing Europe.

Enter Lincoln

All of this came to a head when a Republican, Abraham Lincoln, was elected President in 1860. At the time, Republicans were a force in the North, while Democrats were dominant in the South — the opposite of what is the case today.

Lincoln’s election was in part the result of divisions among Democrats. Lincoln’s opposition to slavery was laudable. However, to him it was far less a humanitarian concern than a smart position in the political power struggle between the North and the South over representation and taxation.

Even before Lincoln’s inauguration, seven Southern states declared their secession from the United States. Others followed in joining the Southern Confederacy afterwards. Military hostilities soon commenced and eventually ended in the defeat of the secessionist South in 1865. Four million slaves were freed, slavery was abolished and the 3/5ths Compromise was trashed.

Fast forward

Fast forward to the 20th century. Equal rights under the Constitution still weren’t either legally nor factually translated into equality between whites and blacks. Voter suppression and exclusion was widespread in the South. Racial segregation was dominant there and existent even in the North. Equal opportunity was not even a term of reference yet.

Almost two-thirds of the way through the 20th century, the Civil Rights Movement changed all of that, at least on paper. The Civil Rights Act of 1964 ended segregation in public places and banned employment discrimination on the basis of race, color, religion, sex or national origin.

And yet, the political struggle underlying race relations, the struggle between the highly advanced and industrialized Northeastern and Western coastal states of the United States and the largely rural, poor and underdeveloped South, continued.

Under the leadership of Richard Nixon, the Republican Party developed what was referred to as the Southern Strategy. Traditionally, because of the role Abraham Lincoln played as the first Republican president, Republicans were seen at the avantgarde of more equal race relations – and anathema in the South.

White anger

The Democrats of the South, on the other hand, were deeply aligned with segregationists. The Democratic governor of Alabama, George Wallace, who ran a third-party presidential campaign in 1968, was a posterchild of white anger.

Kevin Philipps, Richard Nixon’s chief political strategist, put it this way in an interview in 1970: “From now on, the Republicans are never going to get more than 10 to 20 percent of the Negro vote and they don’t need any more than that… but Republicans would be shortsighted if they weakened enforcement of the Voting Rights Act.”

“The more Negroes who register as Democrats in the South, the sooner the Negrophobe whites will quit the Democrats and become Republicans. That’s where the votes are. Without that prodding from the blacks, the whites will backslide into their old comfortable arrangement with the local Democrats.”

Hence, Republicans began to focus on white anger in the South. As Phillips predicted, white voters abandoned the Democratic Party in droves in local, state and national elections.

Most politicians are no fools when it comes to preservation of power. Southern Democratic leaders quickly switched party affiliations. Hence, the political makeup of Lincoln’s America was turned on its head. The Northeast and the Western coast became the domain of the Democratic Party, while the South became firmly entrenched as a Republican playground.

And yet, despite the abolishment of the 3/5ths Compromise after the Civil War, the political consequences of this evolution remain the same. The industrial and industrious Northeast and Western coastal states are politically underrepresented and fiscally exploited by a conservative, backwards and economically weak South.

Political underrepresentation

How so? Let’s start with political underrepresentation. The Founding Fathers designed a system that was possibly well-constructed for the nation of 13 states of the then-Union. However, as the nation grew, the democratic design flaws became inescapable.

In the U.S. Senate, each state is given 2 seats irrespective of population. This was to protect small states from undue dominance by larger states. However, most states that joined the Union subsequently are in the smallish category, by population.

As a result, the Senate is even more dysfunctional today as it was back then because many more small states were added after 1861.

As a result, large states (and the vast majority of Americans) are effectively tyrannized by the increasingly extremist majority of Republican senators representing small states.

Two senators serve the population of 574,000 souls in the state of Wyoming, while the same number of senators serve 40 million people in California.

In fact, if you look at senatorial races in 2016, 2014, and 2012 combined – a period during which all 100 seats of the U.S. Senate were up for election – Democrats received more than 10 million more votes in all senatorial races than Republicans. In a proportionate voting system, this would lead to a current Democratic majority of 54-46, rather than the Republican majority of 51-49.

The South rules

But even in the House of Representatives, which was designed to be proportionate to each state’s population, the South rules.

After every census the number of House seats for each state are recalculated to ensure such proportionality. Yet, so-called gerrymandering, i.e., the “art” of manipulating district borders to get one’s party’s candidates disproportionately elected, has made the House anything but “representative.”

Because Republicans dominate two-thirds of state governments, they have also greatly benefited from this unsavory practice following the last census in 2010.

In 2016, Republicans won 49.1% of the popular vote in all 435 races for the U.S. House of Representatives, compared to 48.0% won by Democrats. If the House were truly representative as conceived (and mind you, congressional districts were not part of the design and are not embodied in the U.S. Constitution), this should have resulted in a Republican majority of just 220-215 in the House, rather than the 241-194 tallied on election night.

The outdated Electoral College

The outdated and non-democratic Electoral College which effectively elects the U.S. President is made up of 535 members. That number represents the total number of Senators and Representatives combined. Since it is largely a winner-takes-all system, the margin of victory in each state is meaningless, which left us with a President in 2016 who received 2.9 million fewer votes than his opponent.

This systemic political disenfranchisement of the Northeast and West Coast has real policy implications for the North. As if that weren’t bad enough, the grievances of the North are just the same as they were at the time of the Civil War. The wealthy and populous North is politically underrepresented and fiscally overtaxed compared to the economically stagnant and deeply conservative South.

This bears out in the numbers: Consider that every country or region that shares a common currency must have a system of fiscal stabilization. This results in richer member-states paying more in federal taxes than they receive back in federal programs.

The purpose of this resource sharing mechanism is threefold: First, to synchronize levels of economic development across the U.S. over time; second, to even out business cycles across the U.S. dollar currency area; and third, to avoid asymmetric economic shocks that can affect poorer U.S. states far more than others.

America’s Empty Quarter

The Rockefeller Institute of Government reported in 2017 that the 15 U.S. states which received the most in federal programs for each $1 their residents paid in federal tax dollars are by and large poorer states predominantly in America’s South and in what one might refer to as “America’s Empty Quarter.” Eleven of them are governed by Republicans. Fiscally speaking, that is very much contrary to their own political rhetoric.

New Mexico tops the list of net recipients with $2.21 for every federal tax dollar collected there, followed by Mississippi ($2.13), West Virginia ($2.07) and Alabama ($1.93).

Only 13 U.S. states out of 50 in total are donor states. Seven of them are governed by Democrats, but among the six Republican governed donors, four have a combined population of just 4.6 million.

Also, four among the five donor states receiving the least bang for their buck are Democratic Northeastern states: New Jersey receives just $0.74 for every dollar in federal tax dollars collected, New York ($0.81), Connecticut ($0.82) and Massachusetts ($0.83).

It is also perversely “logical” in the American frame of things that, among the ten most low “tax-friendly” states according to Kiplinger (measured by levies such as state and local income taxes, local property taxes and state and local sales taxes), only one is also a “donor” state (Wyoming).

Trump’s tax bill

The Trump tax bill will make this much worse. Until 2018, all state and local taxes (such as property taxes) were deductible on the federal level. In other words, income spent on such state and local taxes was not taxed by the federal government.

That deduction is now limited to $10,000 per household. In high-tax states such as New Jersey, Connecticut, Massachusetts or California such limited deduction will hit the middle and upper-middle class a lot. No surprise that New York Governor, Andrew Cuomo, called the new tax bill a “declaration of economic civil war.”

Trump’s move will make these states even greater donors to net-recipient states. The federal tax take from these states will rise because of the inability of many individuals in those states to fully deduct their state and local taxes before paying their federal tax. It will leave many households in these donor states poorer, yet the distribution of federal programs to net recipient states is likely to remain unchanged.

By and large, the U.S. government did not collect federal income taxes until the 16th Amendment was adopted in 1913. Ever since, state and local taxes (other than sales and excise taxes) had been fully deductible in part to avoid double taxation and in part to compensate donor states.

These donor states are also at the core of American prosperity. California and New York alone account for 25% of U.S. GDP. Add to that the underrepresentation of the Northeastern and Western coastal states in the federal political system and it becomes clear: The Battle of Appomattox never settled anything.

Contrary to American folklore, the North never won the Civil War. And even without the 3/5ths Compromise, the formation of “a more perfect Union” promised by the preamble of the U.S. Constitution is nothing but a pipedream.

Also contrary to the American Dream, those states who do better by working harder and smarter, do not get rewarded but instead get punished. Some dream! More like a nightmare.