We, the People
"We, The People" is capitalized (and is proper). It is specifically referring to the citizens of America; and The United States Constitution, which starts: "We, The People".
It is not capitalized in, "Are we the people?", because it is asking the question, of, "We, The People", as to whether or not, we are still We, The People (United)... or if we've changed so much, that we no longer share the same (American) ideals the Nation was founded upon... which, in this song, refers to, most strongly, The Bill of Rights (personal freedom), as well as personal responsibility, among other things.
Lastly, "We, The People: Are we the people?", should appear in the same line, exactly as it is shown. The question is being specifically addressed to, 'We, The People'. Thus, it is one "lyric-line" and should not be separated, else its meaning becomes somewhat ambiguous, especially when "We, The People" is not shown properly capitalized. James is not simply singing a "play on words". If a "play on words" was the only intent and no question was being asked/addressed to 'We, The People', then, and only then, should it appear separated into two lines.