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February 21, 2006

Taxing the Rich Until They Don't Exist

By Neil the Ethical Werewolf

As you often read, the top tax bracket back in the late 40s and early 50s used to be high.  I mean, really high.  I'm talking about tax rates in the over-90% range.  And somehow, economic disaster didn't befall America.  Young liberal fellows like myself are often heard talking up Clinton and the 1990s as evidence that raising taxes makes for a happy economy (and obviously a low deficit), but look at the chart I've linked to and you'll see that the American economy did very well with much higher tax rates than we had even with Bill in charge.  The 1950s offer one example.  And the tax hike Bill brought us was nothing compared to the jumps we had in the past.  In 1916-1917, the tax rate on incomes over $2 million goes from 15% to 67%.  Granted, hardly anyone was making that kind of money.  But it's still quite a jump.

So when people ask -- "How are we going to fund free preschool and Medicare for all and all those other great liberal ideas?" -- shouldn't "raising the top tax bracket to something like 60%" be part of the answer?

February 21, 2006 in Taxes | Permalink

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» American Tax Rates from Minipundit
The Ethical Werewolf raises a quite good point - with worthy welfare state extensions like a basic income, single-payer health insurance, and free preschool and college, why not consider boosting the top income tax rates into the 50, 60, or [Read More]

Tracked on Feb 21, 2006 4:32:42 PM

Comments

Yep. I'd imagine there's a diminishing returns on the money/happiness scale anyway, in that after you obtain enough money to have a very nice house, a very nice car, a retirement account sufficient to allow you to travel the world in your old age, money enough to fund your children's educations, very good health insurance, and money enough that you can have lots of fun with it now, anything on top of that is diminishing returns. A yacht, for instance, isn't as important as a retirement account. At a certain point, the acquisition of wealth only really has a competitive benefit.

Posted by: Amanda Marcotte | Feb 21, 2006 4:08:51 AM

Yeah! The diminishing marginal utility of money is huge. It's what justifies all this progressive taxation stuff we're into.

Posted by: Neil the Ethical Werewolf | Feb 21, 2006 4:20:59 AM

heresy!!

HERESY!!!!

you must not question the right of the rich to have tax free dividends, estate transfers, and what not!! god will strike you down with pestilence and worse yet, fatcat Republicans will call you names. do you really want that?

Posted by: almostinfamous | Feb 21, 2006 5:23:34 AM

Well, the rate isn't really the problem here. I would suggest returning the rates to the Clinton years, and then going after the loopholes that allow people to avoid paying the proper rate. Enron, for example, avoided paying federal corporate taxes for years. Clinton era tax rates would likely more than finance everything we need if we'd start closing those loopholes.

Posted by: gswift | Feb 21, 2006 5:45:33 AM

As you no doubt understand (you ingenuous mastermind!), the problem here isn't with the policy (which is entirely sensible to the point of being boring), but with the politics. The idea that the really stupidly rich 'deserve' the money they 'earned' more than the poor 'deserve', oh, I dunno... food? Shelter? Health care (that is to say, 'life')? is one of the most pernicious ideas of the last 30 years. Unfortunately, as a dogma, it has a chokehold on the average US voter's mind. It's this memetic monoculture that needs to be broken, and broken utterly, before the US can return to sane tax policy.

Frankly, I wish I understood how to make the case that rich people don't actually deserve their hundred millionth dollar of income more then poor people deserve to have it given to them for food or shelter or medicine in a fashion that could convince people on a moral level. From that would spring all manner of not just good policy, but good politics.

Posted by: NBarnes | Feb 21, 2006 6:52:09 AM

I don't agree with GOP's Friedman-esque "Tax cuts at all costs" mentality, I believe in a graduated tax and higher taxes than we have now, but I must say that the idea many liberals have that the wealthy exist solely to extort wealth from to fund whatever entitlement program is not one that is aesthetically pleasing either. I don't know if there's diminishing returns on the money/happiness scale, but I'm sympathetic to letting those who possess the money, decide whether it makes them happy or better off rather than government.

I don't know about universal pre-school, but if we're going to get Universal Healthcare, that will take a tax Hike. 60% seems good, but I would object to the 90% figures of the Eisenhower pre Kennedy tax-cut years.

Posted by: Dustin R. Ridgeway | Feb 21, 2006 7:26:18 AM

Yeah! The diminishing marginal utility of money is huge. It's what justifies all this progressive taxation stuff we're into.

I would like to point out that the founding fathers saw theives like you coming and made income taxes unconstitutional. In our stupidity, greed and in our class warfare of the rich, an amendment was passed to specifically allow an income tax of 2% on income over $4,000. Bear in mind that at that time, 'income' was passive, mostly dividends and interest. Wages were not considered 'income'.
It was a fuck the rich scheme and it has morphed into the monster we have today who fucks everyone.

Posted by: Fred Jones | Feb 21, 2006 8:20:51 AM

While I can certainly appreciate the rhetoric of "tax the rich until they don't exist," I tend to agree with gswift that the tax rates of the Clinton years, coupled with action to close loopholes and go after the real tax cheats, should be pretty sufficient for us.

The way we sell our stance is to show how the wealthy, especially corporations, became so from benefitting disproportionately from public services. UPS and FedEx didn't create the interstate system, the public did. Bill Gates & the computer industry didn't create computers, magnetic memory or the internet, the public did. Remember all those lists of technologies that the space program has contributed to our daily lives? Things like microwaves, teflon and other cool stuff? We paid for that. All of it. Most of the drugs that are being sold to us as part of the most profitable industry - other than oil, maybe - were developed by people on our payroll. That's our research, and we're paying for it twice - once to develop it, and again to make rich people richer.

Anyway, the important thing to remember is that the GOP has worked harder to benefit corporations at the expense of the middle and lower class than they have wealthy individuals. They have worked to create a system in which corporations (incorporate literally means to legally become an individual person) have the same rights as the rest of us without having to live with the same responsibilities.

Posted by: Stephen | Feb 21, 2006 8:43:37 AM

Hands off my fuck-you money!!!!

Posted by: Dadahead | Feb 21, 2006 8:48:30 AM

They have worked to create a system in which corporations (incorporate literally means to legally become an individual person) have the same rights as the rest of us without having to live with the same responsibilities.

And what legal responsibilities does a natural person have that corporation does not?

Posted by: Fred Jones | Feb 21, 2006 8:49:02 AM

It's a bit funny, actually -- when you add in what we pay for the corporate welfare state, we actually devote a European-style percentage of our GDP to social services, we just spend it in a patchwork, inequitable, inefficient way that ensures we get just about nothing on the dollar. Also, I think if folks really understood the concept of marginal tax rates, the politics of the issue would be different. Problem is, you hear 60%, and you think it's 60% of your $42,000 a year.

Posted by: Ezra | Feb 21, 2006 8:56:20 AM

As I'm sure all of you will be shocked to find out, Fred is wrong.

Article I Section 8 gives Congress the power to "lay and collect Taxes", types of taxes not specified. Article I Section 9 required "direct taxes", again undefined, to be "in Proportion to the Census".

In the Pollock decision in 1895, the Supreme Court ruled that the income tax was a "direct tax". The Sixteenth Amendment was passed to specifcally override Pollock.

The IRS has a PDF of the first 1040 available here. Looking at it, you can clearly see that

Wages were not considered 'income'.

is simply incorrect.

Try again, Fred.

Posted by: Thlayli | Feb 21, 2006 9:13:50 AM

Hmm... Well, the first thing I though is, "What are marginal tax rates in the U.S.? If the infomation I found via google is correct then they are 35% now and were 39.6% in the Clinton years. Raising the top tax bracket to 60% is quite a jump. Generally high marginal tax rates are bad for the economy, but probably not as bad as massive deficits with no coherent plan to create surpluses before great numbers of baby boomers start retiring. Although high marginal rates can discourage people from earning extra income, if the top bracket only applies to the super rich it's unlikely to affect the amount of work done in the economy as few CEOs are likely to say, "Screw this! I'm only bringing four million a year now after tax! I quit!" And even if they do I think there would be quite a few people willing to fill their four million dollar a year shoes.

Normally I would recommend keeping marginal rates lower than 60% but I'm afraid America is in a very deep hole at the moment and unless some technology enthusists are right and high productivity figures are here to stay it will take a long time and a lot of hard work to get out. I'm afraid I don't see much money being available for great liberal ideas. That doesn't mean you shouldn't try them. They'll just have to be great liberal ideas done dirt cheap.

Posted by: Ronald Brak | Feb 21, 2006 9:15:40 AM

1. Adam Smith in his defining of the Free Market work, "Wealth of Nations" says the wealthy ought to pay more taxes because they get more from society. This would be in protection, both local police and national armed forces, use of regulations for a stable marketplace, use of courts... on and on. I tend to think of it as we are all renting a storage garage together - if their stuff takes up 60% of the place, they ought to pay 60$ of the rent.

2. The need for 'more and more' wealth is never ending because it is not about wealth but about relative status. It used to be that a wealthy, self made man was proud of his personal twin engine prop airplane. Now the top dogs must have a personal intercontinental Gulfstream jet. In evolutionary terms, it is proving that you deserve the seat close to the fire, the better nuts and berries, and the beautiful women (or strong men). The same relative status may be had at a much lower cost if the whole frame of wealth is repositioned at a lower absolute level. Tax away.

3. Historically the best of economic times were the 1950's and 1960's. The reason is that the wealth was spread around and so the demand for goods and services with sharply up. That rise in a broad based aggregate demand propelled the economy like never before. The rich, hoarding their money, cannot come close to spending the amounts that the middle and lower classes do on consumer goods. Transfering wealth to the middle classes is economically sound. We found this out by accident almost, although FDR used it as a reason for Social Security, and it is the sine non qua of economic prosperity. Even Jesus knew it. The arguement of the right having to do with incentives and disincentives is fakery. What high school boy is disincentivized from hound doggin girls just because the turn him down regularly. Incentives to do well are much like sexual incentives, they don't go away because they are artificially withheld - by young girls or by taxing governments.

4. The great sin of Ronald Reagan was a sea change of the American Character from a community orientation to an individualist orientation. The community as enacted through our government serves as a necessary countervailing power to the rise of corporate power. It must be balanced. In painting the government as 'them' instead of 'us' the community aspect of government has been dismissed. Taxes have been targeted as the personification of government evil. The individualist may be a nice dream - and is deep in our national mythology via cowboys and renegades, but it does not stand up to the power of corporate bodies.

Ed

Posted by: Ed D. | Feb 21, 2006 9:27:32 AM

For whatever it's worth, no one paid 90% marginal tax rates in the '60s. For instance, the Alternative Minimum Tax didn't even exist, so with careful use of charitable and business deductions you could avoid a lot of taxation. The Kennedy tax cut included an awful lot of loophole closing as well.

Overall federal revenues as a % of GDP were highest, I think, during the Eisenhower years, as we started paying for the interstate highway system.

Hiking top marginal rates to 45% would not be the end of the world. There are questions about keeping the political coalition together once you get into super-high rates; for instance, I imagine a lot of tech millionaires would not be terribly happy about being the only ones to pay for increases in government spending.

Posted by: Nicholas Beaudrot | Feb 21, 2006 9:46:38 AM

Looking at 1982 (and 1987) really makes it clear why Republicans love them some Reagan.

Posted by: JB | Feb 21, 2006 10:32:37 AM

The relevant figure when estimating the tax burden is not marginal tax rates, since, like the "sticker price" of a car, no one actually paid that much. Rather, you want to look at tax revenues as a percentage of GDP. By that metric, of course, the tax burden is much lower than it has ever been.

Posted by: Constantine | Feb 21, 2006 10:37:00 AM

Hey, thanks for the link! I stand corrected.

However, the wages issue was a small one and the main issues of my post were that it was a tax aimed at the rich and now.....

My how those unintended consequences get out of hand...

Posted by: Fred Jones | Feb 21, 2006 10:59:33 AM

Weren't those high taxes to pay for war, first WWI, then WWII?

Are we not looking at high taxes soon in order to pay for George, Dick and Rummy's big Iraq adventure?

Posted by: Sky-Ho | Feb 21, 2006 11:34:44 AM

The current GOP anti-tax orthodoxy is based on the work of Arthur Laffer, who famously drew a curve on a cocktail napkin that indicated that, above a certain tax rate, revenues go down because the economy slows.

One might say the problem is that Republicans always assume we're on the right side of the curve, and Democrats always assume we're on the left.

But the real problem is that the curve is kinda bullshit, because it's predicated on the theory that if your next dollar is taxed too heavily, you won't work as hard to earn it. But would any high-earner in their right mind choose to earn a dollar less because their next dollar will be taxed at 39% instead of 33%?

Posted by: seamus | Feb 21, 2006 12:19:46 PM

Uh, Fred I know you have been corrected already but you really need to read the 16th Amendment.

AMENDMENT XVI

Passed by Congress July 2, 1909. Ratified February 3, 1913.

Note: Article I, section 9, of the Constitution was modified by amendment 16.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Forget your unintended consequences, you know what it takes to get an Amendment to the Constitution passed, right?

Posted by: evilchemistry | Feb 21, 2006 2:37:28 PM

And what legal responsibilities does a natural person have that corporation does not?

Okay Fred, I'll bite. Let's say I'm as rich as Bill Gates. I decide that I want to build a $150 million home in Kansas City. Great. They love me. So I build it, get written up in the paper, I'm the toast of the town. I also get to pay property taxes every year on that home.

Let's say that the company I started, Macrosoft, decides to build a $150 million campus in Kansas City. Great. They love us. We're the toast of the town. Of course, They will also give me a 10-20 year TIF, so that taxes on the campus will not be paid for a decade or so. At which point I will either move or gain more concessions through the threat of a move (extortion).

Oh, but what about jobs? Well, there's the money from the construction, so that's good. But I also paid all that money when I built my house, and I still have to pay taxes. Then there's the jobs that the corporation provides on an ongoing basis, right? Well, about 1% or so of the employees are actually going to live within Kansas City. The rest will live in Lee's Summit, Overland Park, Leawood, Prairie Village and the like. The tax money that comes from their houses will go to those cities. The money they generate by consuming goods and services will also very likely not go to Kansas City. If I'm a resident of Kansas City dutifully paying my taxes on my property, I'm getting screwed while Macrosoft gets to dogde one of the principle responsibilities of a property-owning citizen: contributing to the public infrastructure of the community in which one lives.

And even if a whole bunch of the employees decide to live within KC, it doesn't matter. The USA is supposed to be a nation governed by law, a place where one's wealth matters not one bit in the eyes of the law. Individual citizens are not allowed to dodge property and income taxes just because they are rich (let's not talk about shelters and loopholes), but corporations, which are "individuals" that benefit greatly from publicly financed infrastructure and research, routinely are exempted from property and income tax. I help to fund plenty of jobs through my consumer activities, just because I alone don't contribute as much as a corporation shouldn't be a reason to allow them to be on the public dole.

Posted by: Stephen | Feb 21, 2006 3:07:45 PM

You know, you're right, Fred (words I never thought I'd say). Clearly, we need to get our taxation system off the backs of the poor and lower middle class and back where it belongs, on the upper middle class and rich.

I assume I can count on your support for my upcoming Congressional bid?

Posted by: NBarnes | Feb 21, 2006 6:05:45 PM

Well, Stephen,
While the fictional place and characters of your story are interesting, I believe you are claiming *business* gets perks, and that may be true because business creates wealth.

If Mr. Gates did not hold stock in a corporation, but was in a partnership or even in an unincorporated "Schedule C" business, wouldn't he be treated just the same? Wouldn't his business be offered the same tax abatements? Do municipalities really care what form businesses take? LLC be OK with them as long as they located in their city? Hint: it ain't the corporate form.

However, I do see your point. I just don't think it's a legal issue. (and here comes the shocker)......I don't like tax abatements and givaways when municipalities compete for their presence either. It fucks up the free market and influences business decisions based on taxes instead of real economic issues.


Posted by: Fred Jones | Feb 21, 2006 8:22:25 PM

Clearly, we need to get our taxation system off the backs of the poor and lower middle class and back where it belongs, on the upper middle class and rich.

Ummmm....I think we already have that. The Top 5% of taxpayers pay 50% of all taxes.

How much more do these 5% need to pay? Another 50%

Posted by: Fred Jones | Feb 21, 2006 8:31:48 PM

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