In 1975, during a debate over reforming the revenue code to exact higher taxes from wealthy Americans, Senate Finance Committee Chairman Russell B. Long of Louisiana, a conservative Democrat who opposed the measure, used ridicule against it by reviving an ancient doggerel: “Don’t tax you, don’t tax me, tax the fellow behind that tree.”
The fellow behind the tree was, in that instance, the put-upon rich man who, Long inferred, would invariably find a way to avoid additional taxation anyway, rendering reform efforts moot. Almost four decades have passed since then, and the fellow in question is still not paying his fair share; if anything, the tree he hid behind in 1975 has become an impenetrable forest.
It’s been nearly 20 years since taxes have risen appreciably on the American rich — and then only briefly; that was a result of the Clinton income-tax increase of 1993, which was quickly reversed in 2001 and 2003 under George W. Bush. Overall, federal tax rates on the upper 1% of US household incomes (defined by the New York Times in 2012 as incomes in excess of $380,000 per annum) have been trending downward for over a generation, beginning with the Reagan tax cuts of 1981. Meanwhile, the upper bracket’s share of the national wealth has skyrocketed.
In 2010, the top 1%, whose tax assessments approximate those in effect during the plutocrat-friendly Roaring Twenties, owned over one-third of the nation’s total net worth, while the bottom 50% owned just one one-hundredth. This privileged class also enjoyed extraordinary good fortune as measured by actual yearly earnings, including gains from investments; a survey of the world economy by The Economist magazine points out that its share of the national income reached 20 percent in 2010, roughly twice the comparable figure for Europe’s 1% and double what it had been in 1980, when America’s super rich began to outdistance their European counterparts.
On the eve of the 2008 financial crash, the rewards accruing to the 1% placed its members on a plateau not approached since 1929, just prior to the Great Depression and well before the leveling reforms of the New Deal, which are now in the process of being undone. We’re not talking just about salaries here. Tax expert David Cay Johnston calculates that circa 2000, the wealthiest 1% of Americans (roughly 1.3 million households) owned close to half of all the country’s stocks, bonds and cash reserves. If we broaden the base slightly, the wealthiest 15% controlled nearly all financial assets in the US. So much for America being an “ownership society.”
The stunning inequality these figures suggest is not an illusion; the US is the most unequal society in the developed world, and it’s becoming ever more so. Annual incomes of the wealthiest 1%, including the ultra-wealthy 0.1% ($1.5 million plus) — the “haves and have-mores” in George W. Bush’s felicitous phrase — have soared in the last 30 years. Between 1979 and 2007, The Economist reports, their disposable after-tax income quadrupled, a cumulative rise of over 300%, or eight times that realized by the poorest 20% of the population. The upper 1% received more than half of all US income gains from 1993 to 2010 and virtually all the increases generated since the technical end of the Great Recession in June 2009.
How have the majority have-nots been faring in the meantime? you might ask. Not nearly as well. The median American household income has actually gone down over the past decade — from $53,252 in 1999 to $49,445 in 2010, according to the US Census, a drop of better than 7%. Average annual wages have been correspondingly flat, based on US Labor Department statistics, inching up to $43,000 in 2011, barely higher than a decade (or three decades) ago. This puts the typical working American and his or her family squarely in the “taker-not-maker” category demeaned by the recent Romney campaign as below respectable middle class, which the candidate and his surrogates incredibly defined as $50,000 to $250,000 in income.
The key reason the American financial-reward system is so far out of whack is that the nation’s economic elite, who did not so much “build it” as inherit it, are not paying taxes commensurate with their mushrooming share of national income. Compared to the world’s other industrialized countries, the US is one large tax haven for the wealthy. In Europe, the norm for top-bracket income-tax rates is around 50%, compared to the token 35% lately applied here — to be adjusted upward by the recently passed reform, but merely to 39.6%.
But America’s wealthy do not have to cast their eyes overseas to see how lucky they are on taxes; they can simply look at our own income-tax history. The American rich paid top rates of 63 to 79 percent in the 1930s, 91% in the 1940s and 1950s, and 70% as recently as the 1960s and 1970s under the vaunted Kennedy tax cut. Since then, in an orgy of Reaganesque generosity, their rates have fallen decade by decade (except for the brief Clinton interregnum) to their present rock-bottom level.
Furthermore, these rolling tax reductions have applied not only to salaried income. The top rate on capital gains, the source of half the income of the upper 1%, has gradually fallen from around 30%, where it was in the early 1970s, to its present 15% — courtesy of the Bush tax cuts. Likewise, the top federal estate-tax rate on inheritances, as high as 77% in 1941 and still 55% in 2000, is now a paltry 35% for bequests over $10 million — again, courtesy of the Bush tax cuts. (Changes just enacted will increase these levels only slightly.)
So the bottom line is this: Tax rates for the privileged 1% are historically low by American standards and far lower in the US than almost anywhere else, while the 1%’s accumulated wealth and share of national income are in record-high territory and growing exponentially. Given these facts, the official coddling of this class — the expressed concern for its hurt feelings over imagined disrespect and the solicitous understanding of its “uncertainty” toward investment — needs to stop.
A return to the pre-Bush top tax rates on earned and unearned income and inheritances, only partially realized in the fiscal-cliff tax compromise, is the least we have a right to expect. Failure to fully achieve even that constitutes a betrayal of progressive principles.
Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.
From The Progressive Populist, February 1, 2013
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