In 2008 we had 6 marginal tax brackets topping out at $357,700. In 1954 we had 24 marginal brackets and rates ranging from 20 – 91%. When we had progressive rates on the very rich, we built the world’s finest road, utility, education, space, and science infrastructure; and with that came the largest, most educated, and hardest working middle class the world had known. When today’s wealth accumulation is more concentrated than in 1999, when the richest 1% (about 2.7 million people) has as much to spend after taxes as the bottom 100 million, isn’t it time to go back and add a top tax bracket or two that worked?
In 1944 the top marginal tax rate on income over $200,000 was 94%.In 1954 the top marginal tax rate on income over $400,000 was 91%.In 1964 the top marginal tax rate on income over $400,000 was 77%.
In the 50s and 60s, the rich had many loopholes, as author Philip Stern pointed out in his Great Treasury Raid. Kennedy proposed closing many of those loopholes in return for lowering the top marginal tax rates.
In the 50s and 60s, WHEN THE MIDDLE CLASS GREW in America, the rich also did well. They just didn't do obscenely well. Back then, America had growing unions and wages.
Generally, one parent could work while the other concentrated on the kids. My three Teamster uncles and dad moved us, as did millions of other hopeful, hard working families, into America's growing middle class -- when the top marginal tax rates were very high.
Around the 70s, American lawmakers, who hear from more rich people than they do truck drivers, began lowering the top marginal taxable incomes. Who benefited most? America’s cheering super rich, whose tax tapped wealth had contributed to build our middle class.
This was a sneaky structural way to move healthy marginal rates down into the high middle incomes. It was a sneaky way to get upper middle income Americans to rant and rave about taxes, while not establishing other income brackets for those earning 1, 2, and 3+ million dollars per year.
The calculating super rich had lawmakers fashion them a tax code that allowed a plethora of loopholes. In addition, this beneficially fashioned tax code built them an army of complaining, overburdened, upper-middle-class Americans, who were carrying the tax load that the super rich were evading. The super rich were becoming mega-richer and using their richness to make sure they were not taxed as they were under Truman, Eisenhower, Kennedy, and Nixon.
In 1974 the top marginal tax rate on income over 200,000 was 70%, on earned income only it was 50%. In 1984 the top marginal tax rate on incomes over $162,400 was 50%. In 1994 the top marginal tax rate on incomes over $250,000 was 39.6%In 2003 the top marginal tax rate on incomes over $311,950 was 35%. (source) In 2008 the top marginal tax rate on income over $357,700 was 35%.
If one assumes an inflation rate of 4% since 1954, then 1954’s $400,000 top marginal income bracket in 2004 would have been $1,111,111. Maybe we should have continued something around 1954’s tax rates (91%) on the income earned above $1.1 million, and poured those revenues into making college educations more affordable to our shrinking middle class? Or filled our potholed riddled roadways? Or built a competitive rail system and rail industry?
In 2004, we had many individuals making not merely $1 million but $10+++millions. And these individuals seldom paid at the same rate that the tax-beleaguered upper-middle-class Americans paid. The upper middle-class has been heavily taxed, because we haven't imposed a progressive tax structure on those who earn over 1, 10, 20, 30+ million per year. We don't even have a bracket for those who earn 1+ billion per year. Even the world’s richest guy, Warren Buffett, thinks this is stupid and unfair tax policy.
When you let this disproportionate tax policy continue for generations, you lose a hell of a lot of tax revenues. In addition, wealth building goes to those benefiting from the tax code, which helps spoil children of the mega-rich with unearned inheritances while bleeding those of a once vibrant middle class who work longer and harder for less.
The average income of all households in 2000 was $42,700, while the 13,400 households at the very top had an average income of $24 million or 560 times the average. In 1970, the very top group had about 100 times the average. (Source: Perfectly Legal, David Cay Johnston).
In 2006, the top 400 earners on average pulled in $263 million each. On average, they paid a federal income tax bite of 17%, much lower than the advertised 35% top tax bracket and probably a lower rate than you paid. (Source: Forbes Magazine )
Think of one of your more competent friends. Let’s say he/she earned $100,000 in 2006. Do you really believe that those 400 Richest Americans work 2,630 times harder than your friend, or are that much smarter?