House Speaker Paul Ryan and President Donald Trump are moving on to their next big policy change: tax reform. Here’s a quick overview of what we know so far about the potential legislation: tax cuts across the board, with a heavy emphasis on the rich and, at best, performative relief for middle and lower income Americans.
When the GOP starts talking tax reform, the Democratic Party should demand that the conversation begin with a 91 percent tax on all income over $10 million. This is a reasonable tax. It only affects around 300,000 Americans. But lest you think that’s unfairly targeting a minority of the country, consider this: 1 percent of Americans control over $1.37 trillion of the nation’s wealth. They have enough. It’s well past time they started paying their share.
A 90 percent tax rate on earnings of over $10 million could result in almost $600 billion in tax revenues on only the top 1 percent of the top 1 percent of Americans, who average a yearly income of around $30 million according to a 2014 study by The Atlantic ($20 million by 90 percent, or $18 million times 31,800, or .01% of the country’s population of 318 million). That’s enough to almost wipe out the $638 billion deficit in one year.
It’s not as if a high tax on the rich isn’t a politically plausible idea. The idea regularly polls well with a majority of Americans. In February, post-election polling by Quinnipiac found that Americans oppose lowering taxes on the rich by a two-to-one margin. Americans have been telling pollsters for over a decade that the rich pay too little in taxes. Raising the rates on the wealthy seems like a simple and politically palatable solution to tax reform.
Pushing for high taxes on the nation’s super-rich would be a winning strategy for the Democrats, though that’s hardly a guarantee they’ll take the opportunity. The party has been stuck in an endless Ouroboros feedback loop of bad political decisions to support their donor base for decades. But perhaps this time, with Trump as the president and with an angry, demanding base, the Democrats will finally take a stand.
But for anyone who’s been paying attention to economic trends of the past two decades, especially in the United States, this looks unlikely. The cycle goes as follows: the GOP controls the executive brach and passes massive tax cuts for the wealthy which tank the economy, the Democrats come in and more or less prop the economy back up without instituting meaningful reforms, the GOP win the executive again and pass massive tax cuts for the wealthy which tank the economy, the Democrats come in, etc, etc.
We all know that the GOP line about cutting taxes to stimulate the economy is a lie—it’s been proven over and over again that increasing taxes on the rich to fund public investment is the quickest way to restarting an economy. Just look to Portugal to see the success of this model, just look at the weak Obama recovery to see what happens when you don’t use the tactic.
Yet this wasn’t always US political orthodoxy. As recently as the 1970s, when Nixon famously said “we are all Keynesians now,” the rich were expected to pay a sizable amount of their income in taxes to benefit the society that had given them their wealth in the first place.
The tax rate on the top earners in the 1950s in America was a whopping 91 percent. Though it should be pointed out that the effective tax rate was around 70 percent, that’s still about double the nominal 33 percent that the richest Americans pay now—today the effective rate is closer to 24.7 percent.
That’s a big drop, and it’s been paralleled by a rise in income inequality and a national economy built on bubble after bubble. In contrast, the economy of the 1950s and 1960s was, for the most part, stable. It’s not hard to draw the line between the vibrant economy of the post-war period and the contribution that the high tax rate made to that vibrancy.
A high tax on the richest Americans seems the best way to reform the tax code—will anyone in Congress have the sense to suggest it?
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