The Lost Art (and Joy) of Taxing the Rich

Eight decades ago, at a pivotal turning point in American history, our nation’s richest faced a 94 percent federal tax rate on their income over $200,000, the equivalent of about $3.5 million today. At that point, near the end of World War II, only one other nation — the UK — taxed its rich at a steeper rate. The wealthiest Brits ended the war facing a 97.5 percent tax on their top-bracket income.

These stiff top tax rates — all nearly unimaginable today — would help usher in a generation of unparalleled economic progress for average Americans and Brits. And those rates ebbed only slightly in the postwar years. In the 1950s, America’s richest faced a 91 percent top tax rate. The GOP president then sitting in the White House, Dwight Eisenhower, made no move whatsoever to hack that top rate down.

Overall, notes the economist Thomas Piketty, America’s wealthiest faced an average 81 percent top tax rate between the years 1932 and 1980, one key reason why our richest 0.1 percenters — over the course of the 20th century’s middle decades — saw their share of the nation’s wealth sink from 25 to just 7 percent.

The rich — on both sides of the Atlantic — would spend plenty of time stewing about that shocking sink throughout those middle decades. But these deep pockets would eventually regain their political mojo, first in the UK with Margaret Thatcher’s 1979 political ascent and then a year later with Ronald Reagan’s election. By 1988, the UK’s top rate had sunk by over half, and America’s richest faced just a 28 percent top-bracket bite.

But none of this tax cutting — back then and ever since — has brought us the nirvana that the Thatcherites and Reaganites promised. We’ve experienced no uplifting trickle-down. We have, instead, witnessed an incredibly intense concentration of wealth that has recreated the same sort of top-heavy economic imbalances that ushered in the Great Depression almost a century ago.

The Democratic Party in the United States and the Labour Party in the UK have had, since the late 1980s, some modest success undoing the most generous of the tax breaks that have gone rich people’s way. The mainstream leadership of both parties has over recent years signaled, at least rhetorically, support for undoing even more.

In 2021, for instance, the Labour Party insider set to become the UK’s top finance official should Labour regain a majority in the upcoming 2024 elections, reaffirmed her support for hiking the tax burden on her nation’s grandest fortunes.

“People who get their income through wealth,” opined Rachel Reeves at that time, “should have to pay more.”

The Labour Party’s prime-minister-in-waiting Keir Starmer last September pledged to undo the ruling Conservative Party’s axing of Britain’s 45 percent top-bracket tax.

“I would reverse it — be absolutely clear about that,” Starmer told the BBC.

The UK Conservative Party’s tax giveaways to the rich, Starmer would add at the Labour Party’s annual conference last fall, rested on the “wrong headed” argument that “if you allow the rich to get richer, somehow that money will trickle down into the pockets of all the rest of us.”

But Starmer and Reeves have both changed their tune over recent months. In June, Starmer openly backpedaled on his commitment to press for a higher tax rate on top incomes if Labour triumphs, as polls now predict, in Britain’s next elections. Then Reeves, asked if Starmer’s about-face meant that Labour was abandoning the tax-the-rich path, started spouting a standard rich people-friendly line.

“I don’t see a route towards having more money for public services that is through taxing our way there,” she told reporters. “It is going to be through growing our way there. And that’s why the policies that we’ve set out are all about how we can encourage businesses to invest in Britain.”

“We have no plans for a wealth tax,” Reeves went on to emphasize at the end of August. “I don’t see the way to prosperity as being through taxation. I want to grow the economy.”

But that economy’s growth, the British labor movement detailed last month, is enriching only the already rich. The UK, says Trades Union Congress general secretary Paul Nowak, now needs “ to start a national conversation about how we tax wealth in this country.”

That conversation appears to be exactly what the Labour Party’s current leadership seems intent on quashing. Britain’s 50 richest families, notes the University of Sheffield’s Prem Sikka, hold more wealth than the entire bottom 50 percent of the nation’s population. Yet the Labour leadership, he points out, will not consider broadening “the tax base by levying a wealth tax.”

This leadership, Sikka goes on, wants Labour “to be seen as a party of fiscal responsibility,” a stance that can only bring on a continuation of the Conservative Party’s “austerity and real wage cuts for public sector workers.”

“The UK is splitting apart,” a New Statesman analysis last month would agree, “fueled by a tax system that entrenches inequality.”

The United States, in the meantime, faces the same split and a similar inequality-entrenching tax system. The Democratic Party in the United States also faces, like the British Labour Party, a general election in 2024. Will the mainstream leadership of the Democrats follow the Labour Party’s leadership lead and reject the sort of bold moves needed to fix that tax system? Or will the Democratic Party take inspiration from the serious tax-the-rich agenda of the New Deal years so long ago?

The struggle to answer questions like these will define and determine our future.