This year on Tax Day, for the first time in decades, America’s wealthiest have some genuine reason to worry: The bargain-basement tax rates they’ve enjoyed for over a generation may be on the way out.
That prospect would have seemed ridiculously remote just a year ago. The recently passed GOP tax cut had knocked the top tax rate on personal income down to 37 percent, and new loopholes knocked the actual rate the rich paid considerably lower.
"In the decades right after World War II, America’s rich faced tax rates that hovered as high as 91 percent and never dipped below 70 percent. Rates like these now once again seem suddenly plausible."But then, this year, everything changed.
On Capitol Hill, Rep. Alexandria Ocasio-Cortez dared to suggest a near-doubling of the top tax rate, to 70 percent on income over $10 million. Inside the Beltway, jaws dropped. Outside, Americans cheered. Pollsters found solid majorities supporting the hike.
The Ocasio-Cortez proposal had historical precedent, too. In the decades right after World War II, America’s rich faced tax rates that hovered as high as 91 percent and never dipped below 70 percent. Rates like these now once again seem suddenly plausible.
But progressives need to tread carefully. We need to do more than simply rechannel the past. We need to learn from it.
Those high taxes on high incomes in the mid-20th century certainly did make a difference. The gap between the average incomes of America’s top 0.1 percent and bottom 90 percent dropped by over three-quarters. But those high tax rates on high incomes couldn’t be sustained.
Why not? The problem isn’t progressive taxation itself — the idea that tax rates should rise as income levels rise. It’s that in our unequal political system, these rates are vulnerable to sabotage by the wealthy.
The traditional approach has rested on tax brackets tied to a specific income ranges. In 1959, the federal tax code sported 24 such brackets. A married couple then paid a 26 percent tax on income between between $69,000 and $104,000 in today’s dollars. Top-bracket income over about $3.5 million in today’s dollars faced a 91 percent top rate.
Escalating tax rates like these leveled down incomes at America’s economic summit and, in the process, nurtured an economy that worked phenomenally well for average Americans. Everyday households saw their real incomes double in the quarter-century after World War II.
But postwar dollar-delimited tax brackets had a fatal flaw: They created a deep-seated political asymmetry. They left the nation’s richest with an intense vested interest in killing those high tax rates on their high incomes.
That passion, coupled with their still formidable power, pounded against high tax rates throughout the postwar years. Eventually, after Ronald Reagan’s 1980 election, the rich pounded high taxes on high incomes completely away.
How could we restore those high taxes without repeating this unfortunate history? By rethinking how we structure progressive tax rates.
Imagine thresholds for tax brackets set not at specific dollar figures, but as multiples of our most basic yardstick of economic decency: the minimum wage.
"With higher tax rates pushing the wealthy to support higher wages for working people, Americans of modest incomes would likely become much more passionate defenders of high tax rates on high incomes."Say we placed a 70 percent tax on all income over 100 times the annual income of a full-time minimum wage worker. That worker would earn just over $15,000 a year at the paltry federal minimum of $7.25 an hour.
That, in turn, would trigger a 70 percent tax rate on income over $1.5 million.
The immediate impact? Our richest would have a personal interest in raising the wages of our poorest. The higher the minimum, after all, the less of their own high incomes would be subject to a 70 percent tax.
The second key impact: With higher tax rates pushing the wealthy to support higher wages for working people, Americans of modest incomes would likely become much more passionate defenders of high tax rates on high incomes.
Higher minimums, working Americans already understand, have a ripple effect that raises paychecks above minimum-wage levels. Not only would they organize to keep those wages up, they’d fight to keep the top tax rates that protect those wages.
We shouldn’t, of course, get carried away here. If we successively linked new steeply graduated tax rates to the minimum wage, the Koch network and others would do relentless battle against these rates. But they'd find themselves waging this battle in a far less favorable political environment. They would face a much more passionate opposition.
Linking our top tax rates to the incomes of the least among us, in other words, won’t guarantee the sustainability of high tax rates on high incomes. But this linkage would guarantee a much fairer fight. Americans of modest means might even win it.