October 7, 2011
The debate over taxing the rich has ratcheted up, with Democrats this week proposing a 5.6 percent surtax on millionaires to pay for President Obama’s jobs program and Republicans responding with charges of “class warfare”.
Republican House Majority Leader Eric Cantor said that raising taxes on the rich was unfair and misguided and would only discourage small businesses from creating new jobs. Obama replied on Thursday at his White House news conference that far from engaging in “class warfare,” the Democrats were “simply asking millionaires and billionaires to pay their fair share.”
To a large extent, the debate is about politics, rather than economics. Each side believes that it has the support of a majority of Americans, but both can’t be right.
Historically, taxing the rich has been supported by both parties across the ideological spectrum. Even Thomas Jefferson, whom many Tea Party members worship, supported higher taxes on the wealthy. In an 1811 letter to Thaddeus Kościuszko, he defended the tariff because it would force the rich to pay more. “The rich alone use imported articles,” Jefferson wrote, “and on these alone the whole taxes of the General Government are levied. The poor man, who uses nothing but what is made in his own farm or family, or within his own country, pays not a farthing of tax to the General Government.”
It was Republican Abraham Lincoln who created the first federal income tax to finance the Civil War. And it was Republican William Howard Taft who helped enact the 16th Amendment to the Constitution to overcome constitutional objections to a permanent income tax. And it was Republican Herbert Hoover who raised the top income tax rate from 24 percent to 63 percent in 1932 when the Great Depression decimated federal revenues.
Democrat Franklin D. Roosevelt asked Congress to raise taxes on the rich in 1935 as a matter of equity in a time of economic suffering. In a message to Congress on June 19, he said, “People know that vast personal incomes come not only through the effort or ability or luck of those who receive them, but also because of the opportunities for advantage which government itself contributes. Therefore, the duty rests upon the government to restrict such incomes by very high taxes.”
Privately, Roosevelt worried about the growing support for crackpot schemes to end the Depression. To keep them in check, he had to increase the perception of fairness in the capitalist system. “I want to save our system, the capitalistic system,” he told an emissary of the archconservative newspaper publisher William Randolph Hearst. To do so, Roosevelt said, “It may be necessary to throw to the wolves the forty-six men who are reported to have incomes in excess of one million dollars a year.”
In the 1950s, Republican Dwight Eisenhower fought his own party to keep the top tax rate over 90 percent, saying it was needed to help balance the budget. Republican Richard Nixon signed into law the Tax Reform Act of 1969, which raised the capital gains tax rate from 25 percent to 35 percent and created a minimum tax to ensure that the rich could not escape taxation through the use of tax loopholes. Republican Gerald Ford supported the Tax Reform Act of 1976, which raised the minimum tax and further restricted tax loopholes for the wealthy. On signing it into law, he said, “We are moving toward a tax system under which each taxpayer bears his or her fair share of the overall tax burden.”
Republican Ronald Reagan supported taxing capital gains as ordinary income – they are now taxed much less – and supported higher taxes on corporations. Defending his tax reform proposal in 1985, Reagan said:
We're going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary, and that's crazy. It's time we stopped it….
What we're trying to move against is institutionalized unfairness. We want to see that everyone pays their fair share, and no one gets a free ride. Our reasons? It's good for society when we all know that no one is manipulating the system to their advantage because they're rich and powerful. But it's also good for society when everyone pays something, that everyone makes a contribution.
It’s hard to imagine a Republican speaking those words today. Conservatives insist that the rich are, in fact, overtaxed and have suffered more from the recession than any other group. In an October 6 blog post, Tax Foundation president Scott Hodge lamented that the overall income of millionaires has fallen 50 percent since 2007. I’m sure the unemployed will find this comforting.
Polls, however, show that a substantial majority of Americans feel much less sympathy for the plight of the ultra-wealthy and support higher taxes on them.
- A September 13 Harris poll found that 73 percent of people believe that the rich are getting richer and the poor are getting poorer.
- A September 20 Gallup poll found that people support higher taxes on those making more than $200,000 by a two to one margin.
- A September 29 Pew poll found that a growing percentage of people believe that the nation is being divided into haves and have-nots. The percentage has rise 10 percentage points since 2009.
- An October 3 CBS News poll found two- to one support for raising taxes on millionaires. It also found that only 18 percent believe it would hurt job creation.
Even many rich people – and not just Warren Buffett -- admit that they ought to be paying more taxes. On September 19, Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, wrote on his personal blog:
I am not advocating that we raise taxes for everyone. I think that is a huge mistake. I do think billionaires should pay more. We have benefited the most financially from this great country, and it is the right thing to do to give more back in a time of need. I believe those of us who have achieved windfalls in the stock market should pay more as well. My tax rate back in 2000 was far greater than today, and I had no problem with it. My tax rate when I sold my first company in 1990 was even higher. I had no problem with it. Nor should any entrepreneur or investor who makes the big score.
In my view, deficit reduction demands higher taxes on the wealthy or else all of the burden will fall on those that depend on government spending. If those that can afford to pay more don’t, then the rest of us will have to pay more. That’s not class warfare. That’s mutual sacrifice for the good of the social order.