As we have seen previously when a Republican has won a presidential election, the progressive individual income tax—in which the more you earn, the higher of a percentage of your earnings are subject to taxation—has once again become a target for dilution or elimination. We have long heard about schemes like the “flat tax,” where tax brackets are abolished in favor of a universal percentage rate. During the closing days of his second presidential campaign, Donald Trump went further, calling for eliminating the income tax entirely.
“When we were a smart country, in the 1890s…this is when the country was relatively the richest it ever was. It had all tariffs. It didn’t have an income tax,” Trump said. “Now we have income taxes, and we have people that are dying. They’re paying tax, and they don’t have the money to pay the tax.”
We should probably start by noting that Trump’s proposal is based on historical fiction. The individual income tax brings in half of federal tax revenues, which is a lot of money. “It’s an absurd idea for many reasons, the biggest being that it is mathematically impossible to replace the income tax with tariffs,” Erica York, senior economist at the conservative Tax Foundation, told CNN. “Imports are a much smaller tax base than taxable income, and there’s no way to squeeze enough revenue from taxing imports to fully replace taxing income.” Tariffs currently bring in about 2% of federal income.
The 1890s weren’t too bad…for a few years. They called it the Gilded Age—until the Panic of 1893, which triggered a severe depression, staggeringly high unemployment and massive social unrest. The resulting decline in tax collections forced the imposition of—wait for it—an income tax that was overturned about a year later by the Supreme Court. In fact, income taxes came and went throughout the 19th century. As for the U.S. being “relatively the richest it ever was,” that’s debatable, but also a ridiculously low bar. The miserable economy of the first century and a half of American history was punctuated by bank failures, stock market crashes, widespread unemployment and depressions so severe that money stopped circulating at times and people had to make do with barter. Between the Panic of 1819, the Panic of 1837, the Panic of 1873 (which led to the Long Depression) and the Depression of 1882-1885, Americans were either losing everything or accumulating wealth that was about to be lost. We were a sh—hole country.
The modern income tax as we know it came to be with the ratification of the 16th Amendment in 1913, which clarified Congressional fiscal prerogatives. It is hard to imagine, without this massive new source of income into the federal treasury, that the United States would have successfully fought in World War I, much less developed into the global superpower that it is today. While the boom-and-bust cycle of American capitalism has devastated countless lives and businesses, in the 20th century the federal government collected sufficient funds to create a rudimentary social safety net, something people of the 19th century could only have dreamed of. That was almost entirely due to the income tax.
Progressive income taxes have the dual advantage of being fair and practical; the richer you are, the higher percentage of your income you can afford to pay. A person who earns $200,000 a year and pays 50% of that in taxes still keeps more money in the end than someone who earns $100,000 a year and pays 40% in taxes. The government taxes rich people because, as the bank robber Willie Sutton was falsely said to have said, that’s where the money is.
If we want to draw lessons from history about the relationship between taxation and economic prosperity, perhaps it would be more relevant to consider the point at which the U.S. tax code achieved peak progressiveness.
In theory, this would be the early 1960s, with a top marginal rate of 91% charged to the highest income individual taxpayers in the top 1/100 of 1%. There has been a general downward trend against progressivism since then; currently taxpayers who earn more than $609,000 a year have a 37% marginal rate. But taxes are complicated. As the economists Thomas Piketty and Emmanuel Saez wrote in 2007, “the numerous deductions and exemptions mean that the tax rates listed in the tax tables might be a poor measure of the actual tax burden faced by each income group. In addition, some forms of income, such as capital gains, have traditionally faced lower tax rates; this benefits disproportionately high-income taxpayers.”
The effective tax rate—the actual percentage of your income that you actually end up paying—is what we need to look at when considering whether the current tax system is sufficiently progressive. That data is clear: while the effective tax rate for the average earner has remained at about 14% since World War II, it has fallen from about 50% to about 25% today. Rich people are, more than ever before, where the money is—income disparity is at a record high—but the federal government is taxing them half as much as they used to.
A word about the flat tax, which will likely come up for discussion as even right-wing Republicans in Congress quickly come to realize that Trump’s idea is a nonstarter: the only thing to recommend is its simplicity. No more complicated deductions, no more saving your receipts. It’s simple. It’s also insane: someone who earns $20,000 a year can’t afford to pay taxes at all.
There’s nothing wrong with trying to simplify a tax code so complicated that Americans pay billions of dollars a year to experts to calculate, prepare and file their taxes. But there’s nothing complicated about slapping the biggest burden on the wealthiest Americans who, after all, enjoy the best of everything that America has to offer. If you get to sit in the box seats in the arena and eat the best food and hobnob with the top players, you should pay the highest price.
(Ted Rall (Twitter: @tedrall), the political cartoonist, columnist and graphic novelist, co-hosts the left-vs-right DMZ America podcast with fellow cartoonist Scott Stantis. His latest book, brand-new right now, is the graphic novel 2024: Revisited.)
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