In 1776 the United States became perhaps the only country ever to be founded after a revolution based largely on the explicit issue of tax rates. More than two centuries later the issue still resonates loudly, and not just among right-wing Tea Party activists.
Wealth for the Common Good, a group of left-wing trust fund babies and other wealthy individuals pushing for higher taxes on the rich, released a report Tuesday saying that from 1955 to 2007, the tax rate paid by the 400 highest-income earners fell by two-thirds. Meanwhile the tax burden on the middle class, WCG said, rose by about 1%.
If the top 400 paid the same tax rate today that they did in 1960, the federal government would collect another $48 billion a year, WCG calculates. The group figures the burden on the top 150,000 taxpayers–one out of every 1,000–has fallen by roughly half since 1960. If taxes were levied on them at the same rate today as in 1960, the group calculates, Uncle Sam would collect an extra $281 billion a year. (That includes the $48 billion of the top 400 and makes no allowance for the possibility that the rich might earn less–or cheat more–if their tax rates were higher.)
WCG was co-founded last year by Chuck Collins, an heir to the Oscar Mayer meat fortune. In 2003 he co-authored a book with William Gates Sr., the father of Microsoft cofounder Bill Gates, arguing for retention of the federal estate tax. The WCG Web site calls for “shared prosperity and fair taxation” and declares: “Economic policies in America have slowly but surely shifted to disproportionately benefit the nation’s top earners.”
To that end, the report proposed a number of tax increases, including the following:
–Creation of a new 50% tax bracket on income of $2 million and above. WCG said this would raise at least $60 billion a year.
–Endorsement of President Obama’s proposal to allow the Bush tax cuts to expire at the end of 2010 for those earning $250,000 plus. That would push the top rate on salary and interest from 35% to 39.6% and the top rate on capital gains from 15% to 20%. (In 2013, including a 3.8% Medicare investment surtax that was part of the recently passed health reform, the top rate on interest would climb to 43.4% and the top rate on capital gains to 23.8%.)
–Imposition of a “modest federal tax on every transaction that involves the buying and selling of stock and other financial products.” WCG says this would raise $100 billion a year and “dampen the rapid speculative turnover of stocks.” No details were given.
–Reinstatement of a stiff estate tax on estates of $2 million or more, which WCG said would still only tax one out of every 200 estates. (Under current law the estate tax has lapsed for 2010 and will return in 2011 with a $1 million exemption.)
The WCG study is hardly the only one to note the precipitous drop in taxes paid by the wealthiest. The Internal Revenue Service made much the same point in a recent study of the 400 taxpayers with the highest annual income
The “IRS 400,” an irregularly published study that names no names, was inspired by the Forbes 400 list of America’s wealthiest, naming names since 1982. But there is a big difference: The IRS measures annual adjusted gross income, while Forbes measures net worth. It is thought there is not a great overlap because net worth includes unrealized capital gains not included in taxable income.
WCG isn’t the first to make the point that the rich are paying lower rates these days. No less an authority on wealth than top billionaire Warren Buffett, who runs Berkshire Hathaway, has said his secretary pays a higher tax rate than he does. On the other hand, many conservatives say low tax rates are an incentive for the wealth accumulation they consider to be at the heart of American economic growth and the American dream.
The WCG report notes that the top marginal tax rate was 91% in 1960 before it started dropping during the Kennedy administration. The effective rate (total tax paid on gross income) for the “IRS 400” dropped from 51.2% in 1955 to 16.6% in 2007. The report says the effective rate on the middle class–defined as the middle 20% of taxpayers–rose from 15.9% in 1960 to 16.1% in 2007.
The authors assert, “Our nation has borrowed money to pay for the tax cuts that have gone and continue to go to America’s wealthy, a reality that will have future generations of mostly middle-income taxpayers footing the bill–with interest–for these tax cuts.”