Time to Tax Super Rich and
Corporations at 1950s Levels
If you're on the side where all the
hotshots are, then (life's) a game all
right-- I'll admit that. But if you're on
the other side, where there aren't any
hotshots, then what's a game about it?
-- Holden Caulfield
By John F. Miglio
Back in the 1950s, when old Holden Caulfield was lambasting members of the establishment for being "phonies," most Americans-- even working-class Americans-- could afford a house, two kids, a car, and a two-week vacation on one income. Yes, that's right-- one income!
But there was one big difference between then and now. Back then, we had strict corporate oversight and accountability, strong labor unions, and a fair tax system. A lot has already been written about the lack of corporate oversight and accountability in our current financial crisis, and everyone knows labor unions have lost much of their power and influence over the last few decades, but most individuals are not aware of how radically our tax system has shifted since the 1950s; how it has gone from being a very progressive system designed to spread the wealth to average Americans to a system that rewards the wealthiest, most well-connected investors and the largest, most powerful corporations.
Here are the facts. In the 1950s, the tax rate on top-bracket individuals was over 91%. Seems incredible, doesn't it? But that's what it was-- check the tax tables if you don't believe me. http://www.ntu.org/main/page.php?PageID=19
Naturally there were loopholes in the system, and wealthy individuals did not effectively pay the entire 91%, but they did pay a high percentage of it because there weren't as many loopholes as there are today. Today, top-bracket individuals pay taxes at a 35% rate, but with all the loopholes, they pay much less than that. Also, many wealthy individuals earn their livelihood from capital gains, which are taxed at 15%, compared to the 25-30% range most middle-class individuals pay on ordinary income. As a result, wealthy individuals are accumulating more and more net worth.
According to the most recent Federal Reserve figures, the top one percent of income earners in the United States today, those earning over $315,000 per year, own over 40% of the country's net assets. Ironically, these upper bracket individuals, who seem quite well off to most people, are like minimum-wage workers compared to the upper half percent of the one percent, individuals in the billionaire class, like Bill Gates or Warren Buffet.
Forbes Magazine reported in 2006 there were 793 billionaires in the US with a combined net worth of $2.6 trillion. In March 2007 Forbes reported that the number had risen to 946 billionaires with a combined net worth of $3.5 trillion. That is a one-year increase of 19% in the number of billionaires and an increase of 35% in their net worth during a time of increasing poverty and stagnant wages for ordinary Americans.
Now you don't need a PhD in economics to figure out that if the wealthiest individuals in society are being taxed at a rate of roughly 55% less than they were in the 1950s, there is a lot less money in the Treasury for social programs and job creation; hence a lower standard of living for average Americans-- soon to be a much lower standard-- one that will make the 1950s lifestyle of Ozzie and Harriet look more like the Duke and Duchess of Windsor--if our current financial crisis isn't resolved.
But that's only half the problem. Aside from middle-and-working-class Americans losing ground to the upper one percent on the personal side of the tax equation, they are also losing out on the corporate side. In the 1950s, large corporations were taxed at a rate of 50-52%. Today they are taxed at a 35% rate. And according to Robert Perrucci, author of The New Class Society, in the 1950s, large corporations paid 27% of the total tax load. Today, they only pay 10%.
In fact, many corporations pay no tax at all. According to the Government Accountability Office: "Seventy-two percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005." So who makes up the difference? We do, we all do.
Of course, conservatives and libertarians always make two arguments whenever anyone points out that the super rich and multinational corporations are benefiting at the expense of everyone else.
The first argument: raising taxes on individuals, especially during an economic downturn, only makes conditions worse. True, if you raise everyone's taxes, but if you are only taxing the upper one percent, the additional funds in the treasury can be used for all kinds of social programs and job creation-- not to mention balancing the budget.
The second argument is that raising taxes on corporations won't work because they will only pass on the taxes in the form of higher prices to consumers. Not true. Corporations fiercely compete with other corporations for market share, especially during an economic downturn, and most large corporations, like Microsoft or Exxon Mobil, can well afford to cut their profits without increasing prices. And if other corporations, not as profitable as Microsoft or Exxon Mobil, operate on such a slim margin of profit that they can't afford higher taxes, then tough luck-- it's time for them to get out of business since many of them are shipping American jobs overseas and not paying taxes anyway.