Today, the richest Americans control a greater share of the country’s wealth than during the Gilded Age of Carnegies and Rockefellers, a period of unprecedented concentration of wealth in the late 19th and early 20th centuries. This is partly due to significant decreases in taxes on the rich.
Throughout the 1900s up to 1963, the very rich in this country – those with incomes greater than $3.4 million in today’s dollars – paid the top marginal tax rate of 90 percent. In1963, President Kennedy asked Congress to reduce the rate to 70 percent. In the 1980s, under President Reagan, the rate was lowered first to 50 percent, then to 28 percent. Now, the top marginal tax rate is 37 percent for individual single taxpayers with incomes greater than $626,350 and married couples filing jointly with incomes above $751,600. However, IRS records show the wealthiest 25 individuals actually pay a tax rate of 3.4 percent. That’s because much of their income is derived from investments, and they gain from a variety of tax deductions and credits; not only can they afford tax attorneys, accountants, and estate planners, but they have access to tax advantages that only the wealthy can afford.
Working Americans pay higher tax rates than wealthy taxpayers. According to the American Tax Policy Institute, a nonpartisan organization that promotes and facilitates scholarly research and analysis of tax policy issues, someone earning $45,000 a year, for example, pays a tax rate of 14.9 percent. Those in the middle class who are unable to game the tax system can certainly feel taken advantage of.
From 2010 through 2020, Congress reduced the IRS’s appropriations by nearly 20 percent, after adjusting for inflation, leading to fewer audits of wealthy taxpayers and large corporations. The cuts appeared to have ended with the passage of the Inflation Reduction Act (IRA) under President Biden, which boosted funding for the IRS by nearly $80 billion through 2031 – in addition to annual appropriations – to improve the agency. Armed with the additional funding, the IRS hoped to boost taxpayer compliance and capture some of the more than $160 billion in tax revenue the Treasury says it loses every year because the top one percent find ways to avoid paying “their fair share” – as it is engraved on the Treasury building, Taxes Are What We Pay for Civilized Society. The IRA allowed the IRS to augment its staff and modernize its computer systems to have rich people pay what they rightly owe; last September, the IRS posted 3.700 jobs “that generally focus on audits” of “higher-income and complex tax areas like partnerships, not average taxpayers making less than $400,000.”
Why else is it important to audit wealthy taxpayers and large corporations? Records show that an experienced IRS auditor brings in an estimated average of $5,000 for each hour of auditing high-income taxpayers. In addition to those who are audited, their accountants and other taxpayers are less likely to make intentional or unintentional mistakes in the future, resulting in less tax evasion and more revenue. It’s important to have a tax system that is fair and allows the IRS to efficiently collect what it is responsible for: 96 percent of the revenues that fund the federal government.
But Congress has chipped away at the IRA funding and frozen the IRS appropriations. The IRS has reportedly lost more than 30 percent of its revenue agents in the last few months, including seasoned agents who are responsible for high-end enforcement work. An analysis from the Center for Progress estimates that the loss of thousands of IRS employees would cost nearly $1 trillion over the next ten years.
The budget package just passed by the Republicans in the House of Representatives offers a stark contrast between its effects on high-income and low-income households. The bulk of the financial benefits in the legislation would accrue to the wealthiest Americans, courtesy of tax-cutting measures such as those for business owners, investors, and homeowners in high-tax areas. However, middle- and low-income earners would be worse off, largely because Republicans partially offset the bill’s tax cuts, estimated to cost about $4 trillion or more, with reductions in social safety net programs, including Medicaid. The Congressional Budget Office, a nonpartisan federal scorekeeper, estimates incomes for the bottom 10 percent of households will fall by 2 percent in 2027. A Yale Budget Lab analysis found the top 20 percent, who earn more than $128,000 a year, would see their income grow by an average of $9,700 in 2027; the top one percent would gain $63,000.
Republicans are probably unaware of an 1848 committee report to the State Senate of Ohio that said, “Rightful taxation is the price of social order. In other words, it is that portion of the citizen’s property which he yields up to the government in order to provide for the protection of all the rest.”
Mark Berg is a community activist in Adams County and a proud Liberal. His email address is MABerg175@Comcast.net.
I find the issue of taxation similar to the gun rights issue: any attempt to alter it will be met with intense opposition. I believe there are only 2 approaches available to the Left. The first is to close as many loopholes that exist in the current system as possible. The second is to introduce the idea of a flat tax rate. The problem with both options is that there’s little political incentive to do either. Both parties have grown quite wealthy under the current system.
Well written, article!
Mark, Just curious, you closed with a mention of an Ohio 1848 committee report – what was the federal income tax rate for the rich in 1848?
No surprise that this administration’s bill is catering to the wealthy. It’s the only group Trump cares about (as long as they support him and tell him how great he is). There’s no danger in cheating on taxes in that group either – he’ll pardon them as he has done now for several others who cheated common people out of their money. It’s a good ole boys club taking care of each other – while tossing out sound bites his base wants to hear, and maybe a bone or two off the table. Meanwhile, US reputation suffers (everywhere outside the… Read more »