David Leonhardt had a very nice piece in the Times Magazine this weekend on the relative timidity of Obama's tax agenda. In particular, I liked this bit correcting the historical record on those confiscatory marginal rates. [Obama's] agenda is a bold one in many ways. Yet his tax code would still look more kindly on wealth than Nixon’s, Kennedy’s, Eisenhower’s or that of any other president from F.D.R. to Carter. And only part of the reason for this is widely understood.It’s well known that tax rates on top incomes used to be far higher than they are today. The top marginal rate hovered around 90 percent in the 1940s, ’50s and early ’60s. Reagan ultimately reduced it to 28 percent, and it is now 35 percent. Obama would raise it to 39.6 percent, where it was under Bill Clinton.What’s much less known is that those old confiscatory rates were not as sweeping as they sound. They applied to only the richest of the rich, because yesterday’s tax code, unlike today’s, had separate marginal tax rates for the truly wealthy and the merely affluent. For a married couple in 1960, for example, the 38 percent tax bracket started at $20,000, which is about $145,000 in today’s terms. The top bracket of 91 percent began at $400,000, which is the equivalent of nearly $3 million now. Some of the old brackets are truly stunning: in 1935, Franklin D. Roosevelt raised the top rate to 79 percent, from 63 percent, and raised the income level that qualified for that rate to $5 million (about $75 million today) from $1 million. As the economist Bruce Bartlett has noted, that 79 percent rate apparently applied to only one person in the entire country, John D. Rockefeller.Today, by contrast, the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change is especially striking, because there is so much more income at the top of the distribution now than there was in the past. Today a tax rate for the very top earners would apply to a far larger portion of the nation’s income than it would have years ago.
All that said, the concept of taxation has become completely unmoored from the social services and societal priorities it purchases. Taxes are spoken of almost as a "wealth penalty" of sorts: Politicians promise that the middle class and the upper middle class will be untouched. Taxes are a bad thing. The middle class doesn't deserve this bad thing. The rich, however, sort of do deserve it. They're rich.That's fine so far as it goes, but it only goes so far. You could easily imagine a somewhat more regressive tax structure that leads to a more progressive country. That's the case in Europe where more regressive taxes fund a much more progressive welfare state. The middle class pays more in health care taxes but gets much more in services. That "gets" part is crucial. And it gestures towards the problem with our debate over taxation: It's all about what we pay and never about what we get. Nobody wants to give money to Wal-Mart. But many people would like to give money to Wal-Mart in exchange for a large jar of pickles. Similarly, no one wants to give money to the federal government. But it's possible that many people would prefer to give $5,000 to the government rather than $7,000 to a private health insurer. Instead, we talk about rolling back the Bush tax cuts and changing the itemized deduction and the importance of never raising taxes on 95 percent of Americans. It comes off as taxation for taxation's sake, and politicians are reduced to targeting the rich because they're simply aren't that many of them.
