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Entries tagged "income tax"
In February 1913, exactly a century ago, the Sixteenth Amendment gave Congress a constitutional green light to levy a federal tax on income. Later that same year, lawmakers made good on that opportunity. An income tax has been part of the federal tax code ever since.
So what can we learn, as progressives, from this first century of income taxation?
Steeply graduated income tax rates can help societies do big things.
A half-century ago, America’s federal income tax rates rose steadily—and quite steeply—by income level, with 24 tax brackets in all. On income roughly between $32,000 and $64,000, in today’s dollars, couples in the 1950s faced a 22 percent tax rate. On income that today would equal between $500,000 and $600,000, affluent Americans faced a tax rate of 65 percent. The highest 1950s tax rate, 91 percent, fell on annual income that would today exceed $3.2 million.
Today, our federal tax rates rise much less steeply. The current top rate? The “fiscal-cliff battle” earlier this winter raised the top federal rate on individual income over $400,000 from 35 to 39.6 percent, less than half the 91 percent top rate in effect through the Eisenhower years.
Those high tax rates in the middle of the 20th century made a huge difference. The revenue these tax rates generated funded new government programs like the justly celebrated G.I. Bill. Within a single generation, the United States went from a nation two-thirds poor to a nation two-thirds middle class. Americans saw the difference that government can make—and felt that difference personally.
Most Americans today, by contrast, don’t expect much from their government. And for good reason. Most of us around today haven’t seen our government undertake any major new initiative improving the quality of the lives we lead. In this low-expectations political environment, conservative lawmakers demand endlessly lower income taxes for everybody, at every opportunity, and mainstream liberals dare not even hint at raising taxes on “middle class” incomes under $250,000.
But back in our steeply graduated tax-rate past, politicians did dare talk about higher taxes, and middle class Americans didn’t much mind paying those taxes—for two reasons. They saw big results from the tax dollars they paid. They also knew that America’s wealthiest were sacrificing at tax time, too.
We don’t do big things in America anymore. But we could, if we made paying taxes politically palatable again. Steeply graduated income tax rates helped work that magic a half-century ago. They could work that magic again.
Read the rest of this article on The American Prospect's website.
July 29, 2011 · By Lacy MacAuley
Rallies and demonstrations on the debt ceiling crisis are expected to roll through Washington throughout the weekend, as long as Congress, House Speaker John Boehner, and President Barack Obama fail to resolve the deficit crisis that threatens to take the U.S. and global economy down a notch. Tea partiers, flag-waving labor unions, peace activists, gun-loving libertarians, and everyday Americans have all been showing up at the Capitol steps to have their say in the budget debacle.
Yesterday, 10-year-old Maceo Dolan-Sandrino was among the demonstrators. Maceo is from Maryland, just on the outskirts of Washington, the son of IPS Fellow Karen Dolan. He attended yesterday’s rally at the Capitol to oppose the cuts to our social safety net, services like healthcare and income assistance that many Americans rely upon through hard times. I thought it might be interesting to get a 10-year-old’s perspective on the day’s events. I asked Maceo what he thought about the protest.
At first, Maceo reported that he hadn’t really listened to anything, and that his feet had hurt. But when I asked him again, I got a different answer.
“The protest was about how John Boehner was going to take away social security and how he was going to – um, it was something about the taxes,” said Maceo. “Planned Parenthood was there and they had signs that said, ‘Don’t take away our birth control.’”
I asked Maceo if he realized that the United States was in debt, and that Obama, Boehner, and Congress were trying to decide whether to borrow more money. In return, Maceo offered a surprisingly searing analysis.
“It’s because the rich and wealthy people aren’t paying their fair share of taxes, and all of the big corporations are finding loopholes not to pay taxes, and then we don’t have enough money to pay our debts,” he said.
I found this comment to be incredibly astute. As IPS Fellow Chuck Collins wrote in an article for OtherWords, “Overseas tax havens enable companies to pretend their profits are earned in other countries like the Cayman Islands. Simply making that ruse illegal would bring home an estimated $100 billion a year.”
Making sure our government doesn’t tax the highest income brackets is another way the wealthy avoid paying their fair share of taxes. Since 1970, “the top marginal tax rate on our richest has been halved, from 70 to 35 percent, and our rich have become phenomenally richer,” wrote Peter Diamond and Emmanuel Saez in an article this month on toomuchonline.org. And you can bet that this tax rate plunge had a lot to do with campaign contributions to friendly elected officials. Money talks, Congress listens.
Unlike Obama, Boehner, or most members of Congress, Maceo intends to stick around for quite a while in order to help pay back the debt now being discussed in Washington. I asked Maceo about how he felt about our politicians leaving future generations to pick up the tab after the government has had its spending frenzy.
“I don’t feel good at all. No, I don’t think I’m going to have that money, because I know I’m going to have a family to take care of. So, I don’t feel good about that at all.”
Maceo is a sharp kid. If Obama, Boehner, and Congress listened to the wisdom of 10-year-olds, and made the wealthy pay their fair share for this budget, kids like Maceo wouldn’t inherit such a large debt burden for them to pay back through their taxes.
Tax the rich. For kids like Maceo.