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A Tax-the-Rich Lesson Finally Goes Public

Research & Commentary
December 06, 2010

by Sam Pizzigati

The National Archives in Washington, D.C. has just released a once-secret report that helps us understand how incredibly much today’s tax structure coddle the wealthiest among us.

By Sam Pizzigati

Our political order in the United States, a host of observers have noted over recent years, tends to tilt toward the rich. Last week, that tilting went severe.

On Monday, the White House called for a two-year freeze on all federal civilian workers. The freeze, said the President, would save $28 billion over the next five years. Extending the Bush tax cuts for America’s richest 1 percent will cost the federal treasury, just next year alone, $61 billion.

On Tuesday, federal unemployment insurance aid expired for 2 million jobless Americans, after a House move to extend the benefits fell short. Lawmakers could extend these benefits through the end of 2011 for $56 billion.

On Wednesday, Fed Reserve officials revealed that the nation’s central bank had during the high-finance meltdown handed $3.3 trillion in emergency loans, no strings attached, to America’s wealthiest. The loans, charges Senator Bernie Sanders, essentially provided “free money” to the country’s biggest banks.

On Thursday, Congress gave the green light to legislation that expands the school lunch program. The catch: Lawmakers opted to pay for this overdue expansion by cutting money for Food Stamps.

On Friday, the same day headlines announce a record high of U.S. workers out of work for over half a year, 11 of the 18 members on the President’s “bipartisan” deficit commission approved a budget plan that cuts the federal workforce by 10 percent — and drops the top tax rate on America’s rich from 35 to 23 percent.

On Saturday, top Senate Democrats failed to get a full Senate vote on extending the Bush tax cuts only on income less than $250,000, a not surprising outcome since the Senate’s 42 Republicans had all earlier pledged to let no legislation pass the rest of this year unless the nation’s rich get to keep all their tax cuts.

On Sunday, those rich rested — and probably grinned a bit. They had more reason to feel content than most Americans could ever guess. That reason didn’t come from Congress or the White House or the Federal Reserve. That reason came last week from a federal agency that rarely makes headlines. The National Archives.

Officials at the Archives have just released a 67-year-old U.S. Treasury Department report that places America’s current tilt toward the rich in eye-popping historical perspective.

For this new perspective, we have President Franklin D. Roosevelt to thank. Back in 1943, with friends of the fortunate in Congress doing their best to ease the war-time tax burden on America’s wealthy, FDR asked the IRS to research how many taxpayers were making over $67,000, about $1 million in today’s dollars.

The IRS would go ahead and compile the list FDR wanted. But the IRS did more than just identity the 2,090 taxpayers who collected income over $1 million, inflation adjusted, in 1941. The IRS list also indicated how much of each wealthy taxpayer’s reported income had gone to federal income tax.

This IRS research would never be released to the public during World War II, since federal law prevents — for privacy reasons — any disclosure of how much in taxes specific Americans are paying. After the war, the research sat molding away in file cabinets, its existence unknown to historians. Eventually, the IRS report would pass to the National Archives — and more obscurity.

That obscurity ended last week, after Archives staffers decided, the New York Times reported Wednesday, “that enough time had elapsed to make the information public.”

The newly released 1943 data make for absolutely stunning reading. We have simply never had clearer evidence of just how much America used to expect out of individual wealthy Americans — and just how little, by comparison, we expect out of our wealthy today.

We learn, for instance, that 1941’s top executive at IBM, Thomas Watson, collected $517,221 in compensation that year, about $7.7 million in current dollars. Watson paid 69 percent of his total 1941 income in federal income tax.

Last year, today’s chief exec at IBM, Sam Palmisano, took home $24.3 million for his executive labors. We don’t know how much income above that sum Palmisano reported in 2009, or exactly how much of that total he paid in taxes.

But we do know that the 13,374 Americans who reported incomes over $10 million in 2008, the latest year with IRS stats available, paid an average 24.1 percent of their taxable incomes in federal income tax.

In other words, IBM CEO Palmisano last year took home, after adjusting for inflation, over three times more than his predecessor Thomas Watson took home in 1941. Yet Watson in 1941 paid almost three times more of his income in federal income taxes than Palmisano likely paid in 2009.

Or consider the IRS report data on Carl Swebilius, the 1941 top gun at High Standard Manufacturing, a corporation flush with war-time defense contracts. Swebilius that year made the contemporary equivalent of $9.4 million from High Standard. He paid 73 percent of his total overall income in federal taxes.

The closest counterpart to Swebilius in Corporate America today? That might be Robert Stevens, the CEO at defense contractor Lockheed Martin. Stevens made $21.6 million last year. Over the last three years, he has annually averaged $30.5 million, over triple the 1941 inflation-adjusted Swebilius take-home.

Again, we don’t know exactly how much in federal taxes Stevens paid last year. He most likely, given the IRS figures for his income cohort, paid a bit over 20 percent of his total income in federal income taxes, less than one-third the 73 percent of income that Swebilius paid out in federal taxes in 1941.

In that year of world war, America’s wealthy faced an 81 percent tax rate on income in the highest tax bracket. That top rate would move to 88 percent on income over $200,000 in 1942 and 94 percent in 1944 and 1945.

Today, by contrast, the top marginal rate in the U.S. tax code sits at just 35 percent. If Congress lets the Bush tax cuts for income over $250,000 expire the end of this month, the top rate would move to 39.6 percent in 2011, still less than half the top rate in effect 70 years ago at the start of World War II.

Democracy cannot be safe, President Franklin Roosevelt warned Congress in 1938, “if the people tolerate the growth of private power to a point where it becomes stronger than their democratic State itself.”

The richest 1.5 percent of Americans, FDR would go on to note in that 1938 message, were raking in as much income as everyone in America’s bottom 47 percent combined.

Our contemporary super rich, research from Berkeley economist Emmanuel Saez documents, are actually taking home a substantially higher share of America’s income than their counterparts back in FDR’s time.

Americans of FDR’s time worried deeply about the concentration of economic power. Today, 70 years later, we have cause for concern even greater.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.

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