Our Tax History Holds the Key to a Fairer System
New research shows that average tax rates for big earners have dropped precipitously since the middle of last century.
Taxation
Our Tax History Holds the Key to a Fairer System
New research shows that average tax rates for big earners have dropped precipitously since the middle of last century.
Tax Day 2024 finds the highest-income individuals, most profitable corporations, richest families and wealthiest investors all paying lower tax rates than they paid last century.
A steady reduction over the past 50 years in the tax obligations of those best able to pay has worsened economic inequality, harmed public services and driven up public debt. Creating a fairer tax system in the future begins by looking to the fairer tax system of the past. These are some of the findings of a new report released on Tax Day, April 15, by Americans for Tax Fairness.
We determined through original research that individuals with incomes over $1 million paid an average tax rate between 40-60 percent in the 35 years after World War II (1945-80), while the rate these days is only about half that, or 26 percent. But that’s just part of a larger trend, one that allows huge corporations and billionaires to go tax-free for years on end.
The average corporate tax rate in 2021 was less than 10 percent; while in the 1950s, ‘60s and ‘70s it averaged about 35 percent. Corporate dividends were taxed at the same rate as wages until the early part of this century, when the rate was cut nearly in half.
The estate tax has in recent years been rendered ineffective at curbing family economic dynasties, as families that used to pay taxes on income they passed down to the next generation can now hand over $27 million (and rising each year) tax-free, along with sheltering billions more in special trusts.
Inflation has eroded the value of a million dollars in the past half century, but separate data on the taxation of income over $10 million (which the IRS only began to release in 2001) closely tracks that of millionaire taxation. This implies that million-dollar-and-up incomes are a good proxy for high incomes more generally.
Instead of taking us back to a time of greater tax fairness — which not coincidentally was also a time of greater shared prosperity — Republicans want to take us further down the path of tax inequity. They want to permanently extend parts of the 2017 Trump-GOP tax law due to expire at the end of next year, which would mostly benefit the wealthy and add almost $4 trillion (including interest) to federal deficits over 10 years.
President Biden and fellow Democrats have already shown that they want to return us to the greater tax fairness of yesteryear — and then move beyond that to address the new challenges of today.
In 2022, they enacted the Inflation Reduction Act, which created a 15 percent tax rate on the “book income” of the 90 or so largest American corporations. (Book income is a more realistic measure of earnings than the “taxable income” reported to the IRS.) It also restored the depleted funding of the IRS to allow it to crack down on rampant tax evasion by the rich and corporations; and imposed a tax on the corporate stock buybacks that enrich CEOs and other wealthy shareholders at the expense of worker wages, and business and community investment.
President Biden and other Democrats want to do more to make our tax system fairer, including: taxing the unrealized capital gains of the nation’s handful of wealthiest households; raising the tax rate multinational corporations pay on their domestic and foreign profits; equalizing taxes on the income from work and wealth among the highest-income taxpayers; and demanding more from wealthy heirs and heiresses.
The challenges faced by our economy and tax system are different from those of the post-World War II years. But the principle applied then — that the rich should pay their fair share of taxes — is worth applying now.