The Right’s Pushback Against Taxing the Rich

The rising public clamor for higher taxes on America’s wealthy has conservative ideologues increasingly uneasy. For good reason. They don’t have the numbers on their side. Or history either.

A simple but powerful chant is now starting to reverberate, all across the country, in protests against budgets cuts gone wild.

“How to fix the deficit?”, marchers are shouting, “Tax, tax, tax the rich!”. That sentiment, unfortunately, hasn’t yet reached deep into many law-making chambers. Last week, in the nation’s capital, Rep. Jan Schakowsky from Illinois did introduce legislation that would up taxes on income over $1 million, from the current 35 percent to a range of new rates that run from 45 to 49 percent.

But the budget debate in Congress still revolves almost exclusively around questions about how much to cut, with no attention at all to the vast untaxed fortunes of America’s super rich. In state legislatures, largely the same story.

So why are cheerleaders for America’s rich starting to sweat? They’re hearing the rising drumbeat — from labor and community groups the nation over — for new “millionaire” taxes. And they’re watching the polls, too. Over 80 percent of Americans, the latest surveys show, want higher taxes on our richest.

Apologists for the awesomely affluent, in the face of this swelling tax-the-rich tide, have now begun mounting a pre-emptive strike. Taxing the rich, their new argument goes, can’t possibly offset our budget shortfalls — because, as the National Review’s Kevin Williamson pronounces, “there aren’t enough rich.”

The National Review, the right wing’s most revered publication, ran two blasts along this line last week. Williamson, the journal’s deputy managing editor, ended his piece reverting back to standard right-wing tax myths. The rich, he claims, will either “lawyer up” to avoid higher taxes or flee to lower-tax jurisdictions.

His National Review colleague, Robert VerBruggen, tried turning to actual numbers, from 2008 tax returns, to make his case that “if we can’t raise taxes on anyone who’s not rich, the income tax can’t be of much help in increasing revenue.” But the numbers, on closer inspection, don’t support that assertion.

In 2008, the most recent year with complete IRS stats available, taxpayers making over $200,000 paid in federal income tax, after exploiting every loophole they could find, just 21.8 percent of their total income.

That’s considerably less than what America’s most affluent paid, after loopholes, 50 years ago. In 1961, taxpayers making over $27,000 — the equivalent of about $200,000 in today’s dollars — paid, on average, 31.3 percent of their total incomes in income tax.

Taxpayers making grander sums 50 years ago paid an even greater share of their total incomes to Uncle Sam. In 1961, income over $400,000 — that would be about $3 million today — faced a 91 percent tax rate. Income over $3 million today, by contrast, faces a 35 percent tax rate.

This 91 percent rate, remember, only applied to income over 1961’s $400,000 cutoff. Income under that $400,000 faced lower rates. And even some income over $400,000 — capital gains income, for instance — faced lower rates, too.

So what share of their total incomes did 1961’s seriously rich end up paying in taxes? Taxpayers with over $135,000 in 1961 income — the equivalent of $1 million today — paid an average 43.1 percent of their income total in federal tax.

In 2008, taxpayers making over $1 million gave Uncle Sam only 23.1 percent of their total incomes. In other words, the seriously rich 50 years ago paid almost twice as much of their incomes in federal income tax as the seriously rich today.

How much more in revenue could Uncle Sam raise today if our contemporary rich paid the same share of their incomes in federal income tax as 1961’s rich?

The congressional Joint Committee on Taxation last year projected that taxpayers making over $1 million in income this year will report, all together, over $1.1 trillion in income. Tax returns from taxpayers making between $200,000 and $1 million will total almost another $1.9 trillion.

All these taxpayers would pay a whopping $382 billion more in taxes this year if they had to pay at the 1961 effective tax rate, the rate the rich actually faced on their tax returns 50 years ago after taking advantage of every available loophole.

That’s nearly quadruple the $100 billion conservatives in Congress are trying to cut out of this year’s federal budget for everything from Head Start and college student aid to public broadcasting.

Congressional budget-whackers are going after the IRS as well. They want to chop $285 million out of the agency’s enforcement budget, this at a time when the IRS is finally, after the Bush dark years, starting to more aggressively audit the tax returns that America’s wealthiest file. Last year, the audit rate on returns reporting at least $10 million in income nearly doubled, to 18.4 percent.

Why do we need more audits at the top? The most recent IRS Oversight Board report estimates we’re losing $290 billion a year to tax cheats — and high-income taxpayers, one 2008 study has concluded, underreport their incomes at triple the “misreport” rate of average-income taxpayers.

The bottom line: Taxing the rich at the actual rates they paid a half-century ago — and doing more to make sure all the rich pay their taxes — would likely this year raise, at the federal level alone, an additional half a trillion or so.

Tax, tax, tax the rich indeed.

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.