Columnist looks back at “fair shares” through history • George Warren
Part of the reason for the recent fiscal cliff debacle was President Obama and his fellow Democrats insisting the rich were not paying their fair share, and had to pay more. He won– raising rates on over $400,000 income. Let’s take a hard look at that assertion. This same old saw is how they conned America into amending the constitution in 1913 to allow income taxes in the first place. Our original Constitution prohibited levying any taxes on a per capita (individual) basis. Federal revenues were all expected to come from tariffs, excise taxes and fees. The first income tax rate was to be 1 percent on incomes up to $20,000 (truly rich at the time), up to 7 percent on incomes over $500,000 (zillionaires and robber barons). This Revenue Act of 1916 also gave us the predecessor of the Estate Tax–tax you when you make it and tax you when you leave it–10 percent for estates over $5 million. The rates and limits on both began to grow immediately. Obama just raised the estate tax to 40 percent.
Today’s liberals back up their desires to further soak the affluent by reminding us that income tax rates had progressed to a max rate of 91 percent by the 1950s, and America was prospering like it never had before. We know, of course, that John Kennedy cut rates slightly in his term, and Ronald Reagan, with bipartisan support from Tip O’Neill, cut them drastically to two basic rates– 15 percent on the lower income and 28 percent on the wealthy.
But we hear little about the fact that in order to accomplish this, they eviscerated or eliminated numerous tax shelters available to the super rich at the same time. With the Reagan changes, the rich could no longer offset most of their earned income with these dubious tax shelter losses. Clinton later raised the max tax to 39.6 percent, but George W. Bush lowered it again to 35 percent, with a ten year sunset provision. Thus, we had the 12/31/2012 problem.
According to radio host and author Peter Schiff, the 91 percent tax rate of the '50s was a fantasy, simply because of the tax shelters available in the 50s. In 1958, out of 45.6 million taxpayers, only 236 had any of their income taxed at even 81 percent or higher. But another 28,600 taxpayers earned the $93,168 amount (still truly wealthy at the time) which put them at marginal rates as high as 30 percent. Still, they paid only 5.9 percent of all the income taxes collected. Today, those making over $209,000 (Obama’s hot spot, but not really truly rich anymore) pay 49.7 percent of all the income taxes collected.
It is further worth noting that since 1958, the share of all income taxes paid by the top 3 percent has risen from 29 percent to 51 percent, an increase of 74 percent, while the percentage paid by the bottom two-thirds has fallen from 29 percent to a meager 7 percent, a decrease of 77 percent.This 77 percent decline in burden on the low income class represents the single biggest difference in the way the tax burden is shared in this country since the 1950s. Are you listening, President Obama?
How was it accomplished? One way was Reagan’s elimination of tax shelters for the ultra rich. Two, was the addition of Earned Income Tax Credits during the Ford administration; for the low income class, if you can call them that. Today, a family of five can earn as much as $49,078; and receive a government check on April 15 for as much as $5,751. This is a government gift, not a tax refund. By playing fast with filling out their W2 withholding form, they may even have been able to avoid having any income taxes withheld from their check each week all year, but they still get the gift check.
In order to make it seem that everyone pays income taxes, the Democrats began to refer to the Social Security and Medicare deductions as “payroll taxes.” Purists argue this is not really a tax, since its collection is directly connected to individual benefits you will ultimately receive back personally later, just like buying an annuity. Regardless of where you come down on the issue, you can not argue with the fact that 75 percent of all taxpayers pay more of this deduction than they do income tax. That is three-fourths of all taxpayers! And Obama lowered even this deduction by a full one-third with his stimulus plan.
Still, I do agree with Obama; there is one small, elite group of ultra rich which needs to be brought to justice tax wise, and yet we never hear Obama, Congress or the TV pundits speak of them. I refer to hedge fund managers, who usually operate on the basis of a 2 percent of managed assets guarantee, plus a full 20 percent of all profits, even though they may have none of their own money invested. These profits are then taxed at a flat 15 percent, under an IRS Regulation referred to as “Carried Interest.” To me this is purely earned income, and this regulation is a horrific travesty of justice. In 2010, the top 25 managers (zillionaires and robber barons) made over $1 Billion (with a “B”) each, and this was taxed at a flat rate of 15 percent. It was this group, along with Wall Street Brokers, that brought us the crash after 2007. You need to write your President and Congressman today and demand the elimination of this outrage!
All this data reinforces my belief that the fairest income tax is a flat tax. We all (enjoy?) the same government, we should all pay for it accordingly. I could even concur with allowing dependent exemptions to help young families, but let’s eliminate all deductions, including mortgage interest and charity, and charge every wage-earner a small flat head tax each year. In 2011, U.S. personal income totaled just under $13 trillion. A 10 percent flat tax on everyone would have brought in $1.3 trillion. This exceeds the $1.2 trillion that was actually collected. And every citizen (rich or poor) should be willing to pay 10 percent of his or her income to fund their government. Even God asks for no more. What could be fairer?
Printed in the January 24, 2013 edition.