Image courtesy Gage Skidmore.
In his joint address, President Biden proposed trillions of new spending, financed by forcing the rich to “pay their fair share”. As Dan O’Donnell notes, this ignores a century of evidence that this will not work.
April 30, 2021
Perspective by Dan O’Donnell
Years and decades go by, names and faces change, but the democratic message remains the same.
“The average working man and woman pay for the loopholes and special provisions in our tax laws because if some fail to pay their fair share, the majority must pay higher taxes to make up the difference,” President Jimmy Carter said in 1978.
“While most Americans paid higher taxes on lower real incomes, the privileged few paid lower taxes on much higher real incomes,” said President Bill Clinton in a radio address three weeks after taking office in 1993, paying their fair share along with companies whose tax burden is in has decreased dramatically over the past 12 years. “
“When it comes to reducing the deficit and investing in our future, should we ask middle-class Americans to pay more at a time when their budgets are already exhausted to the point of radical change?” President Barack Obama asked in a 2012 radio address. “Or should we ask some of the richest Americans to pay their fair share?”
The latter is the obvious answer for every single Democratic president of the past half century, and Joe Biden is no exception.
“It is time for American businesses and the richest 1% of Americans to pay their fair share,” he said during this week’s address to a joint congressional session. “We will reform corporate taxes so that they pay their fair share – and help pay for the public investments that will benefit their companies. And we will reward work, not wealth. “
Like his predecessors, Biden is proposing a fist deal for government handouts to saddle future generations with an unsustainable burden of debt. To sell this, he and every recent Democratic president coated it with a healthy amount of class envy.
They have made their weapon against resentment an art form for the past five decades, but their central claims – that the rich don’t pay enough taxes and that higher tax rates generate higher tax revenues – are completely dishonest.
Almost as soon as the 16th Amendment was ratified in 1913 and federal income tax was introduced, it became clear that lower tax rates – not higher – increase federal revenues dramatically.
The highest marginal rate when federal income tax was introduced was only seven percent, but to fund World War I it rose to an astronomical 77 percent. After the war ended, the tax laws of 1921, 1924 and 1926 lowered the maximum rate to 24 percent by the end of the decade.
However, as tax rates fell, tax revenue rose 61 percent from $ 719 million in 1921 to $ 1.1 billion in 1928. Treasury Secretary Andrew Mellon, who led the tax cuts under Republican Presidents Warren G. Harding and Calvin Coolidge predicted this.
“The history of taxation shows that taxes that are inherently excessive are not paid,” he said. “The high tax rates inevitably put taxpayers under pressure to withdraw their capital from productive business.”
With the onset of the Great Depression, the highest marginal rates rose to 64 percent in 1932 and rose to 94 percent in 1944 to fund America’s participation in World War II. It stayed there until the early 1960s when Democratic President John F. Kennedy proposed lowering all tax rates to reverse a flagging economy.
Like the 1920s, it worked. Tax revenue rose 62 percent from $ 94 billion in 1961 to $ 153 billion in 1968.
In the early 1980s, the peak marginal rate was still above 70 percent, and the economy struggled again after the malaise of the Jimmy Carter era introduced the nation to the concept of “stagflation”.
This led to what is known as bracket creep, in which inflation pushed taxpayers into higher tax brackets even though their inflation-adjusted income had not increased. To counter this, Republican President Ronald Reagan signed the Economic Recovery Tax Act of 1981, which indexed the tax brackets for inflation and lowered the highest limit rate to 50 percent.
Five years later, the Tax Reform Act of 1986 lowered the maximum rate again to 28 percent and further reduced the tax burden for all brackets. Just like in the 1920s and 1960s, tax revenues rose dramatically from 1981 to 1989, this time by 99.4 percent.
The maximum rate rose to 39.5 percent in the 1990s, but in both 2001 and 2003 Republican President George W. Bush cut tax rates across the board and then cut them back to 35 percent. Tax revenue rose again dramatically from $ 1.99 trillion in 2001 to $ 2.52 trillion in 2008.
Both Republican and Democratic presidents have recognized that lowering tax rates will stimulate economic growth and generate more tax revenue for the government. The reason for this is simple: if people, especially those with high incomes who are more likely to employ others, are allowed to keep more of the money they make, they tend to invest that money back to grow their businesses.
In return, they earn more money, which is then taxed. Even with a lower tax rate, more taxable income means more tax revenue. It also means that those with higher incomes pay a higher percentage of the total income tax burden. Every time the highest marginal tax rates have been lowered in the last century, the share of the highest earners in total income taxes has increased.
That percentage has risen following the recent tax cut signed by Republican President Donald Trump in 2017. Recent IRS data refutes the longstanding Democratic narrative that the rich are not “paying their fair share” and shows that the top percent of wage earners pays approximately 40.1 percent of all federal income taxes. In fact, they paid so much that they paid a higher percentage of the total tax burden than the bottom 90 percent of the workforce combined.
The rich don’t just seem to be paying their fair share; You pay everyone’s share. The American income tax system is so advanced that the top 50 percent of the workforce now pays a whopping 97.1 percent of all federal income taxes, while the bottom 50 only pay 2.9 percent.
This is of little concern to generations of Democratic presidents who have ignored the simple lessons of history. Lower tax rates, especially in the top classes, invariably spur economic growth and generate the revenue needed to fund all kinds of nonsensical welfare programs.
Pledging the future by combining trillions of new spending with tax policies that stifle future economic growth and subsequent tax revenues is therefore the height of stupidity, but sadly, for Democratic presidents like Biden, it’s all too well known.