Tax Racket
The History of Taxes
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Volunteers from the American
Association of Retired Persons help low income seniors fill out tax forms. When income tax
was first enacted, only the richest people paid.
Photo ŠJim West, Impact Visuals |
It took decades of organizing and a
Constitutional Amendment (the Sixteenth Amendment, enacted in 1913) to finally get a tax
on income in this country. The workers and farmers who fought for the tax saw it as a good
way to take back some of the robber barons’ ill-gotten gains. And it was a great deal
for working people: The first income tax was paid only by the richest 5 percent of
households.
After payroll taxes were introduced in 1943, workers began to shoulder
more of the federal tax burden. Still, in 1944, only 16 percent of the average
worker’s income was subject to federal income tax. Even in the middle of a major and
expensive war, the average tax bite was light: about 4 percent of income.
The very rich, on the other hand, got whacked. Under labor-backed
president Franklin D. Roosevelt, taxes on the super-rich rose to 90 percent. No American,
said Roosevelt, needed an income above $25,000 (about $250,000 a year in today’s
money).
Unfortunately, the postwar period saw corporate power gradually increase.
And unions, always the defenders of steeply progressive taxation, took a political
beating. Partly as a result, by 1964, the average worker paid about 10 percent of his or
her income in taxes. And at the same time, the share of the federal budget covered by
corporate taxes began to shrink. In 1960, corporate taxes amounted to 24 percent of all
the federal taxes collected. By 1976, it was down to 15.5 percent.
State and local taxes were (and continue to be) even more tilted against
workers. These often take the form of regressive sales and property taxes that are a much
greater burden on low-income people than on people with high incomes. (For instance, a 7
percent sales tax on a car might represent a big chunk of a working person’s budget.
But to a rich person, the same amount of money would be inconsequential.) When the Reagan
and Bush administrations dismantled federal programs and placed greater responsibilities
on the states, working people got socked again with a heavier tax burden.
Also during the Reagan administration, Congress slashed the top income tax
rate from 70 percent to 50 percent. The 1986 tax reform act closed some loopholes but
dropped the top marginal rate to 28 percent. Under Bush and Clinton, the top rate edged
back up to 31 percent in 1991 and 35 percent in 1993.
But then, in 1997, Clinton joined with other Democrats and Republicans to
pass a budget that handed the very rich a huge tax windfall. The richest fifth of the
population took more than 75 percent of the tax cuts called for under the so-called
Balanced Budget Act. "Basically," a Smith Barney executive commented to the
press, "just about anything that has been discussed that’s positive for
investors and thereby positive for Wall Street, has happened."
Of course, when it comes to calculating taxes on corporations and the
rich, the official numbers are misleading. You have to look at loopholes, deductions, and
dodges. In 1995, for instance, 97 percent of the super-rich paid less than the top rate of
35 percent.
That’s why the Labor Party calls for elimination of all tax loopholes
used by the rich — along with a 100 percent tax on that portion of executive salaries
exceeding 20 times the average worker’s pay in that corporation. Enough is enough!
— Peter Gilmore
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