Let's be like Ike, and make the rich pay more

April 15, 2004|By Sam Pizzigati

MARYLANDERS HAVE a governor, recent events in Annapolis have made plain, who would sooner skinny dip in the Severn River than sign a tax increase, even a tax increase on only the wealthiest among us.

Gov. Robert L. Ehrlich Jr. is, of course, hardly the nation's only elected official who seems constitutionally incapable of uttering the word taxes without cut as a prefix. Within Republican ranks, "Thou shalt not raise taxes" reigns as the undisputed first commandment.

We have come, after years of this GOP anti-tax agitation, to take Republican hostility to taxes as an eternal given of American political life. Republicans, we assume, have always been anti-tax crusaders. But that isn't exactly true. Fifty years ago, in fact, the top Republican in all the land, Dwight D. Eisenhower, refused to have anything to do with his party's knee-jerk tax-cutters.

In 1953, the year Ike took office as president, some Americans -- wealthy Americans -- were clamoring furiously for a tax cut. These deep pockets at the time faced an amazing 92 percent tax rate on their incomes over $400,000, a level that would equal about $2.8 million in today's dollars. Overall, on their total incomes, the wealthy back then didn't pay taxes at a rate anywhere near 92 percent. But even so, they still paid taxes at a hefty rate.

In 1953, IRS records show, America's richest 2,000 households paid 58 percent of their incomes in federal tax.

These high-income households figured their fortunes would turn -- and soar -- after Mr. Eisenhower's election. New Deal tax rates, they figured, soon would be history.

They were wrong. Ike refused, for his entire eight years in office, to lead any charge against New Deal tax rates. The top tax rate on America's highest incomes would remain over 90 percent until 1964, when the top rate slid to 77 percent, then to 70 percent the next year.

The current top rate? Only 35 percent.

And the current rate that our wealthiest actually pay, after taking loopholes into account? In 2000, according to the most recent IRS data, our richest 400 taxpaying households averaged $174 million in income and, on that income, paid just 22.2 cents on the dollar in federal taxes.

Now they pay even less. The income tax cuts that President Bush has pushed through Congress, New York Times tax analyst David Cay Johnston calculates, have dropped the effective tax rate on our richest 400 down to 17.5 percent.

What would happen if a politician today, inspired by Ike's orneriness, suggested that maybe we ought to go back to taxing the wealthy at Eisenhower-like rates -- say, 92 percent on all income over $2.8 million? That politician would be savaged. You can't be serious, pundits would roar. How could the economy grow, even function, if "successful" people no longer had an incentive to succeed?

An interesting question. History offers an answer. In the quarter-century after World War II, when there were high taxes on high incomes, our economy functioned quite nicely. Average Americans saw their real incomes double.

The incomes of wealthy people also increased in those postwar years, just not nearly as fast as the incomes of average families. America, by 1970, had become a considerably more equal place.

How distant those days seem to us today. Our current economy does indeed work, but only selectively. Wages have stagnated the past 25 years. The incomes of the wealthy have skyrocketed. In 1970, the wealthiest of the wealthy, the top one-hundredth of the nation's richest 1 percent, collected 50 times the average American income. By century's end, note economists Thomas Piketty and Emmanuel Saez, those richest of the rich were "earning" more than 250 times America's average income.

Would we be better off today if we taxed our highest incomes at Eisenhower-era rates? On this tax day, wouldn't it be nice if we had some leaders gutsy enough to ask?

Sam Pizzigati is the author of Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives, coming from Apex Press in July. He lives in Kensington.

Columnist Ellen Goodman will return Monday.

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