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Thread: Democrats Take Aim at the Reagan Tax Revolution

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    Default Democrats Take Aim at the Reagan Tax Revolution

    Excellent essay on the history of the income tax and the events, national emergencies, that caused it to rise as high as it did such as WWII. Then the bi-partisan effort to lower it until Reagan and then you had Democrats Clinton and Obama raising the top rate and Republicans Bush II and Trump lowering it. But it all stayed within a 28% - 39% range. Now we have Democrats calling for it to be raised much much higher.





    Democrats Take Aim at the Reagan Tax Revolution

    Bernie Sanders, Elizabeth Warren and Alexandria Ocasio-Cortez want big tax hikes on the rich to fight inequality, but such measures have usually succeeded only at moments of national crisis


    For decades, the debate in the U.S. over taxing the rich has been a familiar game of tug of war. Republican presidents Ronald Reagan, George W. Bush and Donald Trump pushed top tax rates down. Democratic presidents Bill Clinton and Barack Obama pushed them back up.

    Back and forth, up and down, the discussion remained within fairly narrow bounds. Republicans made the case for lower taxes and economic growth, Democrats argued for higher taxes and economic fairness, and since 1986, the top individual rate has stayed between 28% and 39.6%.

    The tax debate emerging today is a different game altogether, and it may provide the biggest jolt to the American tax system in a generation. Emboldened by poll numbers showing public sympathy for their views, Democrats are proposing a range of ambitious tax hikes on the rich. Sen. Bernie Sanders (I., Vt.) has floated a top rate of 77% on estates. Sen. Elizabeth Warren (D., Mass) has suggested a new annual levy on fortunes exceeding $50 million. Rep. Alexandria Ocasio-Cortez (D., N.Y.) is urging the party to support a tax rate of 70% on income over $10 million.

    Democrats, even those who favor more measured approaches, suddenly find themselves in new terrain, contemplating not just piecemeal tax increases but a wholesale reversal of the Reagan-era shift in tax policy. Their rallying cry is what they see as the urgent need to push back against the widening economic inequality in the U.S. over recent decades.


    If history is any indication, they have their work cut out for them. Since the 19th century, bold tax increases have usually depended on a combination of factors: class-based populist discontent, which is abundant today, and a great national trauma—a war, a major economic slump—to unify the country behind higher taxes on the rich in a spirit of shared sacrifice. The open question for today’s Democrats is whether reducing inequality is a compelling enough cause to move the country and the Congress.

    Until the Civil War, the federal government funded itself largely through tariffs, which fell heavily on consumers. Congress didn’t adopt an income tax on the rich until it become clear that new revenue would be needed to pay for holding the Union together. “If a man rolling in wealth and bloated with stocks…refuses to pay taxation for the support of the Government, and to save the nation from the consequences of this rebellion, he ought to go to prison,” declared Sen. John Ten Eyck of New Jersey in July 1861.

    The income tax was an emergency measure and lapsed after the war. Congress passed a new income tax decades later, partly in response to the recession set off by the financial panic of 1893. That tax didn’t last either. The Supreme Court struck it down in 1895, ruling that such a levy violated the Constitution’s requirement that direct taxes be apportioned among the states based on population.

    That loss energized progressives, who worked to pass a constitutional amendment to allow an income tax, building a coalition with agrarian populists and with temperance advocates who wanted to reduce federal reliance on alcohol taxes. The result was the 16th Amendment, ratified in 1913; Congress swiftly passed a new income tax. The top rate was modest, though—a mere 7%, making it more symbolic than confiscatory.

    World War I brought the first real effort to use the modern income tax to “soak the rich”; some lawmakers tied the conscription of men to what they called the “conscription of wealth.” With international trade plummeting and tariff revenue becoming unreliable, Congress set the top rate at 77% and taxed what were defined as excess corporate profits. “For these really big changes [in tax policy], they mostly happen in war—in a certain type of war,” in which most Americans “know someone fighting,” said the Stanford political scientist Kenneth Scheve, co-author of “Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.” The high rates dropped in the 1920s when Republicans took control in Washington.

    ‘You start raising the top rates, you get more tax planning and avoidance than you do redistribution.’ —Adam Michel, Heritage Foundation
    The Great Depression and World War II created new economic stresses and an enormous need for revenue. President Franklin D. Roosevelt pushed through New Deal tax hikes aimed squarely at the wealthiest Americans, at rates up to 75%. “Social unrest and a deepening sense of unfairness are dangers to our national life which we must minimize by rigorous methods,” Roosevelt wrote to Congress in 1935. By 1944, at the height of the war, the top tax rate had climbed to 94%, and the income tax had been extended to the masses. Top rates above 90% carried over into the 1950s, encouraging aggressive tax-avoidance strategies, but they applied to a very small number of Americans.

    Rates began their march downward under Presidents John F. Kennedy and Lyndon B. Johnson, with Kennedy arguing that lower rates would boost the economy. But the biggest shift away from high taxes was sparked by the economic disruptions of the 1970s. Inflation, unemployment and slow growth created political space for a new set of economic arguments. “Supply-side” theory, focused on the disincentives to work and invest created by high taxes, began to win adherents such as Ronald Reagan, as did arguments about the need to limit government and the unfairness of punishing people for their economic success.

    Antitax sentiment powered California’s Proposition 13 vote in 1978 to restrain property taxes and found its consummation in the election of Reagan to the White House in 1980. He succeeded in driving down the top income-tax rate first to 50% and then to 28%, collapsing tax brackets so that the merely rich and the very rich were taxed more similarly. The GOP’s identity as the antitax party solidified in 1990, when many Republicans revolted against President George H.W. Bush for signing a tax hike, violating his “read my lips” pledge of no new taxes.

    Democrats have at times agreed with the argument that lower taxes spur economic growth, but they have worked to make the post-Reagan consensus modestly more progressive. Though President Bill Clinton came to power as a representative of the newly business-friendly wing of the Democratic Party, his administration successfully worked to raise the top rate to 39.6%. President Obama fought to restore that rate when the tax cuts enacted under President George W. Bush expired in 2013; Mr. Obama also raised rates on investment income.

    In the tax policies that he supported but failed to get passed, Mr. Obama offered more restrained versions of the bold proposals now being aired by Democrats. He wanted the “Buffett Rule,” a minimum 30% tax rate on people making at least $2 million. He wanted to tax the “carried interest” earned by private-equity managers as ordinary income, not as capital gains. He proposed capping tax breaks for top earners. But Mr. Obama never proposed rates above 50% or new wealth taxes.

    Is the U.S. now ready to go further?

    The continuing expense and human sacrifice of America’s post-9/11 wars have little impact on today’s tax debate, and in the era since the Vietnam War and the end of the military draft, most Americans have lost any personal or social link to military deployments. The U.S. now wages capital-intensive war with a volunteer army, and our soldiers, thankfully, die in far smaller numbers. Appeals for shared fiscal sacrifice to support America’s wars have fallen flat, and U.S. policy makers in both parties are more comfortable now with budget deficits, thus separating the most urgent spending choices from taxation.

    At the same time, more Americans than in previous eras are familiar with the bite of the income tax, and they may worry that higher taxes, and the burden of an expanded federal government, won’t just fall on the rich. “I see this new tax-the-rich mantra as simply an opening step in a longer political game to raise taxes on middle-class Americans across the board,” said Adam Michel, a senior policy analyst at the conservative Heritage Foundation.

    But on taxes, as on so many other issues, the presidency of Donald Trump created a new dynamic. In 2016, Mr. Trump deployed populist rhetoric as he campaigned against hedge-fund managers whom he said were getting away with murder on their taxes. But the 2017 Tax Cuts and Jobs Act followed a familiar Republican template: It dropped the tax rates for individuals, narrowed the estate tax and lowered corporate taxes. The law also cut middle-class taxes and raised taxes on some top-tier wage-earners in high-tax states, but business owners and corporate shareholders in the top 1% have been among its biggest beneficiaries.


    For Democrats seeking a populist agenda of their own, the new law presented an opportunity to build a case that isn’t just about reversing Mr. Trump’s policies or resuming Mr. Obama’s. “It galvanized opposition in a way that I think was surprising to a lot of people, especially for those on the left,” said Michael Linden, a fellow at the liberal Roosevelt Institute.

    The new Democratic proposals are less tethered to the revenue they will produce—and how it will be spent—than to the idea that the country’s growing concentration of wealth is itself a big problem, echoing Theodore Roosevelt’s 1910 complaints about “swollen fortunes for the few.”

    Since 1979, at the dawn of the Reagan era, pretax inequality in the U.S. has been soaring, with incomes among the top 1% of earners rising much faster than for the rest of the population, according to data from the Congressional Budget Office. Research by Gabriel Zucman, an economist at the University of California, Berkeley, shows that the richest 0.1% now own 19% of national wealth, about triple the concentration that existed in the late 1970s and nearing the levels of the late 1920s.

    For all that, the federal tax system remains progressive. In 2018, the top 0.1% of earners got 7.7% of all pretax income, but they paid 13.3% of all income taxes, according to the Tax Policy Center. The bottom 60% of households got 26.7% of pretax income and paid 14% of taxes.

    ‘People see we are in danger of having a hereditary American aristocracy.’ —Eileen Appelbaum, Center for Economic and Policy Research
    For many Democrats, that isn’t nearly progressive enough. They argue that such stark inequality distorts the political system in favor of the rich, who are less likely, they say, to be concerned about such issues as deteriorating public education and the gaps in the health-care system. “People see we are in danger of having a hereditary American aristocracy,” says Eileen Appelbaum of the liberal Center for Economic and Policy Research. Rep. Don Beyer (D., Va.) argues that “wealth beyond a certain stage makes virtually no difference in our lives.... At some point you’re not going to live an extra day longer or be an iota happier because you have $21 million rather than $20,500,000.”

    Critics of the new Democratic tax proposals doubt that they will do much to achieve their stated aims. “You start raising the top rates, you get more tax planning and avoidance than you do redistribution,” said Mr. Michel of the Heritage Foundation. “Even if your goal is to reduce inequality, it doesn’t seem that super high taxes really get at that goal really well. They mostly just harm the economy.”

    Can progressive Democrats turn their ideas into law? A tax on wealth or a top income-tax rate of 70% would need at least 50 votes in the Senate—a challenge given the antitax orthodoxy of Republicans and the number of Democratic senators from conservative states. In the House, any such bill would start in the Ways and Means Committee, whose chairman, Richard Neal (D., Mass.), is a pragmatist who responds to questions about the new Democratic proposals by reiterating his desire to hold thorough hearings on the 2017 tax law.

    With an emerging political base in high-income urban and suburban areas, there are also limits to how far Democrats are likely to go in taxing the wealthy. Part of the appeal of taxing billionaires is that you’re not taxing millionaires. Rep. Beyer, who ran a chain of car dealerships before entering Congress, said that sending the per-person estate-tax exemption from $11.4 million down to $3.5 million, as proposed by Mr. Sanders, would harm the Northern Virginia lawyers and business owners he represents. And even with billionaires, the country has a love-hate relationship: Americans may dislike concentrated wealth, but they embrace rags-to-riches stories of success.

    Democrats would also have to work out the details. A 70% rate on income over $10 million would raise revenue, but it would also encourage new schemes to defer, hide or disguise income. Ms. Warren’s wealth tax raises not just practical issues but constitutional ones, and it might be struck down on the same grounds as the 1890s income tax. Mr. Sanders’s estate tax would be a boon for the estate-planning industry. Legal and economic experts on the left are already hashing out the specifics, making preparations for an opportune moment.

    Beyond all these hurdles is the seeming absence of the sort of widely felt national trauma that has motivated past efforts to tax the rich. The most obvious candidates—the dangers posed by climate change and eventual shortfalls in entitlement programs—still seem too slow-moving, polarizing or abstract. There is little political appeal in the slogan: “Big tax hikes now to avert future threats.”

    Still, some think that the country’s growing inequality is crisis enough. “It’s just become so obvious and clear that if the wealthy can suck so much out of the economy, there’s just not so much left for everybody else,” Ms. Appelbaum said. “I don’t think you need a war for people to realize it.”


    https://www.wsj.com/articles/democra...on-11550254446

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    For those who don't like the lower tax rate tables, you can pay the previous higher tax rates. The Treasury will accept your payments.

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    Quote Originally Posted by Earl View Post
    For those who don't like the lower tax rate tables, you can pay the previous higher tax rates. The Treasury will accept your payments.
    Where’s all the economic activity that was supposed to create all that revenue? Revenue decreased in 2018 and the deficit skyrocketed.

    You got conned, dimwit.

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    Quote Originally Posted by domer76 View Post
    Where’s all the economic activity that was supposed to create all that revenue? Revenue decreased in 2018 and the deficit skyrocketed.

    You got conned, dimwit.
    Why did JFK and LBJ support lowering the top marginal tax rates?

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    Quote Originally Posted by cawacko View Post
    Why did JFK and LBJ support lowering the top marginal tax rates?
    I see you couldn't respond to the question.

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    Quote Originally Posted by domer76 View Post
    I see you couldn't respond to the question.
    LOL, your question had nothing to do with the topic. Start your own thread if you want to discuss something different

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    Quote Originally Posted by cawacko View Post
    LOL, your question had nothing to do with the topic. Start your own thread if you want to discuss something different
    Taxes was the topic.

    Your concession is noted.

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    Quote Originally Posted by domer76 View Post
    Taxes was the topic.

    Your concession is noted.
    Go troll somewhere else

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    Quote Originally Posted by cawacko View Post
    Go troll somewhere else
    Another admission of defeat.

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    Quote Originally Posted by cawacko View Post
    Why did JFK and LBJ support lowering the top marginal tax rates?
    The rate went from 91% to 70% under LBJ.
    Great idea, let's go back to 70% so we can be just like LBJ....

    Wait.. didn't someone suggest that already?
    "We are all born ignorant, but one must work hard to remain stupid."

    "Any fool can criticize, condemn and complain - and most fools do."

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    Quote Originally Posted by Poor Richard Saunders View Post
    The rate went from 91% to 70% under LBJ.
    Great idea, let's go back to 70% so we can be just like LBJ....

    Wait.. didn't someone suggest that already?
    Why did JFK/LBJ drop the rate?

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    Quote Originally Posted by cawacko View Post
    Why did JFK/LBJ drop the rate?
    All I hear is crickets from the left. Hmmmmm.

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    Quote Originally Posted by cawacko View Post
    Why did JFK/LBJ drop the rate?
    Why was the rate 70%?

    Your argument about dropping the rate is silly because if dropping the rate was an open ended argument we are led to the illogical conclusion that if we drop the rate to a negative number then the government revenues will be even greater. The question is not why was the rate dropped but why was it just fine that the rate was 70% then but not now?
    "We are all born ignorant, but one must work hard to remain stupid."

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    Quote Originally Posted by Poor Richard Saunders View Post
    Why was the rate 70%?

    Your argument about dropping the rate is silly because if dropping the rate was an open ended argument we are led to the illogical conclusion that if we drop the rate to a negative number then the government revenues will be even greater. The question is not why was the rate dropped but why was it just fine that the rate was 70% then but not now?
    The rate was “fine” then because there were massive loopholes so people didn’t come close to paying it. It was also a very different time in the world geo politically. Would you like to see all the write offs and loopholes put back in place?

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    Quote Originally Posted by cawacko View Post
    The rate was “fine” then because there were massive loopholes so people didn’t come close to paying it. It was also a very different time in the world geo politically. Would you like to see all the write offs and loopholes put back in place?
    I would be happy to discuss them. Which ones do you think were wrong to be in place at that time?
    "We are all born ignorant, but one must work hard to remain stupid."

    "Any fool can criticize, condemn and complain - and most fools do."

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