It’s Not Your Imagination: Taxes Used to Be More Fair
What kind of economy and society we have in the future depends a lot on which vision of tax policy we follow now.
By William Rice
Some things have gotten better over the past 50 years: you can look up most anything on your phone and there are more TV shows to choose from. But one aspect of modern life is decidedly worse than it was in the mid to late 20th century. Rich people and big corporations are paying much lower rates of tax, widening economic inequality and depriving us of hundreds of billions of dollars in public revenue we could really use.
In a report issued this week on Tax Day (April 15), Americans for Tax Fairness unveiled original research showing that between 1945 and 1980, incomes of a million dollars and up were taxed at about twice the rate (a range of 40-60%) that they are today (26%). Admittedly, a million dollars was worth a lot more back then, but looking at the rates historically charged on incomes over $10 million (data which only became available starting in 2001) shows they closely track those of million-dollar taxation. That means how we’ve taxed million-dollar-plus incomes over the past eight decades is a good stand-in for how well—or poorly—we’ve taxed the highest-income among us. And recently, we’ve been doing a bad job.
The report notes that ultra-high individual incomes are not alone in bearing too light a tax burden these days compared to the past. Corporations in the last century used to provide up to a third of all federal revenue, now their share is often below 10%. Corporate dividends, a big source of income for the rich, used to be taxed at the same rate as wages—but for the past 20 years, they’ve enjoyed a nearly half-off tax discount. The estate tax was, in the last century, a somewhat sturdy curb on the creation of snowballing family fortunes. But it’s been so weakened over the past few decades that estates topping $27 million can now be passed onto lucky heirs without a penny in tax being paid.
The mid to late 20th century was of course not a social paradise for most Americans, including women, people of color, disabled people and the LGBQ community. Though that era did mark the beginning of change, full recognition and acceptance for all identities was still a long way off. Yet the economic divide between rich and poor was not so stark as it is today—prosperity was more generally shared—and the fairer tax system in place then was one of the reasons.
So one way to make our tax code more fair in the future is simply to go back to what we used to do in the past. But that’s not where reform should end. In good part because of the dismantlement over the past 40 years of an effective tax regimen, we face new problems today that require new solutions.
Exploding billionaire wealth cannot be effectively taxed with the tools of the past. We need to either directly tax the wealth of the richest households, or at least tax the growth in that wealth. Multinational corporations have become too skilled at shifting profits around the world, including to low- or no-tax havens, for any one country to realistically tax their earnings. We need an international approach to corporate taxation. Economic dynasties have devised too many accounting gimmicks to shield their wealth for even a restored estate tax to effectively address the issue of accelerating family riches. We need comprehensive reform of the taxation of intergenerational wealth transfers.
Happily, President Biden and congressional Democrats have proposed solutions to all these modern-day tax problems. Donald Trump and his fellow Republicans, in contrast, want to move us farther away from the ideal of fairness, including by permanently extending the parts of the 2017 Trump-GOP tax law that expire at the end of next year. What kind of economy and society we have in the future depends a lot on which vision of tax policy we follow now.