There are various ways we can measure how both individuals and corporations were taxed in the last three-quarters of a century or so, and how concentrated the wealth has become at the top of the economic pyramid in the United States. First, a look at the bottom and top federal income tax rates since 1950 indicates that a robustly progressive income tax structure likely contributed to a more equitable economic society.
1.) Highest Marginal Tax Rates:
1950 - 84.35% ($400,000 and over); 1960 - 91% ($400,000 and over); 1970 - 71,75% ($200,000 and over); 1980 - 70% ($215,000 and over).
2.( Lowest marginal tax rates:
1950 - 17.4%; 1960 - 20.0%; 1970 - 14.0%; 1980 - 14.0%.
There are a number of measurements to determine how much of their income the wealthiest households pay in federal income tax:
1.) IRS data showed that the 400 wealthiest households paid 18.1% of their total income in federal taxes in 2008; however, in 1955 they had paid 51.2%. By another IRS measure, after adjusting for inflation, the top 400 in 2008 reported incomes that were twenty times the incomes of the top 400 households of the wealth a half-century before.
2.) The Center on Budget and Policy Priorities found that the effective income tax rate for the top 400 households declined by nearly half in just over a decade. The top 400 households paid 16.6% of their income in federal income taxes in 2007, down from 30% in 1995.
3.) MIT economist Peter Diamond found that in 2007 the top one percent, on average, paid 22.4% of their incomes in federal income taxes. According to the Congressional Budget Office, the gaps in after-tax income between the richest one percent of Americans and the middle and poorest fifth of he country more than tripled between 1979 and 2007.
As to how wealth has become concentrated among the economic elite, there are several measurements, which, although they have some variations due to how weights are assigned, paint a pretty clear picture of the situation. Economist Leon Friedman has calculated that the top 1% percent of the U.S. population owns 35% of the nation's wealth and the top 5% owns 62%. Economist Joseph Stiglitz says the nation's top 1% take in nearly a quarter of the income and control 40% of the wealth.. He further claims that their incomes have risen 18% since the year 2000. The Economic Policy Institute calculates that the richest 5% claim 63.5% of the nation's wealth and the richest 20% claim 84%.
A disclaimer about the figures and percentages presented above is that they were presented some three to four years ago; moreover, most indicators are that income and wealth inequality have increased since then.
The Congressional Research Service did a study of savings, investment and productivity growth since World War II. The researchers could not explain why the study showed an association between higher tax rates for high-earners and higher levels of economic growth. There is a logic for the association, as high tax rates provide an incentive for business owners, especially of the small business variety, to hire more workers or expand their facilities: declaring more business expenses reduces taxable income.
I have previously written that the Democrats could have avoided the Bush II tax cut trap when they controlled the House of Representatives, the Senate and the White House, by creating a new tax rate structure with a top marginal tax rate in the 60 to 70% range. The excuse that the Democrats didn't have a filibuster-proof majority in the Senate, except for a brief time, could have been countered by requiring any filibuster to be conducted only on the final passage of a bill, not on its introduction, and requiring an actual filibuster, while the Senate was kept in continuous session. Then-majority leader Harry Reid could have held a noon press conference every day, pointing out how those filibustering were preventing senators representing a significant majority of the nation's population from enacting important legislation.
What President Obama and legislative Democrats did was to extend the Bush tax cuts for two years, in a compromise that, in part, provided for an ill-advised cut in the FICA tax, thereby providing a troublesome precedent for those who want to destroy Social Security. Obama and his Democratic allies have created budgetary deficits for the long-term future by agreeing to extend what economists say is 80% of the Bush tax cuts.
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