Is progressive taxation really a transfer of wealth, or do the wealthy remain wealthy even with a progressive tax system?
Progressive taxation is a tax structure where tax rates increment by income level. Everyone is taxed at the same rate up to the first break point. Those who earn more than that break point start paying the next higher rate on each dollar they earn above the break point. In contrast, flat taxes or sales taxes are regressive taxes. A flat tax applies at the same rate no matter what amount you earn. Sales taxes only touch income you earn and spend on yourself, so they are the most regressive tax of all. Poor people must spend every dollar they earn to live. Billionaires spend a tiny portion of their annual earnings on goods and services.
America’s right-wing think tank network, funded by a handful of billionaires, keep preaching that anything other than a regressive flat tax or consumption tax (sales tax) it terribly unfair to billionaires and a transfer of wealth. It is, they maintain, the poor using the power of the state to take away the fruits of their labors from the most productive among us in order to give to those who are too lazy to work.
We can measure the truth of this claim by looking back to a time when taxes were extremely progressive and seeing if billionaires were stripped of their wealth and became poor under those tax policies. During WWII, we briefly had taxes as high as 94% on income above $400,000 per year. Of course, even under that plan, billionaires got to keep what they already had, and most of the first $400,000 they earned in a year plus 6% of everything thereafter. From WWII through 1980, top rates slowly relaxed from the 90% range post war to 70% in 1980.
Americans were all willing to share this tax burden, because we understood the existential threat Nazism posed to life and freedom around the world. We knew we had to rapidly rebuild the Pacific Fleet destroyed in the sneak attack on Pearl Harbor; and to win the Pacific War plus the war in Europe. After the war, we used the revenue to retool American manufacturing for peace, and to rebuild Europe and Japan. The rebuilding paid off when these areas became great markets for our manufacturing power.
What happened to the wealth of people like the Mellons, the Rockefellers, Du Ponts, Kennedys, Fords, Hunts, Gettys, Goulds, Howard Hughes and Fred C. Koch (father of today’s infamous Koch Brothers)? Did it all get transferred to the poor, who then became wealthy, or did it remain with them? How true is it that progressive taxation is class warfare targeting the rich?