Social Question

ETpro's avatar

Is progressive taxation really a transfer of wealth, or do the wealthy remain wealthy even with a progressive tax system?

Asked by ETpro (34208 points ) December 4th, 2011

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?

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21 Answers

marinelife's avatar

The wealthy remain wealthy.

dabbler's avatar

Progressive taxation, considered in isolation, could probably fairly be considered a wealth transfer. But it’s obscenely wilfully ignorant to do so.

The wealthy benefit hugely from government facilities, from roads to courts, and tax breaks on their enterprises (from oil industry subsidies to capital gains rates) much more than ordinary folk, and way way more than they’ve ever been taxed. There’s a far larger dollar volume wealth transfer right there than the most progressive and aggressive tax schemes ever suggested. And it benefits a population that number a tiny fraction as many as those who pay for it.

It isn’t class warfare when one side hasn’t been fighting back, it’s just parasitism.

dappled_leaves's avatar

Can it not be both? The term “wealth” has a different meaning to the wealthy and to the poor. Progressive taxation is a transfer of wealth that leaves the wealthy wealthy.

Sorry, I don’t really get why the phrase “transfer of wealth” is so despised in American discourse.

Jaxk's avatar

As usual, you pick a single statistic and try to apply a broad generality. During the ‘Golden Age’ f high taxation, Capital gains rates remained low (note the exclusions which were typically 50% or more). The Mellons, the Rockefellers, Du Ponts, Kennedys, Fords, Hunts, Gettys, Goulds, Howard Hughes and Fred C. Koch, all made their fortunes through Capital Gains not salaries. Capital gains fueled both wealth creation and the booming economy. You now want to focus on an escalating income tax that affects a much broader swath of America. Mainly those that are trying to become wealthy.

You may also want to look at the bottom tax rates which were typically 20% on the first dollar of AGI. And since deductions were much smaller, it affected everyone. I know you long for the good old days of higher tax rates but when you look back look at all the data. It is not the picture you paint.

@dabbler Your tax loopholes have nothing to do with the tax rates. And as far as subsidies go you may want to actually look at what subsidies the oil industry gets. It turns out they only get what every industry gets in the way of tax treatment. If you want to holler about subsidies, look to green energy, that’s where the government really gets involved.

Linda_Owl's avatar

Capital Gains should be taxed at a higher rate than they are currently. It would go a long way to off-setting the deficit.

jaytkay's avatar

You now want to focus on an escalating income tax that affects a much broader swath of America. Mainly those that are trying to become wealthy.

Federal income taxes are at their lowest point in decades.

jerv's avatar

The last few years prove that progressive taxation is not a transfer of wealth. Any claims to the contrary indicate a separation from reality that fires the clinical definition of Schizophrenia.

That said, there is far more to the disparity of wealth and income in this country than taxes. Also, I find it odd that billionaires would complain about losing the fruits of their labors without noticing that the majority of Americans have seen expenses rise faster than our incomes. What about those of us who are worse off than we were years ago? What of the lost jobs, and having one minimum-wage job replace every two high-paying jobs that no longer exist?

Note also that our tax system isn’t really set up to handle some of the numbers we see these days. I think that a partial solution would be to make Capital Gains taxes progressive as well. But the biggest solution would be to enforce some of the regulations that were broken to put us in this mess; no more selling “toxic” assets, no more earning a profit by being against things you know are going to “blow up”, and no more “get out of jail free“cards. You break the law, you go to prison, period.

dabbler's avatar

@Jaxk “Your tax loopholes have nothing to do with the tax rates.” that’s right, I didn’t say they did. They have to do with wealth transfer.

Linda_Owl's avatar

Unfortunately, @jerv , billionaires are rarely concerned about the needs of those of us who have the least. Their main concern ( only concern ? ) is that they continually increase their personal level of wealth. Scientists have done actual studies that have demonstrated that the wealthier an individual is, the less empathy they have for anyone else. Taxes do need to be restructured so the wealthy have to pay a proportionate share of their income. Loopholes do need to be closed, capital gains taxes do need to be increased, corporations who have skipped paying their taxes need to have government sanctions imposed on them. It is too bad that so many Congressional Representatives & Senators do not seem to see this issue in the same way that the rest of us do. Right now, if nothing changes, the wealthy are only going to become even more wealthy – while the rest of us sink below the poverty line.

ETpro's avatar

@marinelife They sure did, Generationally so.

@dabbler Elizabeth Warren expressed that though succinctly here.

@dappled_leaves & @Jaxk Those who are either part of the 1% who benefit from the status quo, and want to keep it that way, or are paid water carriers for them always like to take very obvious inequalities and claim that they can’t be uinderstood. It all depends on whose definition you accept. I’m sorry, but when a maurading band has invaded your land and home and they are killing killing your family and stealing everything you have worked to gather over generation, it’s not the time to split hairs over the definition of maurauding. Mole hills don’t trump mountains. We are talking about Mount Everset here, and if it’s a mole hill shorter or taller is IRRELEVANT. It’s BIG.

@jaytkay Great point. If what we have today is so onerous for our poor, disadvantaged billionaires, how on earht did they make it through the years during and after WWII?

@Linda_Owl Actually, in a recent poll, 65% of the wealthy thought they should pay more to get the rest of America back to work. So the folks bellowing about class warfare against the rich and constantly driving for even more breaks for billionaires are either a tiny cadre of greedy would-be oligarch billionaires or their paid water carriers and the dupes seduced by the propaganda their network of think tanks and PR firms churns out. Mostly, it’s the latter. Fox News viewers.

dabbler's avatar

@ETpro Great video, thanks !! It’s easy to see why the neo-cons blocked Elizabeth Warren’s appointment to head the Consumer Financial Protection Bureau (that she largely built as its first interim head). Good luck to her in her senate race.

tedd's avatar

The irony that many of the rich seem to not realize (save for the likes of Warren Buffet), is that by dividing up more of their money amongst the working class, they will raise more into the middle class, who will spend more…. and make the rich even more money.

In the 1950’s the highest tax rate was around 90%… and Howard Hughes still had enough money to build a boat to lift a soviet submarine from the oceans floor, out of pocket.

Even Ford understood this concept, that’s why he paid his employees an outlandish-at-the-time wage. He wanted them to buy a damn car.

jerv's avatar

@tedd ~ Sustainable growth and stability are for suckers.

ETpro's avatar

@tedd We often falsely say the Republican party today is the party of the rich. It is not. It is the party of the would-be oligarchs that want everything for themselves. That’s where it’s core policies really take us.

In a recent poll, 65 % of america’s milionaires favored raising taxes on themselves if the revenue were applied to getting average Americans back to work. Warren Buffet is nowhere near the only rich man that realizes it is idiocy to try to solve a demand side problem by taking ever more money from those who drive demand, and gioving it to billionaires—a supply side solution.

Jaxk's avatar

@ETpro

Only Democrats can call keeping the same rate we’ve had for a decade, a tax cut. Only Democrats can call an increase in spending a spending cut. Maybe if we used common definitions, we’d have a chance to agree.

jerv's avatar

@Jaxk Given that the sunset provisions of the allegedly temporary tax cuts from years ago have been axed, it’s hard not to call them that.

ETpro's avatar

@Jaxk That may be true, but it has nothing to do with the Payroll Tax Holiday Obama is trying to extend. THat’s a tax cut he pushed through a year ago, and he’s asking that it be extended.

As to the Bush tax cuts which were primarily for the rich, Obama wants to keep the part applying to the middle class, but let the deep cuts for millionaires expire. This is because the millionaires have gotten all the breaks lately as the middle class shrank by 30%.

Ron_C's avatar

The important thing to remember is that when the gulf between the rich and middle class widens the chances are that a revolution comes next.

We are at that point now. We have the poor states sucking money from the productive ones. Ironically, the average citizen of those states vote to insure that the gap between the rich and poor widens exponentially. It is also ironic that this condition exists in the southern states and Texas. I suggest that we allow them to leave the Union. Our taxes would be lowered and some of the excess money can be used to rebuild the infrastructure and provide a single payer health system.

Of course we’ll have to beef up our southern borders. We can visit them on vacation to see what happens when a democracy becomes a feudal system.

ETpro's avatar

@Ron_C It would be very interesting to see what happens when they are allowed to play out the ideology they are so steeped in.

Ron_C's avatar

@ETpro it certainly would be interesting. I would bet that after a couple years Miss. and Ala. would try to crawl back but then we could vote against them. Besides, when you get away from the big cities, they speak an indecipherable form of English. Maybe it would be a good idea to give voters an English test before they’re allowed to vote. Recent immigrants, would be excused.

jerv's avatar

@ETpro I think we’re already seeing it. Look at where poverty is the highest, education is the lowest, and discrimination runs rampant. That is the America they want, and where they are in power, that is the sort of states we get.

If we knew then what we know now, we probably would’ve just let the South go in 1861, though I suspect that bordering a nation so much like Iran probably would’ve caused a war eventually anyways.

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