Why We Need Progressive Taxation

by Matthew Rothschild, Executive Director

April 12, 2019

(This is a talk that Matt gave at Monona Grove High School on April 11, 2019.)

I’d like to thank Tyler for reaching out and inviting me to come speak to your class today, and it’s always a pleasure to be here at Monona Grove High School with your teacher, Mr. (Jeremy) Wallace.

I’m the executive director of the Wisconsin Democracy Campaign, which has been around since 1995, tracking and exposing money in politics and advocating for a democracy where everyone has an equal voice.

And before that, I was at The Progressive magazine for 32 years, so it won’t surprise you that I’m an advocate for progressive taxation, which Tyler asked me to talk about today.

The issue of taxation raises questions not just of economics but also of philosophy and of politics.

And it touches on key American values.

The case for progressive taxation gets its foundational support from the lofty words of the preamble to the Constitution that we should “provide for … the general welfare.”

And it is also cemented in the American ideal of equality of opportunity, which I’ll get to in a bit.

But first: Why do we have taxes at all?

Taxesare what we pay for civilized society,” saidOliver Wendell Holmes, one of the most famous US Supreme Court Justices to ever live. And, incidentally, that quote is inscribed above the entrance to the headquarters of the Internal Revenue Service.

If we didn’t have taxes, we wouldn’t have public schools, roads, the Internet, public parks, national wildlife refuges, libraries, the police, or the military.

Some way, we got to pay for what government does.

And the way we do that is through taxation.

Then the question becomes, what’s the appropriate way to tax?

Now I know some people favor a flat tax, where everyone pays the exact same percentage of their income.

The “flat tax” has some off-the-cuff appeal, since it sounds so fair in theory. But it isn’t fair at all in practice.

And that’s because the bite that the tax imposes is much more painful on the poor and the middle class than on the rich.

Take Jeff Bezos of Amazon. He made $84 billion in 2017. Now assume there is a flat tax of 10%. Jeff Bezos would have to pay $8.4 billion in taxes. Seems like a lot, right! But he’d have $75 billion, $600 million left to play with. He literally would not feel it at all.

But take the individual in 2017 who earned the median amount. You know what that was: $39,400. That same 10 percent would take $3,940 out of that person’s pocket, and that person does not have a ton of money to spare. It feels like a lot bigger hit! And it is: 40 percent of Americans can’t afford to take on an unanticipated expense of just $400 without facing enormous financial hardship. And 60 percent can’t afford an extra $1,000 expense.

So while Jeff Bezos won’t feel the 10% flat tax, it’ll take the knees out of most Americans.

And that’s not fair.

And that’s why, for most of the last 100 years, the United States has had a progressive income tax, where the more income you earn, the more you pay as a percentage of your income.

The income tax started in 1913, and only the rich had to pay it—anyone making more than $400,000 in today’s dollars.

For most of the last 100 years, the top marginal rate – what you’re taxed at the highest levels of your income—was between 63 percent and 92 percent. That’s why when Alexandria Ocasio-Cortez suggested a 70 percent top marginal income tax rate, she was well within what used to be accepted practice here in the United States.

During the 1950s, a period that a lot of conservatives say they want to go back to, the top marginal rate was 92 percent. And that was under Republican President Dwight D. Eisenhower!

Today the top marginal rate is down to 37 percent from 39.6 percent under Obama. That rate doesn’t kick in until your income rises about $510,300.

That’s income tax.

Now I want to talk about another tax that is progressive but is much-maligned, and that’s the estate tax, otherwise known as the inheritance tax.

This is a tax on your net assets when you die. But it applies to only the wealthiest people: Only people who have more than $11,400,000 are taxed at all when they die – and only at 40 percent. It’s not like the government grabs it all. By the way, Trump essentially doubled the estate tax exemption to get to $11,400,000.

So now if you’ve got $11 million and you drop dead, your kids get every penny of it. Not many people die with more than that. In fact, in 2018, only 0.1 percent of the people who died in the United States had taxable estates.

So when you hear Republicans crying about “the death tax,” their tears are only for the 0.1 percent.

And this is where the ideal of equal opportunity in America crashes into the reality of our oligarchy, which is rule by the rich, which is what we have, actually, in America today.

Because, if we actually believed in equal opportunity, we would have an estate tax that was a lot steeper than it is today.

Look, the offspring of the Wal-Mart Family, or Warren Buffett’s kids or Jeff Bezos’s kids don’t begin life at the same starting line as you or I do. It’s a joke to even think about it.

In my opinion, we need to tighten the estate tax so it hits anyone with an estate of two million dollars, say, and the rate should be escalate above 40 percent the higher your estate goes, so that by you reach the billionaire level, it’s at about 80 percent.

Finally, there’s one more tax I want to talk about, and that’s called a wealth tax. Elizabeth Warren has proposed a tax on Americans who have more than $50 million in assets. – again that’s less than 0.1 percent of households. The tax would be 2 percent, and then rise to three percent for those who have more than $1 billion.

A lot of European countries have wealth taxes.

And get this: Donald Trump himself, back in 1999, proposed a one-time tax on people with more than $10 million, and that tax, he said, should be 14.25 percent.

So if it’s good enough for Trump, and his nemesis Elizabeth Warren, I sure think it’s worth considering.

In conclusion, progressive taxation is a way to fund crucial government functions in the fairest way possible.

It’s also a way to address the gross inequality we have in this country.

There’s inequality in income: the top 1 percent earn about 20 percent of the total income.

And there’s inequality in wealth: The top 1 percent owns 40 percent of the wealth in this country.

I used to think that, as galling as this inequality in wealth and income is, I’d be OK with the rich gobbling all that up as long as everyone else had decent health care, a good job, a nice, affordable place to live, and enough food to eat. But I don’t think that way, anymore, because the gross disparities in wealth and income distort our democracy: The super rich and the corporations, through their donations, campaign expenditures, and lobbying, have much more power than the rest of us in deciding who gets elected, and what laws are passed, and what policies are pursued.

As Supreme Court Justice Louis Brandeis warned us eight decades ago, “We must make our choice. We may have democracy. Or we may have wealth concentrated in the hands of a few. But we can’t have both.”

Thank you.