When I started the research for my second Eat the Rich column, I thought it would be a broader replay of the first. In the first, I suggested that our government could dine on the Forbes 400 and take all their wealth. Then I demonstrated that our government would blow through every dime of wealth the 400 possessed in a matter of months.
Talk about killing the Golden Goose.
And there’d still be a massive deficit. So eating the rich might not be such a good idea.
Shifting from wealth to income
But the landscape changes when you expand your view from the fabulous wealth of the Forbes 400 to the impressive income of the top 1 percent of earners. That group, about 1.4 million households in 2016, collected a stunning $25.4 trillion between 2001 and 2016.
The income (not wealth) threshold for entry into this group was $480,804 in 2016. This is chump change for the Forbes 400, but high on a whole herd of hogs for people who actually work for a living.
The total income of the 1 percent was high enough to pay taxes averaging about 26 percent of their income, according to IRS data. The remaining cash would cover the entire deficit during the period (about $9.3 trillion) and still have a hefty sum left over, about $9.9 trillion.
Viewed another way, if the top 1 percent had paid an average tax rate of about 63 percent over the period, government spending would have been covered. There would have been no federal deficits. Federal debt would be about where it was at the turn of the century.
Isn’t that a nice thought!
Turns out, America was great when it had a 90 percent top tax rate
Yes, a 63 percent average tax rate may seem punitively high – particularly to the people who would pay it. Still, it should be noted that it is far more civilized than eating the rich after taking all their money.
A historical note may also be helpful. We had our highest marginal tax rate, a whopping 90 percent, when Dwight Eisenhower was president. In spite of that, he was a Republican, not a close relative of Chairman Mao.
There’s a big difference between a marginal tax rate and the average tax rate on the same income. My bet, however, is that the Big Dogs were paying out close to an average 63 percent back then.
The nation survived. Many even called it great.
But why just pick on the 1 percent?
Beyond that, why limit high tax rates to the top 1 percent? They aren’t the only folks with relatively deep pockets. And if you spread the high tax net out to other big earners, the top average tax rate goes down pretty dramatically.
Skeptical?
I was until I made the calculations:
— Have a high enough tax rate to cover the deficit on the top 2 percent of earners, and the average tax rate on the group drops to 55 percent.
— Have a high enough tax rate to cover the deficit on the top 3 percent of earners, and the average tax rate drops to 50 percent.
— Do the same on the top 4 and 5 percent of earners, and their average tax rate drops to 47 and 44 percent, respectively.
Why you can’t have high tax rates lower than the top 5 percent incomes
As a practical matter, that’s about as far as you can go with higher taxes before you collide with the largest tax most Americans pay, the employment tax. The threshold for being a top 5 percent household was $107,653 in 2016. That’s well below the wage-base maximum for Social Security. So an increase in federal taxes would mean a total tax burden around 60 percent for those at the bottom of the top 5 percent.
Probably a non-starter.
So what have we learned?
First, the top 5 percent now collect about 35 percent of all income. So the money is there to cover the deficit spending and avoid putting our country – and our kids – further in debt.
Second, the biggest barrier to doing anything is the multiplicity of taxes we pay. And the employment tax is the biggest problem.
A suggestion, not a plan
This is all “back of the envelope” figuring from a lowly journalist, so I don’t expect you to buy this idea. But let me suggest this. My people will meet with your people. They can work out the details and solve our tax and deficit problem.
Sadly, my people are a bunch of dogmatic, inflexible politicians.
So are yours, whatever your party choice.
Related columns:
Scott Burns, “Is it time to eat the rich?”, 08/17/2019 https://scottburns.com/is-it-time-to-eat-the-rich/
Scott Burns, “Is it time to eat the rich?”, 11/14/2010 https://scottburns.com/is-it-time-to-eat-the-rich/
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Photo: Scott Burns: View from Eastern Point, Gloucester — where Winslow Homer did much of his painting.
(c) Scott Burns, 2019