Just in time for April 15, the folks at the
Institute for Policy Studies
have released a report that documents the stunning generation-long reversal of progressive tax policies and offers seven concrete proposals for restoring basic fairness to the IRS’s methods–and hundreds of billions in lost revenue to the Treasury. Their report,
Tax Day 2009
, notes that America’s most affluent 1 percent–taxpayers who averaged $1.3 million in income in 2006–saw a federal income tax rate of 22.8 percent. In 1986 that same cohort averaged $507,520 in inflation-adjusted income and paid 33.1 percent of it in taxes. Over the past twenty years, this elite 1 per- cent saw their share of the nation’s income double, from 11.3 percent to 22.1 percent, but their tax burden shrank by about one-third.
A look back at 1955 reveals an even starker transfer of wealth and responsibility. In 1955 the richest 400 reported an average of $12.3 million in income (in 2006 dollars) and paid 51.2 percent of it in taxes; in 2006 the top 400 averaged $263.3 million in income and paid a mere 17.2 percent of it in tax. In other words, the wealthiest 400 saw their incomes multiply by about a factor of twenty over the past fifty years but now pay taxes at a rate three times lower. If the IRS taxed the wealthiest 400 at the rate it did when
was in the White House, the Treasury would collect $35.9 billion more.
Expand this pool to include those who make more than $2 million–about 139,000 taxpayers–and the boon to the government’s cash flow becomes formidable. In 1955 those who made more than $2 million (in 2006 dollars) were taxed at just over 49 percent; by 2006 their tax rate had fallen to just 23.2 percent. Restoring 1955’s tax rate would generate an additional $202 billion in revenue, or about 25 percent of President
‘s stimulus package.
In addition to taxing the wealthiest Americans at a higher rate–50 percent for those who make over $2 million–the institute’s report includes six other proposals: reversing
George W. Bush
‘s tax cuts for the wealthy, a small tax on financial transactions like stock sales, eliminating tax preferences for capital gains and dividends, instituting a progressive estate tax, ending overseas tax havens and closing loopholes on huge executive-compensation packages.
Total increase to federal revenue: $450 billion. Having a fair tax system: priceless.