New Democratic proposals aim to overhaul the tax system in the name of fighting inequality, but history suggests that big hikes win support only in times of national crisis. By Richard Rubin
Emboldened Democrats are pressing for a top rate of 77% on estates and 70% on income over $10 million.
f or decades, the debate in the U.S. over taxing the rich has been a familiar game of tug of war. Republican presidents Ronald Reagan, George W. Bush and Donald Trump pushed top tax rates down. Democratic presidents Bill Clinton and Barack Obama pushed them back up.
Back and. forth, up and down, the discussion remained within fairly narrow bounds. Republicans made the case for lower ‘taxes and economic growth, Democrats argued for higher taxes and economic fairness, and since 1986, the top individual rate has stayed between 28% and 39.6%.
The tax debate emerging today is a different game altogether, and it may provide the biggest jolt to the American tax system in a generation. Emboldened by poll numbers showing public sympathy for their views, Democrats are proposing a range of ambitious tax hikes on the rich. Sen. Bernie Sanders (I., Vt.) has floated a top rate of 77% on estates. Sen. Elizabeth Warren (D.; Mass) has suggested a new annual levy on fortunes exceeding $50 million. Rep. Alexandria Ocasio-Cortez (D., N.Y.) is urging the party to support a tax rate of 70% on income over $10 million.
Democrats, even those who favor more measured approaches, suddenly find themselves in new terrain, contemplating not just piecemeal tax increases but a wholesale reversal of the Reagan-era shift in tax policy. Their rallying cry is what they see as the urgent need to push back against the widening economic inequality in the U.S. over recent decades.
If history is any indication, they have their work cut out for them. Since the 19th century, bold tax increases have usually depended on a combination of factors: class-based populist discontent, which is abundant today, and a great national trauma-a war, a major economic slump-to unify the country behind higher taxes on the rich in a spirit of shared sacrifice. The open question for today’s Democrats is whether reducing inequality is a compelling enough cause to move the country and the Congress.
Until. the -Civil War, the federal government funded itself largely through tariffs, which fell heavily on consumers. Congress didn’t adopt an income tax on the rich until it become clear that new revenue would be needed to pay for holding the Union together. “If a man rolling in wealth and bloated with stocks … refuses to pay taxation for the· support of the Government, and to save the nation from the consequences of this rebellion, he ought to go to prison,” declared Sen. John Ten Eyck of New Jersey in July 1861.
The income tax was an emergency measure and lapsed after the war. Congress passed a new in-come tax decades later, partly in response to the, recession set off by the financial panic of 1893.