Dear Friends,
As I have said before, there are many ways to improve the lives of working people. One is to reduce their cost of living. In the next few posts, I will discuss various ways to reduce the cost of living for working people.
Today, I will focus on taxes. Working people pay a wide variety of taxes – income taxes, payroll taxes, real estate taxes, sales taxes, gasoline taxes, license fees, etc. Theoretically income taxes are progressive, but the other taxes are regressive. In the long-term, we should strive to eliminate the regressive taxes and make up the lost revenue with higher income, estate and other taxes which can be very progressive.
As I indicated in a prior post, our economic system is broken and rigged in favor of the rich. Consequently, there has been a huge redistribution of wealth from lower, middle and even moderately wealthy people (the 99%) to the ultra-rich (the 1%).
A Federal Reserve study on household wealth from 1989 to 2025 demonstrates that during that period
· the wealth of the top 0.1% increased 67%
· the wealth of the rest of the top 1% increased 22.5%
· the wealth of the rest of the top 10% decreased by 4%
· the wealth of the 50% to the 90% decreased 18.2%
· the wealth of the bottom 50% decreased by 26.5%
In fact, wealth inequality in the United States has steadily grown since 1980 and hit its highest level in 2025. https://economicsinsider.com/us-wealth-inequality-1965-2025/
There are many causes for this transfer of wealth, but in my view one of the root causes has been the tax policy since the Reagan era when trickle-down economics became the mantra for Republicans.
To quote again from my prior post:
The maximum individual income tax rate has fallen over time, and the amount of income it applies to has also fallen.
In 1950 the maximum rate was 91%, and it applied to income over $400,000 ($5.4 million).
In 1975 the maximum rate was 70%, and it applied to income over $200,000 ($1.8 million).
In 2000, the maximum rate was 39.6%, and it applied to income over $288,350 ($542,659).
In 2025, the maximum rate was 37%, and it applied to income over $751,600 ($751,600)
The dollar amounts in parenthesis are the amount expressed in 2025 dollars. As you can see the wealthy are not paying anywhere near their fair share, if you define fair share as what they were paying in 1950 or even 1975.
The same is true for estate tax rates and exemption amounts.
In 1954, the maximum rate was 77% on amounts over $10 million ($118 million).
In 1977, the maximum rate was 70% on amounts over $5 million ($27 million)
In 2009, the maximum rate was 45% on amounts over $3.5 million ($5.3 million)
In 2025, the maximum rate was 40% on amounts over $14 million ($14 million)
During a very prolonged period of economic growth in the United States, the income and wealth inequality grew because the rich could keep more income and assets which could be invested and reinvested while the other 99%’s percentage of the wealth was declining.
In addition to the reduction in tax rates, there has been an increase in both legal and illegal tax avoidance. The rich can avoid selling assets to cover their living expenses or to make other investments by borrowing against their wealth. This technique avoids selling assets which means they do not recognize any of the gain and thus do not pay taxes. Using leverage to make additional investments also greatly enhances the return on investment.
We need to change the tax policy to be fairer and to reverse the significant transfer of wealth from the 99% and especially working people to the ultra-rich. This change in policy is also necessary for the government to improve the lives of working people and to protect our democracy from being controlled by the ultra-rich. I would suggest several philosophical changes:
· All income should be treated the same – wages, interest, dividends, capital gains, rents, etc. There is no reason that income from working should be taxed at a higher rate than income from the investment of capital.
· Payroll taxes should either be abolished or applied to all income but keeping the benefit in place. If payroll taxes are abolished, the benefits must be provided from the general revenues of the government.
· All regressive taxes should be eliminated and the programs paid for by those taxes should be paid for by progressive taxes.
· An amount of income per household equal to approximately the living wage for that household should be exempted from income taxation. Why should the government tax any amount below a living wage, only to put the household’s income back below the living wage level.
· The US seemed to thrive economically in the 1950s. We should return to a level of taxation similar to that of the 1950s.
· We need to institute an annual wealth tax.
· We need to fully fund the IRS so that they can improve compliance by the ultra-rich.
I propose the following individual income tax rates. Keep in mind that all income will be treated the same. After reviewing the MIT Living Wage Calculator, I propose that the living wage that should be excluded from taxable income is $100,000 for a four-person household. Regular deductions, etc. would also be deducted from taxable income. I propose the following tax rates for married filing jointly:
$0 to $400,000 | 15% |
$400,001 to $1,000,000 | 35% |
$1,000,001 to $5,000,000 | 50% |
Over $5,000,000 | 80% |
Keep in mind that in 1950, the maximum rate was 91% on income over what in today’s dollars would be $5,400,000.
For the estate tax, I would suggest a simplified approach:
Less than $15,000,000 | 0% |
$15,000,001 to $100,000,000 | 30% |
$100,000,001 to $500,000,000 | 50% |
Over $500,000,000 | 80% |
Keep in mind that in 1950, the maximum rate was 77% on amounts over what in today’s dollars would be $118,000,000.
In addition to reforming the individual income tax and the estate taxes, we need to institute an annual wealth tax. This type of tax is needed to redress the overwhelming redistribution of income and wealth from working people to the ultra-rich and to raise additional income for the government to help make the lives of working people better. I would propose the following wealth tax on the net worth of a household.
Household Net Worth | Taxation Rate |
Less than $500,000,000 | 0% |
$500,000,000 to $1,000,000,000 | 10% |
$1,000,000,001 to $50,000,000,000 | 20% |
Over $50,000,000,000 | 30% |
I know that there are many people who think that raising taxes on the rich and/or enacting a wealth tax will be bad for the economy. Bernie Sanders has proposed a 5% annual wealth tax on billionaires which as you can tell from my proposal, I don’t think is enough. The Tax Foundation posted an article against the idea where it argues that the tax will not raise as much money as its proponents claim because of increased avoidance and the administrative complexity. That argument is hardly persuasive – don’t do it because it won’t raise as much money as you think because the rich will find ways to avoid it.
The proposed billionaire’s tax in California has also brought out the critics. Their biggest objection is that the billionaires will move out of California. That is a terrible argument against the California tax and disappears when we are talking about a nationwide tax. Here is an oped in the New York Times that discusses the objections to the California tax and why those objections should be dismissed.
These proposed tax rates and levels are just ideas. The actual rates and levels would need to be decided upon after these ideas are analyzed and impacts calculated using actual statistics.
The critical points are that
· the rich and particularly the ultra-rich need to pay their fair share which is much more than they pay today,
· we need to eliminate the extreme wealth and income inequality, and
· we need to fund more programs to improve the lives of working people.
Thanks for reading and please comment,
The Unabashed Liberal
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