Inside the tax cut that changed everything for the middle class in America
Twenty-two years ago, Nobel Prize-winning economist Paul Krugman wrote for The New York Times Magazine about the era in which he and I both grew up, when the top income tax rate on the morbidly rich ran between 74 and 90 percent.
“[T]he America I grew up in — the America of the 1950’s and 1960’s — was a middle-class society, both in reality and in feel. The vast income and wealth inequalities of the Gilded Age had disappeared. Yes, of course, there was the poverty of the underclass — but the conventional wisdom of the time viewed that as a social rather than an economic problem. Yes, of course, some wealthy businessmen and heirs to large fortunes lived far better than the average American. But they weren’t rich the way the robber barons who built the mansions had been rich, and there weren’t that many of them. The days when plutocrats were a force to be reckoned with in American society, economically or politically, seemed long past.
“Daily experience confirmed the sense of a fairly equal society. The economic disparities you were conscious of were quite muted. Highly educated professionals — middle managers, college teachers, even lawyers— often claimed that they earned less than unionized blue-collar workers. Those considered very well off lived in split-levels, had a housecleaner come in once a week and took summer vacations in Europe. But they sent their kids to public schools and drove themselves to work, just like everyone else.”
Back then most business people avoided politics, preferring to stick to running their companies; in large part this was because when the rich seized political control of America in the Roaring 20s they crashed the economy so badly they were shamed into staying out of the political arena.
Corporate executives lived and worked in normal — albeit upscale — neighborhoods (watch an episode of Bewitched or The Dick Van Dyke Show from the 1960s to see the homes Madison Avenue executives and media bigwigs lived in), and workers made enough to sustain a decent lifestyle.
By 1980, the middle class encompassed as much as 55 to 60% of us, depending on whose numbers you’re using. Today it is well down in the 40s.
This middle class paradise (at least for white people) came about following the Republican Great Depression because President Roosevelt imposed a 90 percent top income tax bracket after about $2 million/year in today’s money, which helped build that extraordinary middle class of the 1940s-1980s era.
In the four-plus decades since Ronald Reagan and his Republicans turned America’s tax code on its head and transformed the merely well-off into the morbidly rich, things have changed a lot.
Today, the world’s richest man buys the world’s largest social media site just to promote his own social and political biases. The world’s second richest man shot himself into outer space on a penis-shaped rocket after buying America’s second largest newspaper, which now regularly scolds Democrats. And the Australian billionaire Murdoch dynasty daily pumps political and cultural poison into the homes of millions of Americans, producing billions in profits while elevating and keeping naked fascists’ political power.
While five Republicans on the Supreme Court legalizing political bribery accounts for some of this, the explosion of great wealth at the top, and homelessness and poverty at the bottom, flow almost exclusively from the Reagan, Bush, and Trump tax cuts.
Thus, there are three primary reasons why we must raise the top tax rates on corporations and the morbidly rich:
— Low income taxes at the top encourage oligarchy, where politicians become mere front men for great wealth and democracy is left in the dust.
— Low income taxes at the top encourage an explosion of wealth among the already-rich, accompanied by a collapse of the middle class.
— Low income taxes at the top deprive government of the revenue it needs to maintain the foundations of life for small businesses and working-class people.
Back in the 1935-1981 era, when corporate taxes topped out at 48% and the top personal income tax bracket ran between 74% and 91%, CEOs took out of their companies at most 30 times what they paid their workers. (Today it’s often hundreds or thousands of times what workers make.)
When Reagan came into office in 1981, there were only 13 billionaires in America. Most had inherited much of their initial money.
The American middle class was growing faster than at any other time in world history, and it was government policies protecting working people and small businesses (particularly high taxes on the very rich) that facilitated much of that growth.
Americans understood, as Supreme Court Justice Louis Brandeis famously said:
“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.”
America chose democracy, and elected FDR to the White House four times, then followed that with Harry Truman, Dwight Eisenhower, and Jack Kennedy all of whom advocated and maintained that top 91% personal and 48% corporate income tax rate. LBJ dropped it to 74% (actually raising taxes on rich people because he closed so many loopholes), and it stayed there through the administrations of Nixon, Ford, and Carter.
Throughout those 50+ years, Congress passed laws that reflected what the average working people of our nation wanted while the nation’s debt continue to decline to a mere $800 billion — $0.8 trillion — when Ronald Reagan came into office. We paid for all of these with income and FICA taxes:
- Social Security
- the minimum wage
- unemployment insurance
- world-class public schools
- nonprofit requirements for hospitals and health insurance companies
- free to very-inexpensive-state colleges
- the right to unionize
- civil rights and voting rights legislation
- publicly-owned utilities
- new highways and airports
- quality mass transit
- anti-trust laws to maintain competition and protect small businesses
- Medicare
- The EPA
- Medicaid
- school lunch programs and “food stamps”
- workplace nondiscrimination for women and racial minorities
- tax-deductibility for interest payments on car loans and credit cards
- federal deposit insurance to protect people from bank failures
- Head Start
- literally hundreds of laws that protected consumers and the environment from corporate predation and dangerous products.
As Michael Hiltzik notes in his book The New Deal: A Modern History, just one of FDR’s programs, the Works Progress Administration (WPA), used that top 91% personal and 48% corporate income tax bracket to rebuild America from top to bottom:
“The WPA produced, among many other projects, 1,000 miles of new and rebuilt airport runways, 651,000 miles of highway, 124,000 bridges, 8,000 parks, and 18,000 playgrounds and athletic fields; some 84,000 miles of drainage pipes, 69,000 highway light standards, and 125,000 public buildings built, rebuilt, or expanded. Among the latter were 41,300 schools.”
Republicans, representing the interests of the morbidly rich, opposed all of it.
Since the Reagan Revolution of the 1980s, when he cut the top tax rate down to 27%, the top income tax bracket has so collapsed and been shot-through with holes that the average billionaire is paying somewhere between 3 and 8 percent tax on his income. America’s second richest man, Jeff Bezos, pays less than 1 percent.
When that revenue shrank under tax cuts from Reagan, Bush, and Trump, so did many of the programs listed above.
But an even worse side-effect of cutting the top tax rates has been the explosion of great wealth at the top that has directly pushed the collapse of the American middle class and the weakening of American democracy.
Congress no longer passes legislation that the majority of Americans want: the Supreme Court ruled in Citizens United that corporate “persons” and the new billionaires created after Reagan’s tax cuts could own their very own politicians and judges, and those wholly-owned politicians and judges, in gratitude, could block anything of consequence that might require new taxes.
This has led to widespread cynicism and political disengagement by working class people, which has become a dagger to the heart of democracy.
The middle class has fallen from about two-thirds of us to fewer than half of us, and even at that it takes two incomes to maintain a lifestyle a single income could support before Reagan.
As the headline at TIME Magazine reads:
“The Top 1% of Americans Have Taken $50 Trillion From the Bottom 90%—And That’s Made the U.S. Less Secure”
Inequality has exploded: the morbidly rich now have so much cash slopping around that they’re using their pocket change to compete on who has the largest mega-yacht, who can throw the most money into politics, and who can build luxury survivalist bunkers that resemble small underground cities.
Which brings us back to Brandeis’ assertion.
With the election of 1980, Americans — most unknowingly — chose great wealth over democracy, oligarchy over a middle class, billionaires over working people.
As working class Americans got poorer and poorer, the GOP had to come up with increasingly outrageous pitches to keep their votes.
Attacking racial minorities and women in the workplace (“Feminazis”) worked well for Republicans for the better part of the first 20 years, and in the past 20 years they added Muslims, immigrants, and trans people to their hate-acceptable hit list. Singling groups out for violence this year, they’ve most recently added journalists and elected Democrats to their list.
Now they’re increasingly relying on QAnon conspiracists, neo-Nazis, religious fanatics, anti-abortion/anti-woman incel freaks, and conspiracy nuts to fill out the edges of the voting bloc that keeps them in power.
Which puts the survival of our democratic republic itself at risk. We’re following a path Russia trod in the late 1990s when, pressured by George HW Bush and Bill Clinton, they slashed taxes and regulation and used Milton Friedman’s neoliberal “shock therapy” to sell off and privatize huge swaths of the government’s functions.
And the American oligarchs’ pet politicians on the right are sounding more and more like Putin every day, from banning books to trashing LGBTQ+ folks to promoting a white “Christian” ethnostate to raving about minority immigrants and turning their backs on democracies like Ukraine.
Democrats and the Biden administration tried this past year to re-strengthen the American middle class, promoting a new top income tax bracket on those whose net worth exceeds $100 million.
It’s a start — although Republicans successfully blocked it for the moment — but it’s nothing close to what will be necessary to restore a functioning democracy and a vibrant middle class.
And Republicans in Congress continue to prevent things average Americans want and countries like Canada, Australia, and all of Europe already have, with free or affordable college and medical care at the top of that list.
It’s beyond time for America’s morbidly rich and biggest corporations to go back to doing business and making money, rather than using their great wealth to buy politicians, judges, and public opinion.
To become good citizens again, rather than playing the role of political kingmakers in an anti-democratic oligarchy.
That will require overturning Citizens United, reinstating campaign contribution limits, and raising income taxes on the morbidly rich and corporations back to at least the 74 percent they were at when Reagan took office and began his infamous War On Working People™.
While that’s going to be a hell of a lift if Democrats can seize control of DC this fall, it’s the first step to unwinding the American Oligarchy that Reaganism has created. Without it, we could easily see more decades of plutocracy with cranky billionaires and their monopolies eventually controlling every aspect of our lives.
