87-70 or fight

By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON — The health care debate has become the tax debate, that perennial discussion subtitled: “How could a free people do this to themselves?”
Six Democratic and Republican senators from small, rural states have the whip hand in fashioning the health care reform bill most likely to see the light of day when all the haggling is done. They represent Montana, North Dakota, New Mexico, Maine, Iowa and Wyoming. There is no one at the table to stand up for the diverse populations of California or New York, or the lost manufacturing base in Ohio and Michigan or the burgeoning Sunbelt.
And through the bonus of seniority, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, has become the man to see on health care reform. Baucus and his five handpicked colleagues are reportedly crafting a bill that would not include a tax on high earners to help pay for universal coverage.
Americans have become so tax-averse that the mere mention of raising taxes, even on the highest earners, meets with a wall of opposition. Obama suggested taking the top rate up to 39.6, where it was during the Clinton years. President Bush lowered it to 35 percent as part of his tax-cutting package.
On the other hand, the income tax has proven to be incomprehensible, unfair, and, worst of all, unbalanced. (The burden of caring for the elderly with a 15.3 percent Social Security and Medicare tax has fallen on everyone but the wealthy because the 12.4 percent Social Security portion is not paid on incomes above $102,000.)
Taxing the rich was the original intent when the income tax was enabled by ratification of the 16th Amendment in 1913. The initial tax was just 1 percent on family incomes above $4,000 ($87,000 in 2009 inflation-adjusted dollars), but  zoomed to 7 percent for those making above $500,000 ($11,000,000 in 2009 dollars), a threshold that targeted the  robber barons who had so fabulously benefited from unchecked monopolies that controlled much of the U.S. economy.
The top rate during World War II rose to 91 percent, an extension of the idea that this is a tax to bridle runaway wealth. President Kennedy lowered it to 70 percent, which actually increased revenues and ushered in theorists of varying ideologies advocating additional tax cuts. President Reagan took up the mantle and, with his Tax Reform Act of 1986, dramatically lowered the tax on the wealthy from 70 percent to 28 percent while increasing the rate on the lowest income earners from 11 percent to 15 percent. Unwittingly, Reagan together with a willing Congress launched the modern age of robber barons from which we have yet to recover.
Historians will look back and trace the economic crash of 2008-09 to Reagan’s transfer-of-wealth tax policies that concentrated too much money in too few hands, creating a chasm between the haves and have nots not seen since the robber baron days. This was exacerbated by both deregulation and the out and out absence of regulation or oversight of the financial activities of our modern-day robber barons who then ran rampant in the stock, commodities, real estate, and money markets.
A tax policy in the spirit of the 16th Amendment and in keeping with the needs of the times would raise the threshold for paying taxes to its 1913 equivalent of $87,000 and restore the top rate to the 70 percent it was under Kennedy, who might have said today: Let the word go forth from this time and place, to friend and foe alike: 87-70 or fight.
Published in The Messenger 8.3.09

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