November 15, 1990

Who Should Pay?

I don't pay taxes. The little people pay taxes.

Leona Helmsly

In the Europe of 200 years ago, taxes were paid by the peasants. They paid to support the nobility who were mostly military men. The farmers paid for "protection", much as people pay The Mob today. If they were too poor to pay in cash, they paid in the form of labor. During the first part of the last century, a free peasant in Austria had to work for the local nobility for three days per week(one with horses, two without). I don't think that any modern government has come even close to matching that rate of taxation.

In 1861 Congress levied an income tax to pay for supporting the Union Army and Navy during the Civil War. It taxed incomes over $800 at 3%. Ten years later, the supreme court ruled that income tax unconstitutional.

In 1894, along with a 20% tariff, congress passed a 2% tax on incomes above $4,000. The following year it was also rules unconstitutional by a 5 to 4 vote of the Supreme Court.

In 1913, the 16th Amendment to the Constitution allowed congress to levy an income tax. Congress imposed a graduated tax on incomes over $3,000. That levy marked a very radical change in philosophy: that those who made the most money should pay the most in taxes.

In 1929, during the Great Depression, 71% of families had incomes below $2,500, then considered to be the poverty line. By 1939, only 3% of the population earned enough money to pay any income tax at all and 670,000 taxpayers accounted for 90% of the income taxes collected.

During World War II both incomes and income taxes went up dramatically. After the war, a Republican congress reduced income taxes over President Truman's veto. By 1954 the average tax rate was about 20% and those in the top brackets were assessed at 87%, but not many paid that much, thanks to abundant loopholes. By 1960, 25% of the population paid income tax.

Well, to make a long story short, taxes, government spending and income have all gone up substantially.

What this is all leading up to is a brief discussion of a fundamental difference in philosophy about where the money should come from to pay for government spending. There are the conservatives who believe that those who have money should be allowed to keep as much as possible. Then there are the _________(fill in your own word from the following:Democrats, liberals, left wing, radicals, communists, socialist, poor, working people, low income, middle income, middle class) who believe that the tax revenues should come from those who can most afford to pay it. Historically, a true graduated income tax has never existed. Those with the wealth have also had the political power and the money to circumvent much of it.

It may come as a surprise to many people, but the very wealthy few have the power to totally cripple the economy, should they choose to do so. As many have already done, they can take their capital out of this country and use it abroad. This could lead to mass unemployment and depression. As a consequence, even liberal legislators move with caution when it comes to taxing the rich. The recent budget battle in congress was over a symbolic rather than a substantive tax increase for the rich. The deficit reduction was also more symbolic than substantive.

The wealthy seem to have become aware that it is necessary to keep the rest of the population happy enough so that they don't revolt. Most seem to want the level of affluence of the poor and middle kept at a minimum. The new capitalists seem to believe that the highly skilled segment of the working population should be well enough paid so that they will stay on the job and can live well and happily. It is also politically expedient, since a content population will support the status quo.

Traditionally, the Republicans have represented the wealthy and the Democrats represented the rest of the population. Those once-sharp differences have become so blurred that you really can't tell from a politicians articulated stand on issues which party he belongs to. You can get an indication by how he votes in congress, since most party members vote as a block. Often the swing vote is provided by the liberal Republicans and conservative Democrats.

The Democrats are still the "Tax and Spend" party. The Republicans have changed and have evolved into the "No Tax and Spend" party.

A hundred years ago, there were two major class: capital and labor, with a few professional people in the middle. Things have changed radically since then. There are still very wealthy capitalists and poor unskilled labor. Unskilled labor is still viewed as a commodity, much the same as raw materials. There is now a very large middle class consisting of small business people, professionals and skilled workers. They pay most of the taxes and constitute the swing vote in elections. They are, at the present time, willing to support the status quo --but within limits. Kept happy they will support an administration. Unhappy, they will vote for the other party.

In short, the wealthy have learned that they have to spread enough of their loot around to keep most of the people relatively content --but not any more than that. I suspect that we are reaching a point where they had better spread some more of it around if they want to stay in power.

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