Our Suffering Millionaires

OUR SUFFERING MILLIONAIRES….Max Sawicky notes today that if the standard personal exemption had kept up with inflation since 1948, it would be $12,941 today. In reality, it’s only $3,000.

This change in emphasis in the federal tax code over the past 50 years has been truly stunning, and it doesn’t get enough attention. For the middle class, the standard exemption has decreased significantly while payroll taxes have increased. For the rich, the top marginal rate has plummeted, the estate tax has been eliminated, and rates have been halved on capital gains (and soon on dividends as well if Bush has his way). The net result is that an average family paid about 5% of its income in federal taxes in 1948 and today pays about 25%. During the same period, the effective tax rate on millionaires declined from about 75% to 26%.

Despite the fact that this has been accompanied by steady declines in both economic growth rates and labor productivity, conservative economists continue to tell us that if we keep at their program just a little while longer things will turn around. Their standard fairy tale is that (a) millionaires are overtaxed and (b) this acts as a drag on growth. In fact, both are false. The rich are taxed quite lightly in the United States, and there is no evidence at all that higher rates on millionaires would do anything except possibly improve the economy.

Economic growth is most robust when money is in the hands of people who spend it: the poor and the middle class. Sometime soon this lesson needs to be relearned.