What JFK Could Teach Modern Democrats About Taxing the Rich


What JFK Could Teach Modern Democrats About Taxing the Rich

Jan 14, 2019 3 min read
Stephen Moore

Senior Visiting Fellow, Economics

Stephen Moore is a Senior Visiting Fellow in Economics at The Heritage Foundation.
In recent days we've seen the new darling of the Democrats Alexandria Ocasio-Cortez crusading for a 70 percent income tax rate for high-earners. Tom Williams / Contributor/Getty Images

Oh how far the Democratic party has fallen. In recent days we've seen the new darling of the Democrats Alexandria Ocasio-Cortez crusading for a 70 percent income tax rate for high-earners. Now, according to a Washington Times report on Thursday, several prominent Democratic presidential wannabes, including Sen. Elizabeth Warren of Massachusetts, arguing for tax rates of more than 50 percent. Julian Castro, an Obama cabinet member who is testing the waters, says approvingly that "there was a time when the top marginal tax rate was 90 percent." It's almost like a race among the presidential aspirants to see who's willing to raise tax rates the most.

What is so disheartening about this cheery talk of returning to confiscatory tax rates is that it was just a little more than 30 years ago that Democrats were carrying the torch for MUCH lower tax rates than we have even today after the Trump tax cuts. Then, Democratic stars Sen. Bill Bradley of New Jersey and House Majority leader Dick Gephardt sponsored a tax reform bill (with the late-great Jack Kemp) to slash tax rates to 28 percent. They worked with President Ronald Reagan to get the top tax rate down from 50 percent to 28 percent by closing gaping tax loopholes. Amazingly the Bradley bill to cut the highest marginal rate to 27 percent passed in the Senate - are you ready for this? - by a vote 97-3. Even the most liberal Democrats like Ted Kennedy, Howard Metzenbaum and Al Gore supported the revenue neutral tax reform movement of trading low tax rates for ending tax shelters for the very rich. The Tax Reform Act of 1986 was a great bipartisan achievement that helped spur many years of strong economic growth.

Where did all the pro-growth Democrats go?

Castro seems to long for the return to 90 percent tax rates. Does he know any of the history here? It was President John F. Kennedy who called for a 30 percent across-the-board reduction in tax rates that ended the tyranny of a government that could take 90 cents in taxes out of a dollar of earnings. Kennedy argued correctly that the lower tax rates would "raise revenues in the long run." He was right; the lower tax rates spurred a burst of prosperity after he was tragically assassinated.

When Reagan entered office he picked up where Kennedy left off. During his presidency the top tax rate fell from 70 percent down to below 30 percent. Federal tax receipts even with these lower tax rates doubled from $500 billion in 1980 to just over $1 trillion by 1990 (or roughly 50 percent higher after accounting for inflation). Former George W. Bush chief economists proved in a famous study of the Reagan tax cuts that the biggest increase in tax revenues came from the wealthiest Americans. So much for Reagan "cutting taxes on the rich."

Now we skip forward to the Democratic party of 2019 and almost all of the leaders are endorsing tax deform. Ocasio-Cortez and Warren keep touting a return to the tradition of the Democratic party of higher tax rates to restore fairness for the middle class and promote "social justice." Have any of them even noticed that in the wake of the Trump tax rate reductions to 37 percent for individuals and 21 percent for businesses (which every Democrat in the House and Senate voted against), we have the best job market for the middle class in 50 years and wage gains that are larger for the lower and middle income groups than for the rich? Trump has created 1 million new construction, manufacturing and mining jobs - middle class occupations that had been flat or shrinking under Barack Obama. After nearly two decades of income stagnation, the middle class is getting ahead again.

Since Democrats are now talking about the good old days of sky-high tax rates, they might want to look at the evidence of what was actually going on back then. IRS data confirms that almost no rich people paid those 70, and 80 and 90 percent tax rates. They hired lawyers and lobbyists to escape paying the taxes, or they stashed their money away in exotic tax-exempt shelters, or bought tax-free municipal bonds to avoid forking over the majority of their income to the IRS. When the top tax rate was 70 percent in 1980 the richest 1 percent paid about 20 percent of all income taxes. In 2016, the most recent year we have good data, with a top tax rate of 39.6 percent, the top 1 percent paid almost 40 percent of income taxes. This suggests that if Ocasio-Cortez or Elizabeth Warren were to have their way, the rich would pay LESS not more of the burden of the taxes. A 70 percent tax rate would mean that the U.S. would suddenly have the highest tax rates in the world on our small businesses, jobs would leave, and the economy would so tank that the incomes and tax payments of the wealthy would shrink.

The modern-day Democrats may not even care if that happened. Barack Obama was asked in 2008 why he supported a capital gains tax hike even though history proves that this would lower federal revenues, he said he would still favor the policy because it was "the fair" thing to do. I suspect the left's obsession with raising tax rates is not about helping the poor or middle class or about lowering the budget deficit, but about tearing down the rich. The modern left at is not driven by fairness. It is guided by an ideology of greed and envy. Those are vices, not virtues.

This piece originally appeared in Dallas News