Mark Love of Falmouth is a long-term volunteer in the AARP TaxAide program.
Americans increasingly recognize that the U.S. economy is spiraling into oligarchy. Affordability, extreme wealth inequality, ballooning national debt, unfair taxation favoring the rich over workers — all have the same root cause.
In 1992, James Carville coined the slogan “It’s the economy, stupid!” to focus the Clinton campaign on economic issues. The rallying cry today should be “It’s the tax code, stupid!”
Jefferson, Madison, Franklin and other founders warned that an “aristocracy of wealth” could threaten self-government. With Elon Musk becoming the world’s first trillionaire, we have become that “aristocracy of wealth.”
How did this happen?
Between 1936 and 1981 (what economists call the “Great Compression”) income taxes
were highly progressive, with 15 or more brackets and the top marginal rate above
70%. Corporate tax rates sat above 50%. Wealth and income distributions were
the most equitable in modern U.S. history and the middle class thrived.
Starting with the Reagan administration and continuing to this day, tax progressivity has been gutted. Now we have but seven tax brackets topping out at 37% and a corporate
tax rate of only 21%. The results are staggering: the top 10% now own 68.2% of
national wealth and the top 0.1% (136,000 households) own 14.4%.
Other factors contributing to this wealth concentration: gutting the estate tax, corporate
accounting tricks to move profits to low-tax countries, legalizing stock buybacks, loosening financial regulations and rampant tax avoidance by those who can afford tax lawyers, to name but a few.
Woodrow Wilson warned in 1912, “If there are men big enough to own the government, they’re going to own the government.” Clearly the oligarchs own at least the tax code and perhaps the political system as well.
Our national debt sits at almost $40 trillion, exceeding U.S. GDP for the first time since 1946 and increasing by $2 trillion annually. The main reason for this shocking imbalance between spending and revenues is the weakened tax code and not, as Republicans would have us believe, from spending rife with “waste, fraud and abuse.”
Worse, taxes owed are often not paid. The IRS estimates $400 billion in owed taxes goes unpaid annually. Instead of cutting the IRS enforcement division by a third, perhaps the Trump administration should have added employees to capture unpaid taxes.
Many are calling for universal healthcare. This policy change would likely reduce overall U.S. healthcare spending substantially but increase the need for tax revenues. Other proposals like free childcare and subsidized higher education would also need additional tax revenues. To even consider these proposals, we must first overhaul how taxes are levied and paid.
The tax code artificially creates a distinction between capital gains and wages and unfairly taxes the former at lower rates than the latter. Social Security and Medicare taxes (FICA) are imposed on labor only. Wages and capital gains should be treated and taxed equally. When corporations are faced with lower taxes on capital, they tend to invest in new equipment and not in new jobs or higher wages.
The number of income tax brackets should be increased substantially to permit more progressive taxes with top rates well above 50%. A new wealth tax like that proposed by Brazil at the 2024 G20 meeting could be implemented. California voters will consider a one-time, 5% tax on billionaires domiciled in California as of Jan. 1, 2026 (thus eliminating the possibility of tax avoidance by fleeing the state). Corporate taxes should return to 1950s levels, and accounting tricks to move profits to low-tax countries should be made illegal.
The solutions to many of our most pressing issues reside in the tax code. We should demand that candidates for office propose credible and comprehensive reforms to make our taxes as fair and effective as they were in the “Great Compression” years, moving us toward affordability, an enhanced social safety net, reduced national debt, well-funded Social Security and, ultimately, elimination of the oligarchy.