Our FOUNDING FATHERS skepticism on WEALTH PERMEATED THE CONSTITUTION - SPREADING WEALTH Actually, it has been part of the American economic system since its founding.
In a letter to James Madison in 1785, for instance, Thomas Jefferson suggested that taxes could be used to reduce “the enormous inequality” between rich and poor. He wrote that one way of “silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.” Madison later spoke in favor of using laws to “reduce extreme wealth towards a state of mediocrity (meaning the middle) and raise extreme indigence towards a state of comfort.” During the early days of the republic, the government relied mostly on tariffs to collect revenue, under the theory that since the rich bought most of the imports, they would pay most of the taxes. “The rich alone use imported articles, and on these alone the whole taxes of the general government are levied,” Jefferson wrote in 1811. “The poor man, who uses nothing but what is made in his own farm or family, will pay nothing. (With) our revenues applied to canals, roads, schools, etc., the farmer will see his government supported, his children educated and the face of his country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings.” The theme of spreading the wealth has ebbed and flowed throughout American history, but it has constantly been present.
When Abraham Lincoln introduced the first federal income tax in 1862, it was at a flat 3 percent rate for anyone making more than $600 a year, which was then a respectable salary. For instance, farmhands, who earned an average of $200, did not pay the tax. A year later, the tax was revised so that richer Americans would pay a higher rate than those with median incomes. The tax rate rose from 5 percent for the lowest bracket to 10 percent for the highest. Again, nobody making less than $600 paid the tax. Although the income tax was abolished in 1872, the idea of using taxes to share the wealth remained an important part of the public discourse.
Teddy Roosevelt was a vocal proponent of this idea in the early 1900s. “I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective: a graduated inheritance tax increasing rapidly with the size of the estate,” he said in 1910. Three years later, the modern income tax was created, initially structured so that it affected only the richest 5 percent of Americans. In times of economic peril, the tax rates were raised – rather than lowered – to ensure that money was more evenly distributed. During the Great Depression, Franklin Roosevelt's administration boosted the highest tax rate from 63 percent to 79 percent in order to fund his New Deal programs. He pushed it to 94 percent during World War II.
Roosevelt was matched by Dwight Eisenhower in the 1950s, who, with the aid of a Republican Congress, maintained an income tax rate of more than 90 percent for top earners. It took Lyndon Johnson to lower the upper tax rate to 77 percent. It remained near that level until the second year of Ronald Reagan's presidency. Was this socialism? Was the government trying to play Robin Hood? Or was it using sound economic principles? If you use tax dollars for programs that help build a stronger middle class – or so the theory goes – you can build a broad consumer base that will ultimately benefit the captains of industry who get their wealth by selling goods and services to the masses. But doesn't a high tax rate strangle economic growth? It's hard to make that case. During the 1950s, when the upper-income bracket was taxed at its highest peacetime rate in history, the economy grew at a robust 4 percent per year, using inflation-adjusted figures. The 1950s growth rate certainly did not occur because of the high taxes, but the tax rate apparently didn't impede it. Reagan had a different idea. If you lower the tax rate on the moneyed class, he and his economists suggested, they will invest that money in ways that will increase employment and economic growth. Reagan slashed the upper rate to 50 percent in 1982 and 38.5 percent in 1987. It has been in the 30s ever since. And it would stay in the 30s even under Obama's tax plan, which would restore the upper bracket to the 39.6 percent level of the Bill Clinton era.
It is hard to argue that those low tax rates helped spur economic growth. Even after the tax cuts, growth averaged 3.3 percent under Reagan and George H.W. Bush, 3.7 percent under Clinton and 2.2 percent under George W. Bush, who slashed the upper tax rate to one of its lowest points since the Roaring '20s. In the meantime, we have made up for our tax cuts by increasing the national debt. We are now the world's largest debtor nation, owing trillions of dollars to such countries as Saudi Arabia, China and Japan. And we continue to add to our debts with the trillions of dollars spent fighting in Iraq and bailing out Wall Street. This could have easily been foreseen. “Every dollar spent by the government must be paid for either by taxes or by more borrowing with greater debt,” Eisenhower warned in the 1950s. “The only way to make more tax cuts now is to have bigger and bigger deficits and to borrow more and more money. Either we or our children will have to bear the burden of this debt. This is one kind of chicken that always comes home to roost. An unwise tax cutter, my fellow citizens, is no real friend of the taxpayer.”
And here we have Thomas Paine arguing for progressive taxation: http://tinyurl.com/y9q7qom