An uncharacteristically subdued Peter Schiff took to the pages of The Wall Street Journal on Friday to explain what he believes is the myth that higher taxes will lead to higher revenues and a general healing of the economy.
The normally outspoken Schiff, CEO of Euro Pacific Capital and author of “The Real Crash: America’s Coming Bankruptcy” who ran for the Senate in 2010, begins by noting Democratic Party leaders, and President Obama in particular, are “forever telling the country that wealthy Americans are taxed at too low a rate and pay too little in taxes. The need to correct this seeming injustice is framed not simply in terms of fairness.”
Higher tax rates on the wealthy, he claims the country is told, would help balance the budget, allow for more “investment” in America’s future and foster better economic growth for all. In support of this claim, like-minded liberal pundits point out that in the 1950s, when America’s economic might was at its zenith, the rich faced tax rates as high as 91%.
“True enough,” he concedes, “the top marginal income-tax rate in the 1950s was much higher than today’s top rate of 35%–but the share of income paid by the wealthiest Americans has essentially remained flat since then.
In 1958, Schiff explains, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.
“So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same?”
Two factors are responsible, he argues.
“Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic–very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.”
He somewhat wonkily goes on to explain that in 1958, an 81% marginal tax rate applied to incomes above $1.08 million, and the 91% rate kicked in at $3.08 million. These figures are in unadjusted 1958 dollars and correspond today to nominal income levels that are at least 10 times higher. That year, according to Internal Revenue Service records, just 236 of the nation’s 45.6 million tax filers had any income that was taxed at 81% or higher. In 1958, approximately 28,600 filers (0.06% of all taxpayers) earned the $93,168 or more needed to face marginal rates as high as 30%. These Americans–genuinely wealthy by the standards of the day–paid 5.9% of all income taxes. And now? In 2010, 3.9 million taxpayers (2.75% of all taxpayers) were subjected to rates that were 33% or higher. These Americans–many of whom would hardly call themselves wealthy–reported an adjusted gross income of $209,000 or higher, and they paid 49.7% of all income taxes.
In contrast, he notes, the share of taxes paid by the bottom two-thirds of taxpayers has fallen dramatically over the same period. In 1958, these Americans accounted for 41.3% of adjusted gross income and paid 29% of all federal taxes. By 2010, their share of adjusted gross income had fallen to 22.5%. But their share of taxes paid fell far more dramatically–to 6.7%. The 77% decline represents the single biggest difference in the way the tax burden is shared in this country since the late 1950s.
“It is a testament to the shallow nature of the national economic conversation that higher tax rates can be justified by reference to a fantasy–a 91% marginal rate that hardly any top earners paid,” he concludes. “In reality, tax policies that diminish the incentives and capacities of innovators, business owners and investors will not spur economic improvement. Such policies will, however, satisfy the instincts of those who want to ‘stick it to the rich.’ Never mind that the rich have already been stuck fairly well.”
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