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Tax the Super-Rich More Than the Rich?

One of the most contentious elements of President Obama’s tax plan is his definition of “wealthy.”

rockefeller0413_DV_20090413110216.jpgAssociated Press
His tax rate was 79%.

His plan calls for raising the marginal tax rate to 39.6% from 36% on those earning $200,000 or more. The proposal has elicited howls from conservatives who argued that $200,000 doesn’t count as wealthy — especially in major cities like New York and Los Angeles. And they’ve got a point.

But the definitional issue became a crutch, used by a plethora of pundits and politicians to say we shouldn’t raise taxes on the wealthy at all, since defining wealthy is impossible. The fact is, the government needs money, and it has to come from somewhere.

And there may be a more elegant solution: creating new tax brackets to separate the super-rich from the merely affluent.

In an insightful column in the New York Times Magazine, David Leonhardt explains that while the top tax rate used to be much higher than today’s top rate, it only applied to the super-rich. In 1960, the top rate was 91%, but it applied to the those making $400,000 a year — equivalent to $3 million in today’s dollars when adjusted for inflation. A couple making $20,000 (or $140,000 in today’s dollars) would pay 38%.

Franklin D. Roosevelt’s brackets had been even more extreme. His top rate of 79% applied to those making $5 million a year, or about $75 million today. “As the economist Bruce Bartlett has noted, that 79 percent rate apparently applied to only one person in the entire country, John D. Rockefeller (above),” Mr. Leonhardt writes.

Today, by contrast, the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change is especially striking, because there is so much more income at the top of the distribution now than there was in the past. Today a tax rate for the very top earners would apply to a far larger portion of the nation’s income than it would have years ago


In other words, there should be a tax rate for Upper Richistan and one for Lower Richistan.

Of course, conservatives and some moderates argue that if we created a new bracket for the super-rich, they would simply move their money out of income and into lower-tax assets, like stocks or private businesses. So the net result would be less money for the government and less job creation and investment by the rich. (An op-ed by Mark Altieri in the Cleveland Plain Dealer over the weekend suggests that whenever Washington raises tax rates on the rich, revenues go down.)

Still, making a distinction between the haves and have-mores seems worth considering — if only for the entertainment of watching the pundits try to mount a populist defense against a tax on those making $3 million a year.

What do you think Wealth Report readers? Should there be a new tax bracket for the super-rich?

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    • none of you have compassion it seems
      the burger flipper needs a fire department, street lights, smooth roads, too!
      not everyone is the same someone has to flip the burgers upid!

    • What if everyone in the US paid 10% taxes on their income with absolutely no write offs, just a straight 10%.
      It sounds so much easier and I think there would be less tax fraud. Of course we would have to dismember congress but that could be a WIN WIN.

    • Sure, all those celebrities who voted for Pres Obama should pay more in income tax.

    • Listen up you moron flat taxers - the reason a flat income tax is unfair is because none of the other taxes are flat. Unless you are willing to pay social security taxes, sales taxes and all other taxes at the same percentage of income that those of us making under $75,000 pay, you have no real case - so shut up already. We need a simpler income tax that is still progressive.

    • And Don, since you feel so many people need so much help, how come you haven't worked harder to earn more money to give away? The kids are out of school. Why don't you go get another skill, make some more money, and give every dime of it as an extra tax check? Why don't you sell your car and get around on a bike? Why not dump the house, take the $650K give half away to someone that makes only miniumum wage, and get a condo? After all, there is ALWAYS someone better off and worse off than yourself. You look like a millionare to someone flipping burgers, Hell, you don't need that much house or car anymore than I do. I could sell my house, buy a forclosure in AZ for $90K (a better house BTW) and live on 1/4 of what I do. But I don't I'm working twice as hard to make twice as much to retire in 1/3 less time. My choice. I'm not doing it so I can work till I'm 75 to support burger flippers.

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