Why We Need a 90% Tax Rate on the Rich
Comedian Art Linkletter (“Kids Say the Darndest Things!”) was a big “C” conservative who believed in smaller government, lower taxes, privatizing social security and pulling oneself up by one’s boot straps. He was a lifelong friend of Ronald Reagan, who ignored his advice to stay out of politics. Ironically, by also ignoring his own advice, he became one of the richest men in Hollywood.
Linkletter had a tough beginning. He was abandoned as an infant before being adopted into a “loving home” by a back-country, one-legged preacher who was “poor as a church mouse.” According to his New York Times obituary, as a 6-years old he added to the family coffers by sorting through piles of discarded lemons outside a packing plant, cleaning them, packaging them, then selling them to neighbors.
At 16, he left home with $3 (sometimes as much as $10, depending upon the telling), rode the rails, became a hobo and did odd jobs to survive before landing in Wall Street as a typist. There he witnessed the stock market crash of 1929 and its affect on his bosses. After the crash, he ended up in San Diego where he was offered a radio job as an undergraduate attending what became San Diego State University. That opportunity morphed into a career in radio and then in the nascent television industry. By 1940, he was pulling in over $100,000 a year. “ It would be $1 million today,” he told Larry King in 2000.
“I never had any money,” he told King. “And when I started making money, I found I had a partner — Uncle Sam. And this was at the time when the income taxes were going like this [his hand traces an upward arc] and as I got into the real money, I was paying 93 cents on the dollar, counting California and federal [taxes]. So I thought,’ I got to do something with this money.’ So I was going into treasure hunts — you know — for maps that you buy and you go right out and the gold mine is waiting for you. Inventors got to me, con men got to me. And after losing a certain amount of money, I began to learn how to do business.”
He became business savvy by insisting that he be added to the board of any business he invested in. That let him see firsthand and learn from successful business leaders. “I got a partner — Uncle Sam — and he proved to be a very eager, greedy partner; the more money I made, the more money I gave him. I began to see ways to invest money so that I had something to keep,” he told King in 2005. “And I wrote off things.”
Linkletter was willing to take big risks with his and Sam’s money. If his [state and federal ] tax rate was 93 percent, he reasoned, then he only risked seven cents on each dollar; Sam risked the rest. Out of each taxable dollar, he could pay $.93 to the government and keep $.07 or write off $1 in investment, risk his $.07, and have the potential for a huge upside. If the investment tanked, he lost $.07; if it succeeded, he pocketed the windfall.
With Uncle Sam as his “partner,” Linkletter became extremely wealthy. He invested in shopping malls, hotels and a million-acre sheep ranch in Australia, gold mines, and new television shows. One of his most famous – and most charming – investments was in a weird children’s toy. “Yes, I backed the hula hoop. I had a lot of other people come to me with ideas that turned out well,” Linkletter liked to recall. That single investment paid off multiple times, continuing to add to his personal treasury for the rest of his life.
Some businesses tanked, of course, but because he could either pay the government $.93 or write off a $1 and risk $.07, he was always looking for investment opportunities. If the prospect appeared to have potential, he was in. “I’ve learned it’s always better to have a small percentage of a big success, than a hundred percent of nothing,” Linkletter famously stated. Here’s how he explained it to Larry King:
ART LINKLETTER: I never gambled any money I couldn’t afford to.
LARRY KING: Playing with house money.
ART LINKLETTER: More than house money. There was a time back about 35 years ago when the highest tax you could — tax-bracket — you could make was the 90 percent with state and federal. So I was playing on ten cent dollars when I bought a million acres of property in Australia, and made it into a big thing, it was with tax dollars. If they were going to tax you for 90 percent, I was going to get into oil, because you get not intangible write-offs against all of the drilling expenses, seven-year write-off on all the equipment you have to buy, but the gas that comes in, and the oil that comes in, you get 15 percent tax free.
Which begs the question, if the ratio were reversed, would Linkletter have invested in the businesses he did; would he have ended up as wealthy as he ultimately was?
Income tax is paid on cash you have received. You can put it under your mattress, stick it in a bank, take it out and count it every night as you watch television, or do something with it. Uncle Sam wants you to save some of it, spend some of it and, if you have extra, stimulate the economy by sharing some of it with someone who has a great idea but no cash.
The problem is that expecting low tax rates on high income earners to magically transform hoarders into “job creators” goes against human nature.
Every time you cut taxes, more of the risk is transferred from government to the investor. As the derivative market fiasco shows, it is easy to risk someone else’s money, but way less fun to gamble with your own.
At Romney’s effective 14 percent federal income tax rate, he has to toss in $.86 of every dollar he gets to write off. A low tax rate creates misers, not investors. And who can blame them?
That’s probably the biggest reason why more and more studies are showing that there is no, none, nada, zero, zip evidence that tax cuts for the wealthy create jobs.
During the Great Recession profits soared for business and the very wealthy, but very little cash went into creating jobs. Instead, the wealthy wrapped their arms tighter and tighter around their stash. According to Bloomberg news and many other sources, “companies, excluding financial institutions, are sitting on a record $1.74 trillion in liquid assets.”
Meanwhile, left with little other choice, start-ups turn to the cash-strapped worker for funds.
In a capitalist economy, money needs to flow. Start-ups can’t start up and existing small businesses go under when money dries up. Without available capital, the economy seizes, causing jobs to plummet, GDP to fall, long-term investment to stagnate and per capita wealth to evaporate. The rich may be swimming in pink lemonade, but over the long haul, the country, itself, will be back to digging through rotten lemons to survive. And that’s not funny at all.
Chart courtesy of Craig Jennings, “What Happens When We Tax the “Job Creators,” 09/22/11, http://www.ombwatch.org.
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Lillian Davis is a local progressive activist in Southern Nevada with years of experience promoting and advocating for issues such as education funding, labor rights, protecting the social safety net, preserving the environment and revenue reform in Nevada. |
3 Responses to Why We Need a 90% Tax Rate on the Rich
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It is correct that the tax rates were accompanied by large deductions and so nobody paid 90%. That’s the whole point made in this article. To avoid paying that high rate, the wealthy had to spend or invest the money. During that time period, the middle class saw the largest growth in history. Wealth accumulation was much more equitable. Apparently some in today’s society want 90% of the money to be in the hands of 1%. Why, I have NO IDEA. I can’t figure out why some people prefer to have large inequity in wealth distribution. It’s almost as if they get off on seeing poor people suffer.
IF your response and the previous ‘calculus’ of taxing the rich high with a LOT of deductions was in play today, you and the “revenue reform(er)”- LOL – Davis – MAY have had a point. Are there any liberals who are “spending reformers”? LOL!
The rich of the past, forced by post-WWII politics to invest in American businesses and economic activity, as you indicate, and such is NOT the point today. More money straight to government IS. It’s the Alinsky / Cloward & Piven Way! As is the same idea with the proposed ‘wealth tax’, where the same wealth is taxed over and over again, write-offs and legal deductions of the past age are not really in the mix this time.
As to the fallacy of the 1% with 90% of wealth, well, that is the direct result of liberal politicians and policies destroying the ‘common man’s’ wealth and job base since the middle of the Clinton-era.
Two major periods of liberal attack on the millions who cannot withstand such liberal attacks on wealth, income and success were formulated and executed in the Clinton-era.
The Clintonian 90s were choked with bogus accounting / reporting to Wall St; companies like ENRON, Aldelphia; Ponsi-schemers like Bernie Madoff started in the 90s; false and phony ‘wealth’ flooded the marketplace like a high-school kid getting millions for his ‘dot-com’ idea from his garage — all this ‘kiting’ crashed just after Clinton made his getaway and dumped on the ‘strawman’ Bush43. The causes and efforts were Clinton; the effects and fix of the ‘Bush Tax Cuts’ were Bush’s – and then “round two” of the Clinton-era liberal rotting attacks on the ‘common man’….
…wait for it….
….from 1995-2007, when the mortgage markets crashed and ruined trillions in wealth for the ‘common man’. Liberal politicians and policies rotted out Fannie / Freddie and flooded the markets with ‘rotten paper’ mortgages which crashed the economy domestically and shook it up globally. Liberals practically ‘perp-walking’ bankers before liberal witch-hunts in Congress demanding they loan money to stiffs who could never pay it back for “fairness” and “social justice” and other non-economic bogus causes.
Also, let’s not forget the national weakening of airline security headed up by Al Gore – which created the conditions which resulted in the economic devastation of 9/11/01!
Liberal policies have attacked the ‘common man’ and his wealth to the point today where liberals hypocritically decry the ‘gap’ in wealth between the affluent, who can better withstand the liberal wealth attacks and re-grow their wealth, and the middle-class / poor = who Obama needs to pour into the government programs to make them dependent and servile as is his planning. It is ‘Alinsky 101′ to destroy the middle-class while claiming to be its champion and blaming the wealthy. Chapter & verse.
I could go on and on and simply bury the superficial liberal narrative that it “happened on Bush’s watch” – as the latest liberal attacks on the ‘common man’ continue with Barney Fwank / Chris Dodd et all slamming the door on the middle-class and keeping the destruction of wealth in place with ‘Dodd-Frank’ and its restrictions on banks and lending.
The reason the middle-class is suffering IS historically due to liberal policies, politicians and rotten politics these last 20+/- years – all the while needing / searching and timing the crashes for the Republican ‘strawman’ to be blamed.
Feeding the government like Davis wishes to hike tax rates was not the mission when tax rates were very high in the past. No liberal today is talking about re-instituting the choking myriad of tax deductions in place back then to feed business; but only supposed greater revenue (higher tax rates lead to less revenue, FACT) to feed government, a non-wealth producer and wasteful leech of the first order.
Reagan and the liar supreme Tip O’Neill’s 1986 tax deal put trillions more in wealth in the hands of the people, especially weaning the richs’ avenues of tax reduction – but more importantly to make taxes more fair, understandable and available to the ‘common man’.
O’Neill had lied about and reneged on FAR more than he ever produced, but he did right by this deal for ALL Americans at Reagan’s behest. I guess it was that “..ask not what your country can do for you…” Democrat political basis long forgotten in the current Obamunist era.
Davis and today’s liberal proposes in raising tax rates only puts money in the hands of the most ineffective, impotent and wasteful non-wealth-producer-economic-leech in modern world history, the American Government.
When liberals whine about income and wealth inequality – look in the mirror for the cause!
These exorbitant tax rates also were accompanied by a huge amount of tax deductions and write-offs which brought the ‘net’ tax rate the ‘rich’ would pay to roughly rates we pay today.
Reagan and O’Neill led the way in dropping rates into the 28% range, but eliminated many write-offs. This ‘cleaned up’ the tax code and led to two decades of much better economic times for all Americans, despite O’Neill lying and reneging on government spending cuts several years before on the 1983 tax deal.
The ’90%’ as a rough ‘net’ was always a myth, but todays liberals are trying to nibble toward ’90%’ without all those pesky write-offs and deductions. Just make it a clean 90%, I’ve read in some liberal online publications! OR, have a “wealth tax” and annually tax the wealthy not on income but on raw wealth over and over and over! THIS seems among the range of scenarios liberals long for.
Remember as well, Linkletter in this article spoke of high tax rates as a collection of ALL of the types of tax rates he was paying. Liberals of today speak of a FEDERAL rate with a top end upwards of 90%, which after the other types of taxes paid would leave the most productive of us with net to nothing ‘left’. The least productive, of course, would live a life they never earned and government would reign supreme = the essence of wealth redistribution and historically failed civilizations.
Welcome to “Atlas Shrugged, the Home Game”
With government never having been and unable to be a wealth producer – unable to support itself without confiscating wealth (and in Obama’s world, confiscating future generation’s wealth with massive, unprecedented debt) from the private sector; it is not surprising the beast wants more and more and more.
Look to France, where 75% top rates drive the productive to emigrate. Look to Greece and other high-tax nations with its problems in what Margaret Thatcher famously said was “..the problems are running out of other people’s money”.
When government becomes its own wealth generator and people line up to get jobs from the poor (aka, in an alternate universe), maybe this weak and deceptive missive for confiscatory taxation and government redistribution may have a shot at describing a reasonable reality. Not in this universe and never in our nation can such crushing tax rates be viable or beneficial. Top rates people paid was never close to 90% after the myriad of deductions.
Obama’s father, the rampant alcoholic and abusive Kenyan socialist government apparatchik, wrote and advised that it was fine for government to confiscate 100% of the nation’s wealth “as long as commensurate services were provided the nation”. Maybe, this is the path today’s Obamunist wants to take the nation. HMMMmmm…….