As a rationale for progressive taxation, the concept of regulation and redistribution eventually yielded to the quest for revenue. Taxing large incomes was justified because that's where the money is, and, secondarily, a rich person suffers less in giving up a dollar than does a poor one.
The inflection point was the Roosevelt administration. FDR kept talking about the justice of chipping away at "great accumulations of wealth," but he also needed the money. The overall average tax bite on the richest Americans reached its high-water mark of nearly 59% during World War II.
After that, even though marginal rates (the amounts charged on the last dollars) remained as high as 91%, the average tax bite on the rich fell to as little as 25% in the early '60s, largely the result of their skill in exploiting loopholes. Starting with Ronald Reagan, federal income tax policy came to focus mostly on finding the rate that could produce the most revenue while provoking the minimum squawking from the wealthy chickens being plucked.
Those squawks sometimes take the form of a claim that too much taxation saps the economic value of the wealthy -- their capacity to invest, to create jobs, etc. It's proper to note that years of study have unearthed no consistent evidence that taxation causes the rich to alter their investing behavior much, at least not until their tax burden reaches a point vastly higher than what Obama contemplates.
"The real rich -- the top 1% -- work very hard for reasons other than money," Reuven S. Avi-Yonah, a tax historian at the University of Michigan, told me this week. The quest for prestige, political power and self-esteem, the ability to control things and people, are all factors in their behavior.
Thanks to the financial crisis, those goals are regarded with increasing hostility by the political establishment. Certainly the claim of the rich to play an indispensable role in the American economy will be treated with more skepticism than in the recent past, and their ability to preserve their loopholes and other advantages in the tax code will diminish.
Will the economy suffer as a result? The experiment is about to begin.
--
Michael Hiltzik's column appears Mondays and Thursdays. Reach him at michael.hiltzik@latimes.com and read his previous columns at www.latimes.com/hiltzik.
