When Democrats posture that the Republicans are only out to protect the rich from taxes, I have to wonder what deluded alternate reality they are observing.
Seriously, if we drop rhetorical clichés for a moment, let’s do something strange and look at what Republicans actually do in reality. This exercise may be beyond the acolytes of Karl Mannheim, such as Barack Obama; however, for the average American of good sense, it should not seem like an alien task.
Current Republican thinking on income tax issues goes back to Treasury Secretary Andrew Mellon (Harding and Coolidge Administrations).
In the 1920s, federal income taxes were still relatively new. The Congress had previously established such high punitive tax rates on high income earners that the wealthy were diverting their investments into tax free municipal bonds. This resulted in a lot of credit being available to increase public debt, but little actual tax revenue to the federal government; in addition, this diversion of capital from private investment to public spending reduced economic production and employment.
This is not rocket science as we saw the same occur in the 1970s, which was infamous for tax avoidance schemes. And it repeats today. In addition today, we see government’s high tax and cheap credit policies draining funds out of corporations into employee pension funds ($1 trillion in additional contribution in the last 4 years) instead of into productive investments.
Having set the context, let’s get back to Mellon establishing Republican doctrine on taxation. As noted by historian Burton W. Folsom, Jr., Mellon had the idea that cutting tax rates would actually increase revenue to the government. Increasing revenue was a critical issue for the Treasury Secretary as war bonds were coming due for repayment. Mellon’s Plan had three points related to taxes: (1) the top tax rates should be lowered, (2) taxes on lower income earners should be reduced, and (3) the ‘death tax’ rate should be reduced. Does this sound familiar 90 years later?
Tax cuts following Mellon’s outline led to increasing economic activity and increasing tax revenue to the government. This should be no surprise to us as we saw this with the Kemp-Roth (aka Reagan) tax cuts in the 1980s and the Gingrich capital gain tax cuts in the 1990s. However, we might be surprised that Republicans in the 80s and 90s were not following the Reagan model, but actually the Mellon one from the 1920s.
Today, many citizens are accurately complaining that only the rich are paying federal income taxes while we are approaching a point in which less than half the electorate pays the federal income taxes commanded by their representatives in Congress. However, that is and has been the Republican plan. As biographer Robert Sobel reported, the tax cutting President Calvin Coolidge’s ultimate plan was that only those with high incomes were to have to pay federal income taxes.
This objective stayed true throughout the following decades. Recall both Reagan and George W. Bush’s self praise for how many lower income earners that they relieved from having to pay federal income taxes. Also, Republicans always sell tax cuts on the premise that lower rates will increase the money taken by the government from high income Americans.
Today there is a large gap between some Republicans’ rhetoric about taxing the rich and what Republicans’ actually do when it comes to policy changes related to federal income taxes. They have been doing the same thing for 90 plus years, and I expect that it will continue: (1) remove lower income Americans from income tax obligations and (2) increase tax revenue from higher income Americans by closing loop holes and reducing tax rates.
Those who advocate for a federal government reduced to its legitimate functions (police, courts, and military) with accompanying reductions in taxes should stop being surprised that Republicans actually increase the income tax burden on high income Americans to gain additional revenue for the federal government. That has been the Republican’s policy and practice for almost 100 years.