Biden Pushes for Wartime Tax Rates

‘We have got to confiscate wealth,”

Rep. John Nance Garner

of Texas said in 1917. Garner, who served as vice president during

Franklin D. Roosevelt’s

first two terms, was talking about how to finance World War I. But some Democrats miss those days, and the Biden crowd is proposing ferocious tax increases that could rival or exceed Roosevelt’s.

The top federal income-tax rate rose to 77% in 1918 from 7% in 1913. Following World War I, the top rate came down, reaching just 25% from 1925-31. Rates were raised during the Great Depression to 64% in 1932 and 79% in 1936. In April 1942, Roosevelt proposed a top individual tax rate of 100%, declaring that amid “grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000” (the equivalent of a bit more than $400,000 in 2021 dollars). The Treasury Department said this top rate would only affect 11,000 taxpayers. Democrats in Congress pronounced it dead on arrival. Still, the top World War II rate reached 94%. But generous deductions and easier conversion of ordinary income into capital gains helped high-income taxpayers avoid paying that rate.

Top individual tax rates remained at 91% until 1964, when Congress passed

John F. Kennedy’s

tax reduction proposal and set the top rate at 70%.

Richard Nixon

carved out a 50% top rate on salary and self-employment (known as “earned income”) in 1969. Then

Ronald Reagan

pushed the rate on other income down to 50% too, and finally down to 28% in 1988. These reductions were accompanied by removing or altering deductions that had previously helped taxpayers avoid paying the top rate. Today’s Democrats aspire to raise rates to the skies while also limiting such offsetting exclusions.

We have come a long way from 1909, when the top corporate income-tax rate was a flat 1%, rising to 53% during World War II, and settling at 34% under Reagan. Thereafter, individual rates rose until

Donald Trump

brought rates down to 37% (plus the 3.8% Medicare tax) for individuals and 21% for corporations.

The Biden administration proposes to raise the top individual rate to 39.6% (plus 3.8%) and to 28% for corporations. From a historical perspective, these rates aren’t unprecedented. But accounting for state and local income taxes and stacking on additional crushing Democratic tax proposals would push the rates far higher.

Some of the most burdensome proposals include imposing the 12.4% Social Security tax on earned income over $400,000 and nearly doubling the top rate on long-term capital gains, to 39.6%. Including the 3.8% net investment income tax—extended by ObamaCare—results in a top rate of 54.9% on earned income and 43.4% on income from investment and savings.

Add 13.3% state tax in California or 14.776% in New York City, and the marginal tax can hit somewhere between 56.7% and 69.8%. Additional proposals to limit the value of itemized deductions, including charitable contributions, would raise effective taxes even higher. Unless indexed for inflation, these high tax rates would over time ensnare an ever larger proportion of taxpayers.

But there are even more onerous taxes being proposed. ProPublica’s recent story, based on tax returns of wealthy individuals illegally leaked from the Internal Revenue Service, showed that some of the ultra-rich pay little income tax. This feeds the belief that tax evasion by wealthy people is pervasive, but ProPublica deceptively treated unrealized asset appreciation as if it were income in an effort to drum up support for a wealth tax.

Some found false comfort that Mr. Biden’s tax proposals haven’t yet mentioned estate and gift taxes, other than eliminating the “step-up basis” (untaxed capital gains at death) in excess of $1 million. But on the campaign trail, Mr. Biden proposed raising the top estate-tax rate to 45% from 40% while lowering the current $11.7 million per person exemption by some unstated amount, along with major exemption reductions to gift taxes.

Proposals to tax “step-up basis” could result in a 68.9% combined capital gains rate plus estate tax on many successful investors, entrepreneurs and small-business owners. Estates of New York City residents would be subject to an additional 14.776% income and 16% estate tax, for a total tax of 80.7%.

Few small businesses or farms could survive these proposed taxes. Assets would need to be sold to raise the cash to pay the tax. Jobs would be lost to liquidations. Many retirement plans and family assets would have to be zeroed out. Tax is generally due in cash nine months after death, with installment provisions for large holdings in businesses and farms.

IRS statistics from 2018 show that the top 1% of taxpayers (more than $540,000 in income) paid 40.1% of all individual income taxes; the top 5% (about $218,000 in income) paid 60.3%. The lowest 50% paid less than 3%. How much higher than 60% will satisfy calls for the rich to pay their “fair share”?

Many of the nation’s richest people say that they favor higher taxes on the wealthy. But they have their limits. “If I had to pay $20 billion, it’s fine,”

Bill Gates

once quipped. “But when you say I should pay $100 billion, OK, then I’m starting to do a little math about what I have left over.”

Mr. Starkman is a certified public accountant in Atlanta and author of “The Sex of a Hippopotamus: A Unique History of Taxes and Accounting.”

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