Wealth Inequality has Always Been Un-American

by Brian T. Lynch, MSW

In an Intelligencer article entitled, “AOC Thinks Concentrated Wealth Is Incompatible with Democracy. So Did Our Founders,” Eric Levitz writes, “ [Alexandria] Ocasio-Cortez’s second argument against the existence of billionaires — that concentrated wealth is incompatible with genuine democracy — was something close to conventional wisdom among the founders. Levitz goes on to write:

“The notion that political freedom has a material basis did not originate with Karl Marx and the creed of Communism; it was a core idea of the 17th-century British political theorist James Harrington, and his formulation of classical republicanism. A man who does not own the means of his own reproduction can never exercise political freedom, Harrington argued, because “the man that cannot live upon his own must be servant.” Likewise, the man of immense wealth — whose fortune consigns great masses of men to servitude — is inevitably a kind of tyrant. After all, 'where there is inequality of estates, there must be inequality of power, and where there is inequality of power, there can be no commonwealth.'”

Having seen the ravages of extreme property-based wealth inequality in England, Thomas Jefferson was concerned that measures needed to be taken to prevent such inequality in America. Among his ideas, he wrote:

“Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”

The vast concentrations of private wealth we see today is incomparable with a democratic society - and our founding fathers knew it. Regardless of if they were for or against democracy as a form of government, there was agreement that this nation needed to guard against the extreme accumulation of property in the hands of a few.

While Jefferson and the founding fathers understood this, they nevertheless adopted a Constitution which only permitted a flat tax (Art. 1, Sec. 9, 4th paragraph). It wasn't until the Sixteenth Amendment was adopted in 1913 that the idea of a progressive income tax became possible.

The progressive income tax of 1913, as it was originally designed, did exactly what Thomas Jefferson had suggested. It was not intended that wage earners would be taxed at all. The bottom tax bracket began with incomes over $100,000 in today’s inflation-adjusted dollars and many higher marginal tax brackets climbed upwards from there. The one reason most wage earners ended up paying income taxes is that the 1913 law was not indexed to inflation. Just like the alternative minimum tax today, the progressive income tax crept down the income scale over time as wages were adjusted upward for inflation and productivity growth.

Up until World War II the top marginal income tax rate was over 90%. It was set that high to help prevent the unchecked accumulation of private wealth for the sake of maintaining a functioning democracy. President John Kennedy scaled back the top tax bracket to 70%, but it was Ronald Reagan who destroyed the whole purpose of the progressive taxes by cutting the top rate to less than it is now. At the same time, he adjusted the bottom rate to increase income taxes paid by lowest-paid workers. These changes, along with a law to tax capital gains at 1/2 the rate of wage income, set-in-motion one of the main conditions that would result in the creation of today’s billionaire class.

The other changes that allowed for the current unchecked accumulation of vast amounts of private wealth were the rise in the mid-1970s of organized capital in the form of political associations and PACS, (Political Action Committees) bent on killing unions and electing pro-business politicians. To this end the practice of sharing growth in the hourly gross domestic product (GDP) with workers in the form of productivity wages ended. Since then the US economy has nearly tripled but nearly all of that new wealth has gone to the wealthiest owners of capital. Wage growth, adjusted for inflation, has been nearly flat since 1975.

The irony here is that if productivity wages had been allowed to keep pace with America’s growing wealth (hourly GDP), the average family of four today would be making over $100,000 per year, the point beyond which they might have had to start paying income taxes if the original 1913 progressive tax law had been indexed to inflation.