High taxes – And the Reagan response

January 19th, 2021

Awake Goy

A friend of mine (a great fan on Ronald Reagan, which I am not) likes to tell the story of how Ronald Reagan would only make two motion pictures a year, because the third one would boost him into the 91% income tax bracket. Instead, he would “loaf around” rather than only earn 10% for his work. On the other hand, Carole Lombard had a different take on high taxes. “In 1937, notes film historian Eric Hoyt, Lombard paid over $300,000 in federal taxes on $465,000 in income.

“I was glad to do it, too,” she told reporters. “Income tax money all goes into improvement and protection of the country.”

Taxes were very high in the 1940’s and 1950’s, and that led to the reactionary revolution under Reagan, which has resulted in the income inequality under which we now suffer.

To be fair, I can certainly put myself in Reagan’s shoes. At the same time, I appreciate Carole Lombard’s patriotism. The important thing is to come up with a formula that would make people work like Lombard and not like Reagan.

Earning a lot of money is a reward. At a certain level of income, money becomes less significant to buy goods and services needed for life, and more a sign of recognition. To put it another way, money is needed for the ordinary goods and services of life, but after one attains a certain level of income, the ordinary goods and services are attained, and money is used to purchase goods and services that result in recognition, or money is used to acquire power within the society. So, it would seem, if instead of money we directly gave recognition and power, the money itself (and the goods and services which it could buy) would not be needed above a certain level.

How is money used for recognition? Part of it may be acquiring high-priced goods, like luxury homes, yachts, cars, jewelry and clothing. We teach our children from their earliest days that people who have such things should be admired. As a result, a large chunk of economic earnings are transferred to create such goods. I did some calculations once and found that over $352 billion annually went to luxury clothing, jewelry, yachts, cars, food, etc. This didn’t even include housing. Suppose you could tax that money away and use it to acquire ordinary goods and services for the poor? The consequences would be that the enterprises producing such goods would shrink drastically while those for producing ordinary goods and services would expand. And those who were taxed (like Reagan) would complain that they had been robbed of their right to buy luxury goods.

What can you substitute for the ability to buy luxury goods? One thing that could be done would be to celebrate publicly those who pay high taxes. After all, they are helping to support the society and they should be celebrated – with medals, publicity, and the like. One might also reason that a person whose earnings improve the society should be given a say in how the society operates, so they can teach others how to benefit society. (Just make sure that any power given them cannot be used to like the pockets of their friends and themselves).

If people who earn a lot are taxed at a high rate and do not have a deep hold on the exercise of power over the society, you can probably have a society which is capitalist while also having the benefits of socialist society. I’ve arrived at the conclusion that a well-regulated capitalist economy could work better than a socialist economy that is not well regulated. The key is to have a society without greed and corruption. Socialist societies, like capitalist societies, do no work where there is greed and corruption for those in control.

We need to look back at our history as Americans. There was a period between 1940 and the early 1950s where taxation on the rich was high, and where we enforced anti-trust laws. We also had strong unions. The combination of such factors made life fairer for ordinary working people. Today we have few unions, taxation on the rich is low, and anti-trust laws are ignored. As a result, we have an oligarchical society. Reagan helped to create that.

I would suggest going back to our older society by raising taxes on the rich and enforcing anti-trust laws. In addition, we should have an ombudsman agency, operated by totally honest people, who investigate greed and corruption and are free to prosecute greed and corruption through a special set of court designed to give rapid decisions. The society should provide what is needed for a good life: education, medicare for all, basic housing, collective transportation within cities (so that private cars are not needed), access to basic food and clothing, retirement. If basic needs are covered and are paid for through taxes on the wealthy, ordinary people will have a happier life. Yet people will be free to run businesses that provide gains to the society.