Contrary to the contention that Republicans have no national policy is their one consistent policy—tax cuts. They continued that policy under Trump despite the fact we are in what many call a second Gilded Age.
The first Gilded Age occurred around the last 30 years or so of the 19th Century. It was a time of ostentatious wealth and blatant political corruption. Wealth became concentrated at the top, and apparently, it “bought” politicians.
Historian Nell Painter reminds us that gilded does not mean golden. Instead, it means a glittering covering and rot underneath. The progressive era came in to deal with the problems of the Gilded Age.
Teddy Roosevelt became president in 1901, pledging to break up the giant trusts. He brought about regulatory reforms and anti-trust prosecutions. New laws protected the public from impure foods and drugs and corrupt legislators.
And the progressive era brought about income taxes. The 16th Amendment gave Congress the authority to enact the first peacetime national income tax in 1913.
After World War I, the top tax rate dropped from a high of 77 percent to 25 percent during the roaring 1920s. During the depression, the tax rate rose to 63 percent on top earners. In 1944, during World War II, the maximum rate reached 94 percent on income over $200,000 (the equivalent of $2.5 million today).
Over the next three decades, the top tax rate remained high and never went below 70 percent. The mantra of Republicans during this whole time was “cut taxes.”
Then came Ronald Reagan, who campaigned on “Reaganomics,” giving Republicans a sham premise for tax cuts–the idea that tax cuts for the rich would cause so much growth in the economy it would generate enough revenue to fund the cuts.
At the time, George H. W. Bush, campaigning for the presidency also, acknowledged the fundamental fraud of Republican fiscal policy—that tax cuts would pay for themselves. He famously called Reaganomics “voodoo economics.” Of course, Reagan won the primaries and chose Bush as his vice-presidential running mate. Joining the team, Bush shut up about voodoo economics and supported tax cuts.
In 1981, Reagan significantly reduced the top tax rate, which affected the highest income earners, by lowering it from 70 percent to 50 percent. Astonishingly, in 1986 he further reduced the rate to 28 percent. Republicans had achieved their perennial goal—to minimize taxes.
Although the top tax rate later increased under Presidents Reagan and Clinton, it never got over 39.6 percent until Obamacare added 3.8 percent. By reducing federal income by reducing taxes, the national debt tripled under Reagan.
This began our march toward this new Gilded Age. According to the PBS documentary, Gilded Age, around 1900, the richest 4,000 families (less than 1 percent of the population) had wealth equal to all other families together. By comparison, in 2017, the three richest individuals in the U.S. had as much wealth as the bottom half of the population. Thus, we are in another period of great inequality.
The Horatio Alger story—moving from the lower rungs to the higher rungs in society–no longer characterizes America. Americans currently have less economic mobility than citizens in Canada and much of Western Europe.
Economist and Nobel Laureate Joseph Stiglitz wrote a book about the price of inequality in which he mentioned several societal costs, including poorer education, poorer economic opportunity, and poorer health.
Stiglitz argues that the turning point in this increasing inequality in the country began with Ronald Reagan’s election. Reagan precipitated the beginning of deregulation of the financial sector and reduced the tax system’s progressiveness. And the path he started was continued by his predecessors.
To correct the first Gilded Age, progressives introduced income taxes. During the current Gilded Age, Trump and the Republicans, using the same Reagan fraud about tax cuts boosting the economy, reduced taxes, making things worse.
President Biden’s infrastructure plan is a step in the right direction, restoring 50 percent of Trump’s tax cut to corporations.