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1935 Wealth Tax Act

1935 Wealth Tax Act

Franklin D. Roosevelt persuaded Congress to pass the Wealth Tax Act in August, 1935. It was a progressive tax that took up to 75 percent on incomes over $5 million. In a speech he made in October 1936 Roosevelt claimed that the tax had created a great deal of hostility: "The forces of organized money... are unanimous in their hate for me - and I welcome their hatred. I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match."

Many wealthy people used loopholes in the existing tax code to evade these taxes. According to William E. Leuchtenburg, the author of Franklin D. Roosevelt and the New Deal (1963): "The outcry from high-income brackets obscured the fact that much of Roosevelt's tax program was sharply regressive. His insistence on payroll levies to help finance social security cut into low-income groups, and his emphasis on local responsibility for unemployables helped stimulate the spread of the regressive sales tax. The share of upper-income groups remained fairly constant through the thirties, and the share of the top 1 per cent even increased a bit after the passage of the Wealth Tax Act."

The outcry from high-income brackets obscured the fact that much of Roosevelt's tax program was sharply regressive. The share of upper-income groups remained fairly constant through the thirties, and the share of the top 1 per cent even increased a bit after the passage of the Wealth Tax Act.


Revenue Act of 1935

The Revenue Act of 1935, 49 Stat. 1014 (Aug. 30, 1935), raised United States federal income tax on higher income levels, by introducing the "Wealth Tax". It was a progressive tax that took up to 75 percent of the highest incomes. [1]

The 1935 Act also was popularly known at the time as the "Soak the Rich" tax. [2] To solve the problem of tax evasion through loopholes, the Revenue Act of 1937 revised tax laws and regulations to increase the efficacy of the tax. [1]


Background

The Social Security Act was one of a number of new laws and organizations established to support citizens as part of former-President Franklin Roosevelt's New Deal. Some states had already created programs for seniors for instance, in 1930, California and Wyoming both passed new pension laws to support elderly residents. In 1933, the term "social security" was first used in a significant way when the American Association for Old-age Security became the American Association for Social Security. The organization's mission was to advocate for state and federal legislation that would ensure adequate pensions for seniors. The organization also fought for unemployment insurance and health insurance for all American citizens. Ώ] Α] Β]

The Social Security Act was the first significant federal legislation designed to support retired individuals. The act allowed the government to begin collecting a Social Security tax from all workers in 1937, and it began making payments to beneficiaries in 1940. The act did not pass without its share of opposition, however. Alf Landon, Roosevelt's challenger in the 1936 election, asserted that employing such a large payroll tax was unfair to workers. In 1935, the Communist Party of America argued that the bill would assist the rich while unfairly overtaxing the working class and supported a different bill at the time. Huey Long, a Louisiana Senator in 1935, had similar views and argued to redistribute wealth to the poor. Γ] Δ]

Despite some protest, the Social Security Act was passed, eventually leading to calls for expansion. Unlike the opposition mentioned above, some of the opponents of expansion argued against the socialization of the American healthcare system. For instance, in 1961, Ronald Reagan (then still an actor), released a speech with the American Medical Association, speaking out against another piece of healthcare legislation, the King-Anderson bill. The King-Anderson bill ultimately failed, but it was viewed as a precursor to Medicare, as it would have covered some medical expenses for the elderly. Similar opposition against medical assistance programs (especially Medicare and Medicaid), came from a number of high-profile senators and political figures throughout recent history, including George H.W. Bush, Strom Thurmond and Bob Dole. Δ] Ε]


Revenue Act of 1935

From Wikipedia the free encyclopedia

The Revenue Act of 1935, 49 Stat.� (Aug. 30, 1935), raised federal income tax on higher income levels, by introducing the "Wealth Tax". Ώ] It was a progressive tax that took up to 75 percent of the highest incomes (over $1 million per year.). ΐ] The Congress separately also passed new taxes that were regressive, especially the Social Security tax.

It was signed into law by President Franklin D. Roosevelt over strong opposition from business, the rich, and conservatives from both parties. The 1935 Act also was popularly known at the time as the "Soak the Rich" tax. Α] To solve the problem of tax evasion through loopholes, the Revenue Act of 1937 revised tax laws and regulations to increase the efficacy of the tax. ΐ]


If a Wealth Tax is Such a Good Idea, Why Did Europe Kill Theirs?

In late January, Senator Elizabeth Warren, who's in the race to become president in 2020, added a new kind of tax to the American conversation, causing anxious pacing on superyachts in every port: a wealth tax. It's a cousin of the property tax, but it encompasses all forms of wealth: cash, stocks, jewelry, thoroughbred horses, jets, everything. Warren calls the policy her "Ultra-Millionaire Tax." It would impose a 2% federal tax on every dollar of a person's net worth over $50 million and an additional 1% tax on every dollar in net worth over $1 billion. Economists estimate it would hit the 75,000 richest households and raise $2.75 trillion over ten years.

It's a direct attack on wealth inequality, and it's influenced by the work of French economist Thomas Piketty, whose book Capital in the Twenty-First Century put a spotlight on the increasing disparity of wealth in developed nations. Warren, who informally endorsed a wealth tax while at an event with Piketty in 2015, is the first U.S. presidential candidate to take up the cause.

The disparity in what Americans own is much greater than the disparity in what they earn. Jeff Bezos has a net worth of $135 billion, but his formal salary is less than $100,000 per year. Warren's proposal aims to tap the fortunes of the ultra-rich and use the proceeds to fund social programs. But a wealth tax faces serious hurdles, including lessons from a failed experiment in Europe, the need for significant bureaucratic expansion, and serious questions over whether it's even constitutional.

Euro Flop

Normally progressives like to point to Europe for policy success. Not this time. The experiment with the wealth tax in Europe was a failure in many countries. France's wealth tax contributed to the exodus of an estimated 42,000 millionaires between 2000 and 2012, among other problems. Only last year, French president Emmanuel Macron killed it.

In 1990, twelve countries in Europe had a wealth tax. Today, there are only three: Norway, Spain, and Switzerland. According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries—and, perhaps worst of all, it didn't raise much revenue.

UC Berkeley economist Gabriel Zucman, whose research helped put wealth inequality back on the American policy agenda, played a part in designing Warren's wealth tax. He says it was designed explicitly with European failures in mind.

He argues the Warren plan is "very different than any wealth tax that has existed anywhere in the world." Unlike in the European Union, it's impossible to freely move to another country or state to escape national taxes. Existing U.S. law also taxes citizens wherever they are, so even if they do sail to a tax haven in the Caribbean, they're still on the hook. On top of that, Warren's plan includes an "exit tax," which would confiscate 40 percent of all a person's wealth over $50 million if they renounce their citizenship.

Warren's tax is also only limited to the super rich, whereas in Europe the threshold was low enough to also hit the sort-of rich. This higher threshold helps it avoid problems like someone having a family business that makes them look rich on paper but, in fact, they're short on the cash needed to pay the tax.

Also important, Zucman argues, the higher threshold means only a small group will be affected. And smaller groups have a harder time fighting for exemptions, which hurt European efforts. Some countries, for example, exempted artwork and antiques on the grounds they were hard to value. It's true, but it creates a huge loophole: Buy lots of art! Economists hate incentives like these because they distort markets. Warren's proposal calls for no exemptions.

Bureaucracy and the Constitution

But having no exemptions means the U.S. government will have to get very good at valuing art, diamonds, superyachts, and all the other fabulous things the super rich collect. Indeed, Warren's plan includes a call for "a significant increase in the IRS enforcement budget." It was the hefty cost of enforcement that played a big part in Austria killing their wealth tax back in 1993. It turns out it costs a lot to track and value rich people's stuff every year.

And a wealth tax may not even be legal. The ability of the federal government to tax is tightly curtailed by the U.S. Constitution. Legally imposing the first income tax in 1913 required a constitutional amendment. Legal scholars are currently debating whether a wealth tax would need another amendment. The debate, Josh Barro writes, centers on whether a wealth tax would be a "direct tax," which the Constitution makes really hard for the federal government to impose.

While the legality of a federal wealth tax is in question, the current politics of it are not. A new poll finds that even a majority of Republicans support Warren's wealth tax. It turns out President Trump himself once advocated for one too.

A Local Problem with a Global Solution

It's been roughly five years since Piketty published Capital in the Twenty-First Century. One of the book's central arguments was that the rate of return on capital will be higher than the rate of economic growth ("r>g") and, as a result, the wealthy will continue seeing their fortunes increase faster than everyone else's.

His solution was a wealth tax, but he recognized that exemptions and freedom of travel had doomed the European experiments. So he suggested a global wealth tax: The whole world would decide to do one thing at one rate. That such a solution is highly unlikely is a perfect symbol for the difficulty of getting money from people with the best accountants, the best lobbyists, and the best boats.

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Wealth Taxes to Cure Inequality? How About Tax Reform Instead.

What are the prospects for a new federal tax on wealth? Pretty good, if you think surging inequality will trigger a populist revolt. But not so good if you think history has anything to teach us.

According to some observers, a wealth tax is just around the corner. "If you'd like to know where American political debates are headed, the data suggest a simple answer," observed economist Tyler Cowen in a recent New York Times article. "The next major struggle -- in economic terms at least -- will be over whether taxes on personal wealth should rise -- and by how much."

Cowen's got a point, at least when it comes to the data. Drawing on a paper by economists Thomas Piketty and Gabriel Zucman, Cowen pointed out that wealth around the world is growing faster than income. That's not necessarily a problem, except that wealth is highly concentrated, making for a rising tide of inequality. And inequality can trigger strong political reactions -- like a wealth tax.

But will it? History suggests otherwise.

At various times, inequality has played a key role in shaping federal tax policy. In the early 20th century, for instance, it helped drive the movement for a permanent federal income tax.

Likewise, tax policy in 1930s was clearly driven by distributional worries. "Great accumulations of wealth cannot be justified on the basis of personal and family security," declared President Franklin Roosevelt in a speech defending the aptly named Wealth Tax Act of 1935. "In the last analysis such accumulations amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others."

But if Roosevelt was interested in redistributing wealth, he was even more focused on redistributing the tax burden. The 1935 revenue act certainly targeted wealth, chiefly through an increase in income tax rates. But it also took aim at tax avoidance, as did almost every other piece of New Deal tax legislation.

As I argue in my recent book, Their Fair Share: Taxing the Rich in the Age of FDR, Roosevelt believed that tax avoidance was morally corrupt even when it was legally permissible. If taxes were the price of civilization, then too many rich Americans were getting their civilization at a discount, Roosevelt charged.

FDR was careful to make the connection between the distribution of the tax burden and the distribution of the nation's wealth. "Our revenue laws have operated in many ways to the unfair advantage of the few," he explained, "and they have done little to prevent an unjust concentration of wealth and economic power."

The framing here was key: Roosevelt did not simply ask Congress to take from the rich and give to the poor, although that was part of his message. He also wanted lawmakers to eliminate loopholes, thereby ensuring that high statutory rates didn't exist solely in theory but also in practice.

Americans responded well to Roosevelt's campaign against loopholes Congress passed laws in 1936 and 1937 that were designed to broaden the tax base, especially at the top of the income scale. Inequality and widespread economic distress certainly gave these laws a boost in the Depression-wracked politics of the mid 1930s. But time and again, Roosevelt framed the measures as an attack on special privilege, not wealth itself.

As Cowen suggests, today's rising inequality might plausibly spark a populist attack on wealth, including some sort of national wealth tax. But the history of New Deal taxation suggests that more tepid reforms might be the more likely response.

Base broadening is not exactly the stuff of populist legend. Calls to curb tax preferences won't get the blood pumping like a full-throated campaign to soak the rich with some sort of new levy on wealth.

But thanks to Roosevelt, base broadening does have a certain pedigree. And even important, an undeniable record of political suc


How Federal Taxes Work

Section 8 of the U.S. Constitution reads, "The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence [sic] and general Welfare of the United States." The earliest federal taxes were exclusively tariffs -- taxes on imported goods -- and excise taxes, sales taxes on certain items. Whisky, for example, was charged a steep excise tax in 1791, leading to the Whisky Rebellion of 1794.

The first federal income tax was created in 1862 to help fund the Civil War, but was abolished soon after. That first income tax required the appointment of a commissioner of Internal Revenue. The name didn't change to the Internal Revenue Service until the 1950s.

Congress tried to impose a flat federal income tax rate in the 1890s, but it was rejected by the Supreme Court. In 1907, President Theodore Roosevelt tried to reintroduce the income tax, proposing a progressive rate system that would tax each income class according to its means [source: Tax History Museum]. In 1913, 36 states ratified the 16th Amendment to the Constitution, giving the federal government power to directly levy income taxes.

In 1914, the Bureau of Internal Revenue issued the first personal income tax form, the 1040. Here's what it looked like. Individuals paid one percent on income over $3,000 ($4,000 for married couples) with an additional surtax between one and six percent, depending on income level [source: Tax History Museum].

After World War I, Woodrow Wilson raised the personal tax rate to two percent for income over $1,000 ($2,000 for couples) and added an eight percent tax for incomes over $6,000 [source: Tax History Museum]. By 1919, those with the largest personal income were paying as much as 77 percent in federal taxes! Luckily for those folks, it was back down to 50 percent by 1921.

In response to the widespread poverty caused by the Great Depression, particularly among the elderly, Roosevelt called for an "old-age" insurance program as part of his sweeping New Deal reforms. The Social Security Act of 1935 provided that security blanket, establishing the Federal Insurance Contributions Act (FICA) tax to pay for Social Security benefits [source: US Treasury].

The Revenue Act of 1935 introduced the Wealth Tax, raising the tax rate back up to 75 percent for the wealthiest people and addressing the trend of these people evading taxes through loopholes [source: IRS]. The Victory Tax of 1942 saw the first automatic withholding of income tax from worker's paychecks.

President Lyndon B. Johnson signed Medicare and Medicaid into law in 1965. Tax rates rose to fund the increased medical coverage. By 1980, the combined payroll tax -- the amount paid by individuals and their employers to fund Social Security and Medicare -- was 12.3 percent.


TIL that in the New Deal, FDR called for a new tax program called the Revenue Act of 1935, which imposed an income tax of 79% on incomes over $5 million. This tax rate affected literally one person: John D. Rockefeller.

They were frat brothers, so I think it might've been less hostile.

How do you have the top two comments

In 1935, Roosevelt called for a tax program called the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth. But there was more rhetoric than revenue in that proposal. The bill imposed an income tax of 79% on incomes over $5 million. Since that was an extraordinary high income in the 1930s, the highest tax rate actually covered just one individual – John D. Rockefeller. The bill was expected to raise only about $250 million in additional funds, so revenue was not the primary goal. Morgenthau called it "more or less a campaign document". In a private conversation with Raymond Moley, Roosevelt admitted that the purpose of the bill was "stealing Huey Long's thunder" by making Long's supporters his own. At the same time, it raised the bitterness of the rich who called Roosevelt "a traitor to his class" and the wealth tax act a "soak the rich tax"


Examples of Wealth Tax Act in the following topics:

Social Security and Tax Reform

  • Roosevelt pushed for a number of tax programs that would impose high income taxes on the wealthiest Americans.
  • The most important program of 1935, and perhaps the New Deal as a whole, was the Social Security Act, drafted by Francis Perkins.
  • Compared with the social security systems in western European countries, the Social Security Act of 1935 was rather conservative.
  • In 1935, Roosevelt called for a tax program called the WealthTaxAct (Revenue Act of 1935) to redistribute wealth.
  • The Undistributed Profits tax was enacted in 1936.

The Second New Deal

  • The National Labor Relations Act revived and strengthened the protections of collective bargaining in the original National Industrial Recovery Act (NIRA).
  • In 1935, Roosevelt called for the WealthTaxAct (Revenue Act of 1935) to redistribute wealth.
  • The bill imposed an income tax of 79% on incomes over $5 million.
  • The Undistributed Profits tax was enacted in 1936.
  • Paid dividends were tax deductible by corporations.

Toward a Welfare State

  • Perhaps the most important and influential program of the New Deal was the 1935 Social Security Act (SSA).
  • In 1935, Roosevelt called for a tax program called the WealthTaxAct (Revenue Act of 1935) to redistribute wealth.
  • This highest tax rate covered just one individual, John D.
  • In 1936, Roosevelt also pushed for a tax on undistributed corporate profits.
  • Paid dividends were tax deductible by corporations.

Comparing Marginal and Average Tax Rates

  • An average tax rate is the ratio of the total amount of taxes paid, T, to the total tax base, P, (taxable income or spending), expressed as a percentage.
  • Broadly, the marginal tax rate equals the change in taxes, divided by the change in tax base, expressed as a percentage.
  • A progressive tax is a tax in which the tax rate increases as the taxable base amount increases .
  • A regressive tax is a tax imposed in such a manner that the average tax rate decreases as the amount subject to taxation increases .
  • In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income.

Distribution of Wealth and Income

  • The distribution of wealth and income reveals inequalities among and within countries and the ways in which wealth is redistributed.
  • Conservative economic policy may provide tax cuts to wealthy business owners in attempt to increase their profits, on the basis that doing so will improve the country's overall economy.
  • The distribution of wealth is a comparison of the wealth of various members or groups in a society.
  • One commonly used method is to compare the wealth of the richest ten percent with the wealth of the poorest ten percent.
  • One form of wealth is land or real estate.

Financing the US Government

  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • The income derived in this manner is then used to transfer income to lower income groups, thereby, reducing inequalities related to income and wealth.
  • Excise tax: tax levied on production for sale, or sale, of a certain good.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.

British Taxes and Colonial Grievances

  • The Sugar Act of 1764 reduced the taxes imposed by the Molasses Act, but at the same time strengthened the collection of the tax.
  • Prior to the Stamp Act, Parliament imposed only external taxes on imports.
  • The Stamp Act provided the first internal tax on the colonists, requiring that a tax stamp be applied to books, newspapers, pamphlets, legal documents, playing cards, and dice.
  • The Townshend Acts, passed in 1767, taxed imports of tea, glass, paint, lead, and even paper.
  • In 1773, Parliament passed the Tea Act, which exempted the British East India Company from the Townshend taxes.

Tax Protests

  • A series of taxing legislation during the colonial era set off a series of actions between colonists and Great Britain.
  • Tax loads in practice were very light, and far lower than in England.
  • The first wave of protests attacked the Stamp Act of 1765, and marked the first time Americans from each of the thirteen colonies met together and planned a common front against illegal taxes.
  • The Parliament attempted a series of taxes and punishments which met more and more resistance, namely the First Quartering Act (1765), the Declaratory Act (1766), the Townshend Revenue Act (1767), and the Tea Act (1773).
  • In response to the Boston Tea Party Parliament passed the Intolerable Acts: the Second Quartering Act (1774), the Quebec Act (1774), the Massachusetts Government Act (1774), the Administration of Justice Act (1774), the Boston Port Act (1774), and the Prohibitory Act (1775).

Federal Income Tax Rates

  • When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax or profit tax.
  • Individual income taxes often tax the total income of the individual, while corporate income taxes often tax net income.
  • In order to help pay for the American Civil War, the federal government imposed its first personal income tax on August 5, 1861 as part of the Revenue Act of 1861.
  • This tax was repealed and replaced by another income tax in 1862.
  • Advance payments of tax are required in the form of withholding tax or estimated tax payments.

Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • Tax accountants act as the bridge between an organization's accounting team and the reporting bodies in the region.
  • On the strategic side of this, tax accountants can consider any tax implications as it pertains to certain strategic decisions or tactics.
  • More tangibly, tax accounts will focus on the preparation, analysis, and presentation of tax payments and tax returns at all times.
  • Non-profits have unique tax preparation requirements due to their no-tax status.
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What conservatives say — and why it’s wrong

Conservatives claim the wealthy are overtaxed. But the overall share of taxes paid by the top 1% and the top 5% is about their share of total income. This shows that the tax system is not progressive when it comes to the wealthy. The richest 1% pay an effective federal income tax rate of 24.7%. That is a little more than the 19.3% rate paid by someone making an average of $75,000. And 1 out of 5 millionaires pays a lower rate than someone making $50,000 to $100,000.

Conservatives claim that the estate tax is a “death tax,” wrongly implying that the tax is paid when every American dies. In fact, the tax primarily is paid by estates of multi-millionaires and billionaires. The vast majority of deaths — 99.9% — do not trigger estate taxes today.


Watch the video: 4 Wealth Tax Flaws That Will Do More Harm Than Good - Steve Forbes. Whats Ahead. Forbes (January 2022).