The Reagan Presidency

One presidential candidate in 1980 was willing to take the baton from Jarvis: Ronald Reagan, former governor of California who had elevated the “welfare queen” stereotype in his 1976 campaign and courted a populist coalition on an anti-government agenda. Reagan would go on to sign the Economic Recovery Tax Cut of 1981, which cut the top personal tax bracket from 70% to 50% and the capital gains tax from 28% to 20%, the largest tax cut in American history. 

During the campaign and the first few years of the Reagan administration, some in the business community, particularly on Wall Street, were wary. Sam Nakagama, a Wall Street economist, warned clients that “the continued advocacy of massive tax cuts is bound to create an image of fiscal irresponsibility on the part of Mr. Reagan.”

But the Reagan Administration curried favor with business interests so its proposals could pass. It helped a tax coalition that called itself the Carlton group persuade business lobbyists to back a combination of cuts to individual and corporate income tax rates in lieu of advancing narrower business interests. The Carlton group’s members then included a leader of the American (now National) Retail Federation, a General Electric executive, the executive director of the Business Roundtable, and representatives of the National Federation of Independent Businesses.

It also elevated the work of an intellectual class bent on cutting taxes. Arthur Laffer, an economist and member of Reagan’s Economic Policy Advisory Board, posited a theory that decreasing tax rates could increase tax revenues by inducing greater productivity and economic growth. Milton Friedman, economist and informal advisor to Reagan, said in 1981: “The Reagan proposals have four basic elements: lower marginal tax rates, lower government spending, less regulation and a restrained and stable monetary policy. Those are the essential steps necessary to release the inherent productivity of the American economy.”

After another tax reform law in 1986, the corporate tax rate had fallen from 46% to 34%, the individual income tax rate for the top bracket had fallen from 50% to 28%, and the bottom bracket’s tax rate had risen from 11% to 15%. The law enacted Internal Revenue Code Section 162(m), a $1 million deduction limit on executive compensation, save for “performance-based” pay. That exception — which allowed corporations to “incentivize” CEOs with corporate stock options and incentive-based bonuses — was so manipulable that Republican Senator Charles Grassley, who had once voted for the bill, decried, “[162(m)] has more holes than Swiss cheese.”

Federal revenues continued to expand, but as a share of GDP, tax receipts fell from 19.1% in 1981 to 17.8% in 1989. The income of the top 5% increased at a rate of 3.2% annually over the 1980s. Families in the bottom 20% of earners, meanwhile, lost 0.1% of their income annually that decade. 

Because corporate tax revenues have been . . . rapidly disappearing, “we have seen funding for other programs decline or not grow to keep up with inflation or be cut altogether.”

Amber Wallin explains that, because corporate tax revenues, which have been “a really crucial element of how governments pay for necessary services and programs for families,” have been rapidly disappearing, “we have seen funding for other programs decline or not grow to keep up with inflation or be cut altogether.”

Anti-Tax Advocacy in the 21st Century

Between 1970 and 2004, the overall tax rate the rich paid declined from 75% to 35%, while Americans’ average tax rate remained 23%. Wallin points out that, according to research from the Economic Policy Institute, a similar dynamic would unfold at the state and local level: “Effective corporate tax rates from state and local governments have shrunk from 5.2% in [19]89 to 2.6% in 2017 . . . . That’s a massive decrease.”

But progressive taxation was still in anti-tax advocates’ sights. In 2001, Milton Friedman, prominent economist, told the Hoover Institution at Stanford: “For a long time now I have been in favor of any tax cut, under any circumstances, in any way, in any form whatsoever . . . [o]n any pretext because that’s the only way to keep down government spending.” 

Corporations, fresh off spending millions to promote Bush’s 2000 campaign, were fully invested in anti-tax policy. During the fight for the “Bush tax cuts,” a Washington Post report noted that lobbyist Grover Norquist “assumed a leading role in three coalitions: an alliance of major corporate and trade association lobbyists, a network of conservative ideological groups, and his own Americans for Tax Reform, which is pressing GOP-controlled state legislatures to pass resolutions calling for congressional enactment of the tax cut.” 

And the lobbying succeeded: marginal income tax rates for the top four brackets decreased, capital gains and dividends taxes decreased, too, and the estate tax was phased out (repealed fully in 2010). Estimates suggest these 2001 and 2003 bills cost the U.S. roughly 2 percent of its GDP in 2010, and that, between 2004-2012, the highest-earning 1% of households each received a total tax cut of $570,000. 

“Effective corporate tax rates from state and local governments have shrunk from 5.2% in [19]89 to 2.6% in 2017 . . . . That’s a massive decrease.”

In an effort to cut their income tax rates, corporate executives amplified anti-tax activists, and sometimes became them. Over 20 years, between the 1980s and 2000s, Charles and David Koch, owners of the multinational oil and conglomerate corporation Koch Industries, funneled around $13 million into Citizens for a Sound Economy (CSE). CSE split in 2003 into FreedomWorks and Americans For Prosperity, which bankrolled the Tea Party Movement and (as of 2018) had more than 3 million members. 

The movement to cut taxes today maintains an intellectual arm. CSE also separately housed the Tax Foundation, a global think tank whose vision “is a world where the tax code doesn’t stand in the way of success.” The Tax Foundation’s board today hosts three former members of Congress, including former Representative Kevin Brady, who chaired the House Ways and Means Committee during the passage of the 2017 Tax Cuts and Jobs Act (TCJA).

Since the Reagan Era, says Emily DiVito, tax policy has been influenced by “a completely erroneous economic argument about ‘cut-to-grow,’ that we need to cut [taxes] in order to grow the economy.” So it went with the TCJA: 

“A lot of [the] narrative, and some of this was intentionally deployed by corporations, [was] threatening to lay people off if [the corporations’] tax burden increased. Conversely, [they] positively threatened to raise wages and give people bonuses if the TCJA, which reduced their tax liability, passed, and none of those things passed.”

Over a ten-year span, the TCJA cut C-corporations’ taxes by $1.3 trillion, and corporate lobbyists descended upon Washington in the final months of 2017 to pass the law. The National Association of Realtors spent $22.2 million, the U.S. Chamber of Commerce reported spending $16.8 million, and the Business Roundtable spent $17.3 million, which were double, triple, and quadruple, respectively, the amounts they spent in federal lobbying the previous three months.

In this mix, racism has been inextricable. Leaders of the Tea Party Movement failed to clear racist slogans from protests (warning: the article features ugly ones), and racist dog-whistles remained prevalent during debates over the 2017 TCJA.

“For too long, tax policy has been a policy area, even more so than other policy issue areas, where regular community members are shut out and the wealthy and well-connected have really outsized power,”

“For too long, tax policy has been a policy area, even more so than other policy issue areas, where regular community members are shut out and the wealthy and well-connected have really outsized power,” says Amber Wallin. “That impacts our resources, our democracy, our well-being, our equity, [and] the result is that tax systems have become regressive and skewed.”

But don’t billionaires want to pay taxes?

Seventy years of investments into anti-tax activism has generated a return for (former) corporate executives. ProPublica analyzed leaked IRS data and found that the “true tax rate,” the taxes paid against wealth accumulated, of Forbes’ 25 richest Americans in 2021 was 3.4% over a 15-year period. During that same time period, median households earning roughly $70,000 annually paid 14% in federal taxes. As Nick Buffie wrote for the Center for American Progress, “[w]hile the very richest Americans pay the highest marginal income tax rates — that is, the highest tax rates on their last dollar of income — this fact needs additional context.”

Wealthy people (when not running for office) will often concede they could have less money. Facebook CEO Mark Zuckerberg (whose net worth, as of 2024, totals 158.7 billion) said during a company meeting that “No one deserves to have [a billion dollars] . . . Some of the wealth that can be accumulated is unreasonable.” Microsoft CEO and Los Angeles Clippers owner Steve Ballmer said in a Fox Business interview: “My attitude about [a wealth tax] is I’ve been very fortunate. If the will of the people is that I should pay more, I will pay more.”

Outside the world of the newsroom, though? Billionaires do not pay the government voluntarily. In fact, few Americans have opted to undertake the all-too-real option to donate funds to the U.S. Treasury. The federal government has received less than $10 million in the last five years to reduce the public debt (Fun fact: former president Donald Trump’s company, in fact, was one of the few. Its $448,473 donation offloaded the profits from foreign-government bookings at its hotels.)

Many do pledge to donate their wealth, or to dedicate themselves to philanthropy. Warren Buffett, Melinda French Gates, and Bill Gates have garnered 242 signatures from 29 countries through the Giving Pledge, “a promise by the world’s wealthiest individuals and families to dedicate the majority of their wealth to charitable causes.” 

“The priorities are so wrongheaded: the people who are getting taxed the most are getting the least, and the people who are getting taxed the least are getting the most.”

But these pledges are just that, a promise, rarely (if ever) enforced. According to Forbes, two-thirds of the 400 wealthiest Americans have given less than five percent of their net worth to charity. And according to the Institute for Policy Studies, at least 68% of the gifts the ultra-wealthy did make to philanthropy went either to their own foundations or Donor Advised Funds, while the U.S. public lost at least $73 billion in tax revenue.

“The priorities are so wrongheaded: the people who are getting taxed the most are getting the least, and the people who are getting taxed the least are getting the most,” says Erika Wozniak, Legislative Director of the State Revenue Alliance.

How else do the wealthy pay a lower tax rate than everyone else? 

Wealthy people have a variety of tools at their disposal to lower their tax liability. Broadly, those tactics fall under tax avoidance and tax evasion. Tax avoidance is a set of strategies, from credits to deductions to adjustments on reported resources, that people can leverage legally to pay fewer taxes. Tax evasion is a set of strategies the IRS does not allow, from hiding income to falsifying tax records and inflating expenses. 

Estate planners have simplified tax avoidance into the “buy, borrow, die” strategy:

• First, the rich preserve much of their wealth in stock holdings, not personal bank accounts. Corporations largely pay top executives in “performance-based compensation,” untaxable wealth that they can sell at the lower capital gains rate.   
• Second, rather than putting their shares of stock up for sale, which would subject the proceeds to a capital gains tax, they ask banks to lend them money on generous terms. The larger the assets one has, the better the terms of those loans’ interest rates.
• Third, wealthy people can pass along assets, particularly real estate, on a “stepped-up” basis, so that they end up paying only capital gains taxes on the assets they sell. More than 1,000 billionaires are expected to pass $5.2 trillion to their children over the next several decades.

Along the way, wealthy donors reportedly receive returns of as much as 74 cents of every dollar they give to charity in tax breaks.

Source: Niko Lusiani and Emily DiVito, Concentrated Markets, Concentrated Wealth, Roosevelt Institute (Mar. 11, 2024). Estimates were derived from the Bloomberg Billionaire Index; see Appendix A of their report.

And if tax still needs to be paid, then wealthy people find tax havens to stockpile their assets and manage their corporations’ finances at low-to-no tax rates. Research suggests more than $4 trillion of U.S. taxpayer wealth is located offshore, almost half in tax haven jurisdictions. Many tax havens are also located in the United States, including Delaware, the home of the most Fortune 500 corporate filings. 

“If we get serious about wealth taxation we will need to also get serious about careful design and sufficient enforcement to discourage manipulation that might allow for avoidance and evasion.”

“Tax evasion—that is, breaking the law to reduce tax liability—is a major problem and challenge, and it is something that policymakers should—and do—think about in how to administer tax systems,” Professor Clint Wallace at the University of South Carolina argues, but he notes that tax avoidance can be challenging, too: “[I]f we get serious about wealth taxation we will need to also get serious about careful design and sufficient enforcement to discourage manipulation that might allow for avoidance and evasion.”

New tax proposals and the state(s) of taxation

In the last decade, a movement has emerged to tax wealthy Americans, and much of it is local. In January 2023, lawmakers from eight states, which together house about 60% of wealth in the U.S., released a coordinated campaign of legislative proposals called Fund Our Future. 

Many of these proposals pushed the boundaries of tax proposals. California’s bill A.B. 259 proposed an annual tax of 1.5% on any worldwide net worth exceeding $1 billion, as well as a 1% annual tax on any worldwide net worth over $50 million (starting in 2026). Illinois and New York proposed “mark-to-market taxes,” which tax the value of unsold financial assets like stocks and bonds annually for the amount they appreciate in value. 

“Politically, I think that luxury emissions taxes or other creative taxes on the highest ends of the wealth spectrum can be helpful to communicate and show that wealth taxes are not punishing success but rather are accounting for and targeting other things that are objectionable.”

Some of these bills are similar to federal proposals from progressive senators and the Biden Administration. Professor Wallace writes about wealth taxes that he believes the government could use to address “negative externalities,” such as “luxury emissions taxes.”  “Politically,” Wallace explains, “I think that luxury emissions taxes or other creative taxes on the highest ends of the wealth spectrum can be helpful to communicate and show that wealth taxes are not punishing success but rather are accounting for and targeting other things that are objectionable.”

Beyond the policy level, too, state proposals also have the possibility of shifting the battle for progressive taxation. “What is happening in the states is setting the temperature of the water in which the TCJA fight will happen.” Amber Wallin. “It is changing narratives. It is movement building by people who are knocking on doors, who are electing federal elected [officials], who are working to pass policy at the state level, who are changing how we . . . think about tax policy and tax justice.”

Emily DiVito adds that states could test future federal proposals. “It’s almost like a pilot, if you think of a state as part of a federal entity,” she says. “There can be, depending on where you live and how big your state is, a threat of taxpayer movement,” but “in theory, if you create a network of states with similar treatment of the uber-rich and of wealth, then it disincentivizes gaming the system in a really important way.”

State-level efforts have gained momentum. In 2021, Washington State instituted a 7% tax on “long-term capital gains,” or the sale of assets one has held for longer than a year, above $250,000. Most states tax capital income, but in Washington, all income taxation had been ruled unconstitutional by the state Supreme Court since 1930. This law upheld multiple challenges, and the state collected more than $900 million in revenue during its first year of implementation. As part of the Fund Our Future coalition, Washington’s H.B. 1473 proposed a 1% tax on all “intangible assets” exceeding $250 million. 

“Our goal is to ensure that, all across the country, we have fair and just tax codes that raise the revenues that are necessary to support the programs that matter most to families and communities.”

Lawmaker in 10 states have (re)introduced legislation in 2024, and two — New Mexico and Minnesota — have passed new reforms in the last two years. “We had over 450 legislators sign on as sponsors and cosponsors of legislation we are running,” Erika Wozniak noted. “Last year, our bills didn’t get out of committee. This year, we have had bills that have been signed by governor[s].” 

Grassroots activism is a source of power for tax activists, no matter their ideological commitment, but their goals and allies will shape the future of U.S. corporate power in the 21st century. 

“Our goal is to ensure that, all across the country, we have fair and just tax codes that raise the revenues that are necessary to support the programs that matter most to families and communities,” says Amber Wallin.