Eating the 'rich'

A state income tax would limit both freedom and prosperity.

By Doug French
  • Friday, June 15, 2007

The 2007 Legislature is over and Nevada taxpayers escaped without further bludgeoning. But we can’t rest easy.

TV station owner and university Chancellor Jim Rogers doesn’t believe he pays his fair share of taxes. So — he told political pundit Jon Ralston — he is gathering a coalition of his rich friends to start a state income tax. He is even going to spend $200,000 of his own money toward studying the idea, according to Las Vegas Sun reporter Christina Littlefield.

Rogers argues that a number of people have become rich in the Silver State and they need to start paying their “fair share” in the form of an income tax. As if it was government that made these casino owners, real estate developers and business people successful. Incidentally, already state government over the next two years will spend nearly seven billion dollars taken from taxpayers.

For now Rogers is only calling for his rich “friends” to be compelled to shoulder the new income tax load, which would supposedly pay for more and better higher education and whatnot. “We have a world class economy, but a third class culture,” sniffs Rogers.

That’s the way these things always start. It was less than 100 years ago that America fully adopted a federal income tax. And it was sold on the idea that only “the rich” would be required to pony up.

“[L]ess conservative and stauncher proponents of the income tax emphasized their aim was to place a levy on the large fortunes of the wealthier class of the nation,” explained the late Arthur A. Ekirch, Jr. in a Cato Journal article on the Sixteenth Amendment’s historical background.

Indeed, by today’s standards the initial tax rates were modest. In 1913 when the 16th Amendment was passed brackets were: 1 percent tax on incomes over $3,000 up to $20,000 of income, 2 percent for income between $20,000 and $50,000, 3 percent for income between $50,000 and $75,000, 4 percent for income from $75,000 to $100,000, 5 percent for income from $100,000 to $250,000, and 6 percent for incomes from $250,000 to $500,000. Seven percent was the rate for incomes of $500,000 and higher.

According to inflation calculators, $1 in 1913 bought what $20.88 buys today. So, that one percent tax rate only applied to what today is a $403,000 income. And anyone making less than $60,450 in today’s dollars paid no income tax at all (median family income in the state of Nevada in 2006 was $44,581). The top bracket of seven percent didn’t kick in until a person was making the equivalent of $10,000,000 annually.

Today, in comparison, 10 percent is the lowest rate for any income above zero. The top tax rate — 35 percent — applies to those making $174,850 and above or, in 1913 dollars, a mere $8,700.

As government’s appetite grew, so did the percentage of income it demanded. By 1916, the top rate was raised to 15 percent. Then, during WWI, it became 67 percent in 1917 and 77 percent in 1918.

Under Roosevelt’s New Deal, rates leaped to 79 percent in 1936, 81 percent in 1940 and 94 percent in 1944-1945.

In 1940, fewer than 15 million Americans filed tax returns. By last year the number was over 135 million. Why? Because the statists well know that their richest harvest comes from middle- and working-class taxpayers.

Yet, despite all of this tax money, the federal government has failed at the war on poverty, war on drugs, and virtually anything else it has meddled in. The government isn’t even efficient at collecting taxes: Professor James Payne estimates that it costs $1.65 to collect every $1 going into the Treasury. What makes Rogers think Nevada will be any different?

Some will say Mr. Rogers is tilting at windmills, that the Nevada Constitution prohibits an income tax and that people will never vote for one. Yet less than two decades after the U.S. Supreme Court ruled in 1895 that the federal income tax violated the Constitution, it became the law of the land.

We would all be poorer with a state income tax. Such a tax, explained economist Murray Rothbard, “tends to bring about a reduction in specialization and a breakdown of the market, and hence a retrogression in living standards.”

Nevadans have a shard of freedom that those in many other states don’t enjoy.

If Mr. Rogers has his way, we will be less free and much poorer.

Doug French is executive vice president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.

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