How much has the uproar over the bonuses at AIG impacted America’s political discourse? This much: We now have elected leaders on Capitol Hill, for the first time since World War II, openly talking about slapping a 100 percent top tax rate on the income that’s cascading into rich people’s pockets.
On Tuesday, Rep. Steve Israel from New York proposed a 100 percent tax, effective this year, on bonuses over $100,000 that go to employees at companies that receive federal bailout funds.
“If we can’t kill the bonuses,” says Israel, “we’ll tax the bonuses.”
That’s just what the full House voted yesterday to do, adopting a proposal that would tax bailout bonuses — on any tax return that reports at least $250,000 in income — at a 90 percent rate.
The federal tax code hasn’t sported a tax rate that high since 1963, when all salary, interest, dividend, and bonus income over $400,000 faced a tax rate set at 91 percent.
The current top tax rate on any of the income that goes to America’s wealthiest: 35 percent.
President Obama has already proposed upping that figure to 39.6 percent. But has the AIG furor — amid the escalating meltdown crisis — now placed an even higher tax rate on the rich back within the realm of political possibility?
History offers an answer: maybe. Since the last quarter of the 19th century, the years when wealth in the United States first started concentrating at epic levels, taxes on the rich have only risen significantly three times. Each of those three hefty hikes took place at times of national crisis, the last nearly 70 years ago, in a situation filled with parallels to today’s furor over AIG.
Back then, in 1940, the Nazis were marching in Europe, and President Franklin D. Roosevelt was anxiously trying to rearm America amid the Depression’s hard times.
“Not a single war millionaire,” the President flatly pledged in 1940, “will be created in this country as a result of the war disaster.”
Top U.S. corporate leaders of FDR’s day had other ideas. They mobilized to stop Roosevelt’s pitch for a stiff excess profits tax on corporate earnings. They actually refused to enter into defense contracts until Congress gave them a more business-friendly tax bill.
But then came the attack on Pearl Harbor, and FDR soon had the upper hand. In April 1942, just a few months into the war, Roosevelt proposed a 100 percent “supertax” on all income over $110,000 — the equivalent of about $1.4 million in today’s dollars — for couples filing jointly.
Congress, in the end, didn’t go along with FDR’s 100 percent tax, but lawmakers did eventually agree to a 94 percent top rate on income over $200,000, around $2.5 million in today’s dollars, and the nation’s top tax rate would hover around 90 percent, under Democratic and Republican Presidents alike, until 1964.
Over the course of these years of high taxes on America’s very rich, the Great Depression would end, World War II would be won, and the United States would usher onto the world stage the first prosperous, mass middle class nation in economic history.
FDR’s willingness — even eagerness — to take on the rich and powerful opened the door to all this success. Elected leaders in Washington today have yet to show anything close to that courage. The bailout executive pay limits Congress enacted last month and the AIG bonus tax the House adopted last week certainly do constitute positive steps, but neither goes nearly far enough.
The AIG bonus tax, for instance, won’t touch Joseph Cassano, the power suit who ran the AIG division that wheeled and dealed the company into $99 billion in 2008 losses. Cassano left AIG last March, but not before collecting over $300 million for his toxic labors. He gets to keep all that, even if the House bonus bill adopted last week becomes law.
The same story holds for the executive pay bailout restrictions Congress passed in February. These place a $500,000 limit on what companies that get taxpayer bailout dollars can deduct off their tax bills for executive pay. That’s a welcome move, but this limit doesn’t in any way impact Lockheed Martin, the defense industry giant that rakes in billions of tax dollars via government contracts.
Lockheed’s CEO, the company has just announced, took home $26.5 million in 2008. Under current law, Lockheed gets to deduct, on its corporate tax return, almost all that $26.5 million.
One member of Congress, Rep. Barbara Lee from California, has introduced legislation to end such taxpayer subsidies for excessive executive compensation. Her new Income Equity Act, HR 1594, would deny all corporations tax deductions on any executive pay that runs over $500,000 or 25 times the pay of a company’s lowest-wage worker.
Lee, interestingly, had a similar bill before the last Congress. That bill went nowhere. Has the AIG bonus ruckus changed anything? We’ll soon see.
Sam Pizzigati edits Too Much, the online weekly on excess and inequality.