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Not since the Federal Income Tax began in 1913 and the modern Federal Estate Tax in 1916, has there been a better time to be wealthy in America.
The Federal Reserve Board reports that the top 1% of households held 32% of our country's wealth, while the bottom 50% held only 2.6%. Remarkable.
Part of the gulf between the top 1% and the rest of us has resulted from huge tax cuts for the wealthiest Americans over the past 20 years.
While the lowest paid workers in America have seen the Federal Minimum Wage frozen at $7.25 since 2009, the richest Americans have been treated very well by their Federal Government. They have benefited greatly since 2009 from cuts in the Federal Estate Tax, the Federal Income Tax (especially on capital gains) and the Federal Corporate Tax.
The vast majority of Americans want their children and grandchildren to be financially successful, maybe even make it into the top 1% of America's wealthy. But most Americans also have a feeling the truly rich in America are taking advantage of their power and influence over our Federal Government to benefit themselves and not the Nation.
President Ronald Reagan, with bi-partisan support in Congress, achieved historic tax reform in 1986. He set the top Income Tax rate at 28% for both "earned" income (wages and salaries) and "capital gain" income (profits from the sale of stock or the sale of a business).
Under President Reagan's tax reform, wealthy Americans owed a Federal Estate tax on estates (the money a person has at the time of death) over $600,000, an amount that continued through 1997.
Under President George W. Bush the Federal Estate Tax exemption jumped to $3,500,000 in 2009, the last year the Federal Minimum Wage was raised. The exemption was also indexed for inflation (unlike the Federal Minimum Wage).
The $3,500,000 exemption in 2009 meant that a person could pass on that amount to family or friends without owing a dime to pay for the Army, Navy, Air Force, Marines or Coast Guard or any other Federal Government functions.
Had President Reagan's $600,000 Federal Estate Tax exemption in 1997 been indexed for inflation, it would only have been $816,000 by 2009, not $3,500,000.
In addition the Federal Government's tax treatment of wealthy estates got even more generous.
Under President Trump and a Republican Congress the Federal Estate Tax exemption was doubled from roughly $5,500,000 in 2017 to $11,000,000 in 2018, and was indexed for inflation. In 2023 wealthy estates are tax exempt on $12,900,000. Had Ronald Reagan's $600,000 Federal Estate Tax exemption in 1997 been indexed for inflation, it would have been $1,200,000 now, not $12,900,000.
At a roughly 35% Federal Estate Tax rate on the $11,700,000 increased exemption amount over the Reagan amount, the wealthiest Americans save approximately $3,500,000 in Federal Estate Taxes. For a wealthy husband and wife, the saving is doubled to approximately $7,000,000 in tax cuts.
As a result of the huge increase in the Federal Estate Tax exemption, instead of about 2% of estates historically having to file a Federal Estate Tax Return, now only about .02%, or 2 estates out of 1,000, owe any Federal Estate Tax.
In addition to drastically reducing President Reagan's Federal Estate Tax impact on the richest Americans, President Reagan's philosophy of taxing all income the same went out the window.
The Congress and President Bush in 2003 and the Congress and President Obama in 2012 agreed to have a lower tax rate (now 20%) on capital gains than on "earned" income from wages and salaries. In other words, today in America your back surgeon or heart surgeon pays more Federal Income Tax on his $400,000 "earned" income than a wealthy investor pays on his "capital gain" on a $400,000 profit from selling stock that went up in value since he bought it.
Our country now taxes "work" at a higher income tax rate than it taxes gains from "wealth."
The third big tax cut since 2009 for the wealthiest Americans is the Trump era cut in the maximum Corporate Income Tax rate from 35% to 21%. There were many Democrats who supported a cut in the Corporate Income Tax rate to Ronald Reagan's 28% tax rate on personal income. The reduction from 35% to 21%, however, drew no bipartisan support.
The wealthiest Americans are the primary beneficiaries of this huge cut in the Federal Corporate Income Tax.
It is ironic that for many Americans who view themselves as "moderate," there is a longing for the "good old days" of conservative Ronald Reagan's tax policies.
Fred Larson is a 1973 graduate of the Princeton University Woodrow Wilson School of Public and International Affairs 1973, a 1973 Yale Law School graduate and owner of a private law practice in Chautauqua County from 1977 through 2014.