A Short History of the Progressive Income Tax

What factors were so different then that allowed the progress made? The strongly progressive income tax was a major reason things worked so well. Why? The progressive tax was a leavening agent. “A little yeast leavens the whole loaf.” It allowed for rewarding personal effort appropriately, and yet it did so on a diminishing basis. It can be observed without apology that this tax structure works the exact opposite of the way most of us have been taught to believe about the infinite fairness of capitalism and the free market economy.

The underlying principle of the strongly progressive tax is the exact opposite: It assumes that –while respecting rewards honestly earned through hard work, creativity and risk should be guarded -- the greatest control and benefit should go into the common wealth, not to a privileged few, and that our system works at its best under those circumstances. There is strong evidence of this today that the highest economic growth rates and capital investments are in the countries that have universal health care, robust public education through the college level and a strong system of safety nets – the exact opposite of what we are normally told here at home.


What was going on was entirely contrary to the conservative elitist worldview that came into back into ascendancy starting with Reagan and hopefully is now beginning to abate after the end of the Bush/Cheney administration when it peaked again. The free market world view never really accurately described what was going on. First of all, it isn’t really a free market at all. It is controlled by the very rich who have instituted all sorts of protections, subsidies, and other self-serving ploys which give them virtual monopolistic power against competition. This belief system purported that business and industry will behave honestly and in the best interest of everyone. In truth, it only described the way the most powerful people wanted us to think the world works. In fact, a democratic and populist point of view which began with President Wilson during WW I and exploded during President Roosevelt’s underlay the entire boom period.

The reversion in our beliefs was carefully crafted by conservatives to “explain and justify” what was in reality a shallow guise for the rampant gain of the ultra-wealthy. Reagan called government and taxes “the problem, not the solution.” How were the right wing able to pull this off. We had come through the turbulent times of the Viet Nam war and the height of the Civil Rights movement. Leaders had been assassinated. Cities had burned. People were afraid. Then two energy crises and growing environmental concerns had begun to shake our national confidence and for good and valid reasons – however uncomfortable to face. Many objected to governmental programs bringing fairness and justice to the poor – particularly minorities – believing these people were the causes of our troubles, not the victims of it. They were not!

While playing on prejudices and fears and our wish that American dream be real, Reagan began to reverse the regulations which had had protected the public from the worst abuses of business and industry and limited the ability to amass wealth at a rate not seen since before the Great Depression.

As we observed before, it had taken the depths of the Depression to make things bad enough that under Franklin Roosevelt we finally broke the worst of the power of the ultra-rich. For the next several generations, basic fairness underlay our economy and governments, and [as the conservatives like to say], “all boats float up with the tide.” But the tide that came in was the result of a the strongly progressive income tax and regulations limiting the abuses of business and industry. The real rising tide of that time was the complete opposite of the “trickle down” economics espoused by conservatives under Reagan.