This week, the Democratic National Convention descended into Philadelphia, and you could have probably guessed that taxing the wealthy would come up. The party's nominee Hillary Clinton has made closing a loophole that would require employees of hedge funds and private equity firms to pay more in taxes one of the central themes of her campaign, and you'd be hard pressed to find a Democratic tax plan bouncing around the convention room floor that didn't include a tax hike on the wealthiest Americans at its center.

Of course, there are some in the country that believe taxing the highest earners is an assault on industry, or a punishment for being successful. After all, to some, Robin Hood is a villain. It's an argument as old as time, and as fiercely debated now as ever before.

But how did we get here? And what is the historical precedent for this progressive tax system? The answers to those questions, of course, are far more complex than any stump speech can truly encapsulate. Just ask Kenneth Scheve and David Stasavage.

Scheve is a Professor of Political Science at Stanford University and a Senior Fellow at Stanford's Freeman Spogli Institute. He currently serves as Director of the Europe Center at FSI and the Stanford Global Studies Division. Stasavage is a Julius Silver Professor and Chair of the Wilf Family Department of Politics at New York University.

In a project that took the two five years, Scheve and Stasavage constructed databases of tax rates and policies over the course of the last two centuries for 20 countries worldwide. They then looked into when countries have taxed their wealthiest citizens most heavily, and what may have led to those increased rates.

The research found that countries started to adopt a modern, progressive tax system as early as the 19th century, but it was still rare to see anything more than a 10 percent tax rate on income for the richest citizens. That changed during the 20th century, when many countries adopted very high tax rates for the wealthy--by the 1950s to the tune of over 60 percent on average. That remained the case until the 1980s, when top earners saw a steep drop off. Today, average top income tax rates for the rich in the countries studied sit at just under 40 percent.

The reason for these fluctuations? The mass warfare of the 1900s.

Scheve and Stasavage argue that there was societal notion that, since a larger burden was borne by the lower-to-middle class who fought through the two World Wars, these members of society should carry a lower tax burden.

"The rhetoric around tax policy in the years after these wars was that compensatory sacrifice arguments still applied because of the benefits promised to soldiers and outstanding war debts which still had to be paid," Scheve told me in an interview.

However, that landscape changed drastically in the decades that followed. Between technological advancements and the armed services becoming completely voluntary, the mindset evolved.

"The changing nature of warfare, whereby a much smaller percentage of the U.S. population is actually fighting in wars, and the evolution of the fully voluntary armed services have changed the logic that drove much of current tax policy," Scheve explained. "As a result, arguments about compensating for the sacrifices made in these wars - justly or unjustly - are not as compelling."

"If you think about Iraq and Afghanistan," Stasavage interjected. "It's different because it's voluntary. It's hard to build a fairness argument behind targeting the rich with higher taxes when most of the middle class isn't sacrificing for these wars either."

And thus, we reach the crux of the modern argument. Many wealthy Americans feel what they pay is unjustly onerous as it is, and to raise their taxes would be nothing short of criminal. Of course, many feel that the wealthy still fall far short of paying their fair share. So after looking at this historical context, what do Scheve and Stasavage think?

"I don't have a strong opinion about that, because I really do think it is how you think about these different fairness considerations and how to treat citizens as equals," Scheve said. "There are basically two schools of thought: people who think you should tax everyone at the same rate, and people who think you should tax the rich more because they can afford it. It seems like maybe a fair tax is something that takes both of those considerations into account to some extent. Something similar to what we have today though with fewer loopholes to enhance a shared sense of equal treatment."

But much like the American people, these two authors can't find consensus on the issue.

"Personally, I'm probably more of an ability to pay type where statutory rates would go higher," Stasavage said. "But I recognize that anything that has the potential to be durable needs to be a compromise between these two views."

One thing seems clear: the issue requires compromise. Will we ever get one? That's another story entirely.

Published on: Jul 28, 2016
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