Raise the Rate: An Overview of the Never-Ending Tax Tug of War Between the Rich and the Rest of Us
Introduction
Tax policy in the United States has long reflected our nation’s views on wealth, fairness, and governance. Both the individual and corporate income tax have evolved since their genesis.[1] The individual income tax was originally used to generate revenue for wars and later became a tool to redistribute wealth.[2] The corporate income tax was created to break up managerial power and then became a progressive tool to generate more revenue.[3]
Since these taxes were created in the U.S., wealthy interests have relentlessly worked to turn the corporate and individual income tax systems into tools that allow high earners and big businesses to avoid taxes. Recent research from the National Bureau of Economic Research and ProPublica shows how the rich use tax schemes and loopholes to lower their taxable income. These tax avoidance schemes have long been a point of contention in Congress, spurring heated hearings on the topic.[4]
This battle between those working to create an income tax system designed to help the middle class and the most vulnerable, and those who want a tax system designed to increase and protect the wealth of the richest Americans, has been raging since the late 1800s. While the top 10% in our country hold more than half of the total wealth, it is imperative during an affordability crisis that we unrig our biased tax system and invest in vulnerable communities that need our support the most.
This historical overview is more than a glimpse into the past but a window of hope for our future. By learning the ways in which income tax rates have been manipulated to serve the elite few, we can loudly call for reforms that will make a more equitable economy for all.
Late 19th Century to Mid 20th Century: Setting the Stage
To help with the Civil War efforts, the first income tax was introduced in 1861.[5] Roughly ten years later, the Robber Barons of the Gilded Age got the tax repealed, leaving the government to rely on tariffs and user fees for funding.[6]
To reduce the burden on poor Americans, and to force the upper class to pay their fair share, Congress passed a law to again institute an income tax in 1894.[7] However, the U.S. Supreme Court overturned the law just a year later.[8]
In 1913, the 16th Amendment was ratified to implement the federal income tax, giving Congress the authority to collect and levy taxes.[9] Five years later, Congress made multiple progressive tax reforms to finance World War I. The reforms raised the top personal income tax rate to 77%, raised the estate tax to a maximum of 25%, and increased the maximum corporate income tax to 12%.[10]
Throughout the 1920s, the individual top tax rate plummeted, thanks in large part to efforts of Treasury Secretary Andrew Mellon. Mellon’s agenda was heavily focused on cutting taxes and spending to reduce the national debt.[11]
By 1929, when the Great Depression began, the top individual tax rate had fallen to 24%, compared to 73% when Mellon took office.
Mellon is a clear example of how the rich use the tax system, and specifically the individual tax rates, to benefit themselves. Mellon was one of the richest men in America. His bank – Mellon Bank – had loaned $1.5 million to the campaign of the president that went on to nominate him, Warren G. Harding. While serving as Treasury Secretary, Mellon reportedly received the largest personal tax refund ever at that time, $400,000.[12]
Mellon’s tax policy – which was focused on low tax rates for the rich and corporations – left the middle class and the poor with little support as the Great Depression ravaged the country. In late November 1932, columnist Will Rogers wrote a piece lambasting the Hoover administration with the headline that read in part: “Money, Unlike Water, Always Trickles Up.” Considered to be the origin for the phrase “trickle-down economics,” the piece pins the blame on economic policies that do not meet the needs of the poor on the very policies enacted by Mellon and his allies, even though it did not mention him by name (Mellon had resigned nine months earlier).[13]
The Great Depression’s horrific impacts on the public, such as long bread lines and packed soup kitchens, led President Franklin D. Roosevelt to address poverty through increased government spending. Roosevelt believed the government’s previous attempts to raise revenue had “done little to prevent an unjust concentration of wealth and economic power.”[14] To remedy that, and to fund his policy efforts, he reversed the low individual tax rates on the wealthy through a series of revenue acts, the most notable one being the Revenue Act of 1935.[15]
This legislation, famously nicknamed “soak the rich,” set the top marginal tax rate on wealthy individuals to 79% and to 15% for corporations. The revenue from higher taxes along with other revenue sources was used to fund social and economic programs known as the New Deal. The intended goal of the New Deal was to provide “relief, recovery, and reform” to Americans during the Depression. Programs provided jobs to the unemployed, like the Civilian Conservation Corps, or they gave financial aid to impoverished areas through the Federal Surplus Relief Corporation.
As the U.S. entered the Second World War, the Revenue Act of 1942 increased the top individual tax rate to 88% and implemented an additional wartime income tax known as the Victory Tax from every worker’s paycheck.[16] The top personal tax rate would later rise to 94% in order to increase defense production after the Pearl Harbor Attack.[17]
The first major postwar reduction after World War II came during the Kennedy Administration. In 1963 President Kennedy cut the top rate from 91% to 70% via the Revenue Act of 1964.[18]
Late 20th Century to Early 21st Century: The Legacy of Reaganomics
The year 1981, when President Ronald Reagan began his term, can be marked as a moment of juxtaposition concerning the income tax and public investments. Before Reagan, President Jimmy Carter had focused on using tax revenue to strengthen and expand programs that help the poorest in society, including social service programs like Medicare, Medicaid and Social Security. Carter proposed extending Medicaid coverage, a joint health insurance program between the federal government and state governments, to an additional 2 million children and pregnant women.[19]
Shortly after his inauguration in January 1981, President Ronald Reagan made his first budget proposal, ushering in dramatic cuts to the federal budget and restructuring to the U.S. tax code to favor the wealthy, both key components to his economic beliefs, which came to be called “Reaganomics.” In his budget address, Reagan promised his spending reductions were meant to “be shared widely and fairly by different groups and the various regions of the country,” and pledged to maintain the basic social safety net— promise he failed to keep. [20], [21]
On taxes, Reagan pledged to cut tax rates and effectively endorsed trickle-down economics, just not by name. His plan was to enact substantial tax cuts for corporations and high-income earners purportedly to stimulate the economy.[22]
Reagan used the budget reconciliation process—an expedited legislative maneuver that can be passed by a simple majority in the Senate—twice to cement his economic goals, producing the 1981 Economic Recovery Tax Act and The Tax Reform Act of 1986.[23] The Economic Recovery Tax Act of 1981 lowered the top individual tax rate from 70% to 50%, and the Tax Reform Act of 1986 reduced it further to 28%.
To pay for the tax cuts, Reagan slashed programs aimed at helping the most vulnerable. The Institute for Research on Poverty estimated that Reagan’s plans would increase poverty and disproportionally harm single parent households, Black households, and poor households.[24] Research highlights that these tax cuts made relatively no progress towards reducing poverty, yet income inequality widened.[25] All while the wealthiest Americans were showered with large tax cuts.[26]
The Congressional Budget Office estimated that 70 percent of the savings from Reagan’s 1981 reconciliation package – $35 billion – came from “programs earmarked for the poor and lower middle-income persons.”[27] The agency estimated that among other cuts, 1.1 million people lost their food stamp benefits; nearly 700,000 households lost or saw a reduction in their Aid to Families with Dependent Children (AFDC) benefits, a cash benefit for children lacking parental support; and about 500,000 students would no longer receive free school meals. [28]
The reality of Reaganomics is that it created a lopsided distribution of benefits to enrich an elite few instead of investing in, and often at the expense of, public benefit programs that help those trapped in systemic poverty find their footing. With over 60 years of historical context by this time, elected officials should have taken heed by the mistakes of the past, acknowledging that the poor in our society have continuously been exiled. Yet our tax system has increasingly become skewed as the rich hoard more wealth, and the poor continue to scrape by to make ends meet.
Continuing the Reaganomics trickle-down legacy, President George W. Bush signed the 2001 Economic and Tax Relief Reconciliation Act and the 2003 Jobs and Growth Tax Relief Reconciliation Act. The notable provisions of these tax policies were a lowered top marginal tax rate for four of the top income brackets and a temporary repeal of the estate tax.[29]
Unsurprisingly, the tax cuts benefited high-income taxpayers the most.[30] According to the Center on Budget and Policy Priorities (CBPP), households in the top 1 percent received “an average tax cut of over $570,000 between 2004-2012,” due to the 2001 and 2003 tax cuts.[31]
Additionally, despite claims from President Bush that the tax cuts would pay for themselves,[32] the Senate Budget committee reported the Bush tax cuts added almost $500 billion to the national deficit.[33]
Make America Greedy Again: A Billionaire’s Economic Policy
The policy choices of Reagan and George W. Bush laid the foundation for the two major tax giveaway packages enacted by President Trump. In Trump’s first administration, his major tax legislation was the 2017 Tax Cuts and Jobs Act (TCJA). Among other changes, the legislation lowered the top marginal individual tax rate from 39.6% to 37.0%, and the corporate income tax rate from 35% to 21%.[34] Shortly after TJCA passed, experts noted that the legislation would “deliver windfall gains to wealthy households and profitable corporations, further widening the gap between those at the top of the income ladder and the rest of the nation.”[35]
The reality is the current top rate of 37% is abnormal and raising the top individual rate just a few percentage points would still leave the top rate near historical lows. After the 16th Amendment allowed for an income tax in 1913, the wealthiest Americans have paid a higher top rate than the current rate in 70% of the tax years since (79 of the 113 years). Wealthy Americans have paid a top marginal tax rate of 50% or more in half of the years since the amendment was passed.[36]
In Trump’s second administration, he passed the One Big Beautiful Bill Act,[37] sometimes called the Working Families Tax Cuts Act, to extend and make permanent many provisions of the ineffective and inequitable TJCA.[38] Opponents have nicknamed the package the Big Ugly Law (BUL) due to the unconscionable deep cuts to social safety nets program that were made to offset the tax giveaways to the wealthy.
The devastating and unprecedented cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) in the BUL will result in 10 million people becoming uninsured, including 7.5 million people losing Medicaid coverage,[39] and at least 2.4 million people losing their food assistance.[40] We’ll be dealing with the economic effects of the Big Ugly Law for years to come. The Joint Committee on Taxation found that the tax cuts add over $4 trillion dollars to our national deficit and overwhelmingly benefit the ultra-wealthy, with the greatest benefit being the richest 1% in America.[41] This will affect the most vulnerable in our society even when in a better governing moment.
Advocates need to strive for proactive tax legislation to raise revenue to address not only the deficit hole caused by the BUL but also to repair our care economy in America. For Tax Day 2026, Public Citizen participated in a Capitol Hill Lobby Day where we met with offices asking for a breadbasket of progressive tax legislation that would raise $10 trillion in revenue over the next decade to pay for social support programs like childcare, health care, education, affordable housing.[42]
Conclusion
While lawmakers scramble to address the affordability crisis in America, we urge them to not repeat disastrous past mistakes by cutting tax rates for the rich on the backs of the most vulnerable.
Historically, the top marginal tax has been much higher than it is today. Wealthy Americans have paid a higher top individual rate in 70 percent of years since the 16th Amendment was passed. Yet that doesn’t stop Republicans from having hyperbolic responses to proposals to raise the top marginal rate by just a few percentage points.
Elected officials should learn from the past and champion progressive taxes that force the wealthy and corporations to pay their fair share. By fixing systemic inequity through our tax code, we can collectively generate greater revenues for investment into the social safety net. Americans need tax policies that compassionately take care of our communities for generations to come. It is our duty as informed citizens to make this call to action materialize as our more vulnerable neighbors continue to feel the brunt of economic hardships.
When we invest in our communities, we all see a brighter future.
[1] Williamson, V. S. (2025). The price of democracy: The revolutionary power of taxation in American history. Basic Books, https://www.reuters.com/markets/econ-world/behind-contentious-us-democracy-boring-tax-policy-2025-12-17/
[2] Bennett, Jeannette. “Individual Income Tax: The Basics and New Changes.” Federal Reserve Bank of St. Louis, December 201, https://www.stlouisfed.org/publications/page-one-economics/2018/12/07/individual-income-tax-the-basics-and-new-changes.; Solman, Paul. “The Income Tax in 1913: A Way to Soak the Rich.” Public Broadcasting System, April 2013, https://www.pbs.org/newshour/economy/making-sense/the-income-tax-in-1913-a-way-to-soak-the-rich
[3] Avi-Yonah, Reuven S. “Why Was the U.S. Corporate Tax Enacted in 1909?” In Studies in the History of Tax Law edited by J. Tiley, vol. 2, 377-92. Portland, Oreg.: Hart Pub., 2007, https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1209&context=book_chapters; An Overview of the Corporate Income Tax System. (2026, January 14). https://www.congress.gov/crs-product/R47519
[4] Tax Evasion and Avoidance: Hearings before the Joint Committee on Tax Evasion and Avoidance, 75th Cong. (1937), https://www.finance.senate.gov/imo/media/doc/75HrgTaxEvasion2.pdf
[5] https://www.archives.gov/milestone-documents/16th-amendment
[6] Eisinger, Jesse. No, President Trump, the Income Tax Wasn’t A Mistake. But It Was an Accident. ProPublica. April 2025. https://www.propublica.org/article/history-income-tax-history-16th-amendment-trump-tariffs-great-depression
[7] Jensen, Erik M., “The Taxing Power, the Sixteenth Amendment, and the Meaning of ‘Incomes,’” (2006). Faculty Publications. 219. https://scholarlycommons.law.case.edu/faculty_publications/219
[8] https://www.propublica.org/article/history-income-tax-history-16th-amendment-trump-tariffs-great-depression
[9] U.S. Const. amend. XVI
[10] Historical highlights of the IRS. Internal Revenue Service. (n.d.). https://www.irs.gov/newsroom/historical-highlights-of-the-irs.; Jacobson, Darien, et. Al, The Estate Tax: Ninety Years and Counting, Internal Revenue Service. (n.d.). https://www.irs.gov/pub/irs-soi/ninetyestate.pdf ; Corporation Income Tax Brackets and Rates. Internal Revenue Service. (n.d.). https://www.irs.gov/pub/irs-soi/02corate.pdf
[11] Secretary Andrew Mellon, U.S. Department of Treasury Press Release, Pg. 7-10, January 1928, https://fraser.stlouisfed.org/title/press-releases-united-states-department-treasury-6111/volume-5-586843?page=2
[12] https://prospect.org/2019/10/14/the-rise-and-fall-of-andrew-mellon/
[13] https://www.newspapers.com/article/the-st-louis-star-and-times-trickle-do/105123031/
[14] https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1016&context=nulr
[15] Public Law 74-407
[16] Public Law 753
[17] Haden, J. (2011a, December). How would you feel about a 94% tax rate?. CBS News. https://www.cbsnews.com/news/how-would-you-feel-about-a-94-tax-rate/
[18] Public Law 88-272
[19] U.S. Bureau of the Budget, Office of Management and Budget, Fiscal Year 1982, Federal Reserve Bank of St. Louis, January 1981, https://fraser.stlouisfed.org/title/budget-united-states-government-54/fiscal-year-1982-19036?page=15
[20] https://www.nytimes.com/1981/03/11/us/text-of-the-president-s-message-to-congress.html
[21] https://www.nytimes.com/2021/11/11/opinion/reagan-social-welfare.html
[22] Reagan, Ronald, Text of the President’s Message to Congress, The New York Times, March 1981, https://www.nytimes.com/1981/03/11/us/text-of-the-president-s-message-to-congress.html
[23] Public Law 97-34; Public Law 99-514
[24] S Danziger, R Haveman – Institute for Research on Poverty, 1981, https://and-bmod.com/publications/focus/pdfs/foc52b.pdf
[25] Plotnick RD. Changes in poverty, income inequality, and the standard of living in the United States during the Reagan years. Int J Health Serv. 1993;23(2):347-58. doi: 10.2190/H95U-EX9E-QPM2-XA94. PMID: 8500951.
[26] https://publicintegrity.org/inequality-poverty-opportunity/taxes/unequal-burden/how-four-decades-of-tax-cuts-fueled-inequality
[27] https://library.cqpress.com/cqalmanac/document.php?id=cqal81-1173261
[28] CQ Press. (1981). CQ Almanac Online Edition. Health/Education/Welfare 1981: Overview. https://library.cqpress.com/cqalmanac/document.php?id=cqal81-1173261
[29] Public Law 107-16; Public Law 108-27
[30] https://www.cbpp.org/research/the-legacy-of-the-2001-and-2003-bush-tax-cuts
[31] https://www.cbpp.org/research/the-legacy-of-the-2001-and-2003-bush-tax-cuts
[32] https://www.cbpp.org/research/claim-that-tax-cuts-pay-for-themselves-is-too-good-to-be-true
[33] Minority Staff of the Senate Budget Committee, If Not for Republican Policies, the Federal Government Would Be Running a Surplus, Senate Budget Committee (October 15, 2018), https://www.budget.senate.gov/imo/media/doc/GOP%20Policies%20Caused%20the%20Deficit%20REPORT%2010-15-18.pdf
[34] https://taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-personal-taxes and https://taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-business-taxes
[35] https://www.cbpp.org/research/resource-lists/tax-reform-briefs-2017-tax-law-is-fundamentally-flawed
[36] https://taxpolicycenter.org/statistics/historical-highest-marginal-income-tax-rates
[37] https://www.congress.gov/bill/119th-congress/house-bill/1/text
[38] https://taxpolicycenter.org/taxvox/those-making-450000-and-would-get-nearly-half-benefit-extending-tcja
[39] https://www.cbpp.org/research/health/by-the-numbers-harmful-republican-megabill-will-take-health-coverage-away-from
[40] https://www.cbpp.org/research/federal-tax/republican-megabill-trades-essential-support-to-low-income-people-for-skewed and https://www.urban.org/urban-wire/snap-cuts-one-big-beautiful-bill-act-leave-almost-3-million-young-adults-vulnerable
[41] https://home.treasury.gov/system/files/131/The-Cost-and-Distribution-of-Extending-Expiring-Provisions-of-TCJA-01102025.pdf
[42] https://www.citizen.org/news/on-tax-day-and-every-day-fighting-to-unrig-the-tax-code-and-invest-in-our-communities/