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Why the rich can stop worrying about a punishing backlash

Rick Newman
The Exchange

The wealthy feel like they’re under siege: The poor say they have way too much money, the president keeps jabbering about income inequality and even the pope has been nagging them to spread the wealth around.

It’s dreadful, really. Yet despite all the cretins butting into their business, the rich can probably stop worrying about another Bolshevik revolution.

The latest spokesworrier for the rich is retired venture capitalist Tom Perkins, who recently wrote in the Wall Street Journal, “I perceive a rising tide of hatred of the successful one percent.” That might have been a yawner, except Perkins went on to compare the persecution of the rich by the 99% with the persecution of Jews in Nazi Germany.

If wealthy Americans keep likening themselves to victims of genocide, it might actually lead to revolution. But if the rich would just learn to cork it, they’d be able to enjoy their decadent lives with little risk of a public backlash that actually costs them anything.

The gap between rich and poor is, in fact, becoming obscenely large. Conventional wisdom holds that this will lead to intense public pressure to enact wealth taxes and other heinous penalties on the rich. The reality, though, is that we’re far from anything like that happening, and an improving economy may cool rather than intensify the type of hatred that bothers Perkins so much.

No revolution in sight

There certainly is precedent for too much wealth concentrated in too few hands leading to revolutionary change. Yet those changes usually required a dramatic triggering event, which hasn’t happened in modern times. “I don’t think we’re all that close to a tipping point yet,” says Joseph Thorndike, a historian with Tax Analysts who also teaches tax policy at Northwestern University Law School. “It really takes a crisis to make something happen.” Some may think the 2008 financial meltdown qualified as a crisis, but that was tame by historical standards.

The royal lifestyles of late 19th-century industrialists—caricatured at the time as “robber-barons”—led to the imposition of the income tax in 1913, for example. That process took more than 20 years, however, and the initial tax—which exempted most workers—was modest, ranging from 1% to 7% on high earners. That changed quickly once the U.S. entered World War I, with the top tax rate soaring from 7% to 77% in just three years.

Tax rates came down during the 1920s but shot back up during the Great Depression in the 1930s. They rose even higher during World War II, peaking at a top rate of 94% in 1944, according to the Tax Foundation. So while pressure may build for higher taxes on the wealthy, in the past it has taken two world wars and a 10-year depression to actually trigger significant tax hikes.

Today’s economy may feel like a long depression to people who became disenfranchised in some way during the recession, and haven’t yet recovered. But the fact is the economy is growing, the job market is improving and more people are finding their way back toward normalcy. The “Occupy Wall Street” movement that sprang up in 2011 was heralded as an uprising against a greedy oppressor class, yet that uprising petered out without accomplishing much. Even the Tea Party, which favors low taxes but also represents a kind of populist revolt, is losing influence.

Tax the rich?

Some polls seem to show clear public support for raising taxes on the rich, but that doesn’t easily translate into a mandate on politicians to actually do it. Middle-class Americans tend to be leery of tax hikes because even if they’re restricted to high earners, there’s concern that higher taxes will eventually make their way down the income chain to ordinary people. And some polls show that Americans increasingly oppose higher taxes on the rich. In 1992, for instance, just 16% of people told Gallup that the wealthy pay their “fair share” of taxes. By 2013, that had risen to 26%.

It’s still possible there could be tax hikes on the wealthy, especially since the top tax rate, at 39.6%, is fairly low by historical standards, while the national debt is at a record high. But could anything happen to appreciably change living standards for the wealthy? Probably not, unless an unforeseen calamity strikes—or the wealthy bring disaster upon themselves.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success . Follow him on Twitter: @rickjnewman .