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Tax the rich: Should millionaires really pay more?

The fight over raising levies on the wealthy, a theme of the 'Occupy Wall Street' protests, is about more than money. It's a clash over fundamental American values.

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They argue that more tax brackets are needed at higher income levels and also that, in a country where the top 1 percent owns more than one-third of the wealth, a direct tax on that wealth may be in order. Finally, they argue that income inequality hurts the purchasing power of the middle class, which is bad for everyone.

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"The rich could not possibly have earned as much without the advantages that come from living here in America," Reich says. "We're all in the same boat together."

Some observers, frustrated with both the left and the right, voice a growing concern that the tax code has become a partisan piñata, a hostage to politics. (Consider the definition of politics offered by satirist Ambrose Bierce: "A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.")

"Tax reform should be a nonpartisan activity," says Annette Nellen, a business school professor at San José State University in San José, Calif., who testified at a recent Senate Finance Committee hearing on taxation. Ms. Nellen believes that there are common-sense changes – for example, eliminating the mortgage interest deductions on second homes – that could be palatable to both parties, make the tax code "simple, neutral and equitable," and bring in some revenue, too. But she worries such reforms are unlikely to come about in a climate where politicians are being pulled in too many directions at once.

"They're trying to do tax reform, deficit reduction, and economic stimulus all in one package," she says, frustrated. "That's just too many things."

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As Republicans and Democrats battle, it's hard not to wonder: Have arguments over federal revenues always been this taxing? "The opponents of the income tax have been accusing its supporters of class warfare since at least the Civil War," says Weisman. "That's what they always say: 'You're pitting one class against another.' "

The first federal income tax was established in 1861 by President Abraham Lincoln. Aimed at the young nation's most affluent citizens, it was enacted to finance the Union's war effort and then repealed in 1872, returning America to a tariff-based tax system that protected captains of industry from foreign competition.

In 1894, at the end of the Gilded Age, populists won the passage of a 2 percent income tax on the wealthy. "In a republic like ours, where all men are equal, this attempt to array the rich against the poor or the poor against the rich is socialism, communism, devilism," declared Sen. John Sherman, known at the time as "the Ohio Icicle" for his chilly demeanor. The Supreme Court struck down the tax in 1895.

When the US adopted an income tax for the third time, it stuck. The 16th Amendment was passed by Congress in 1909 and ratified in 1913, establishing the system that is still in use.

While some early American tax battles mirror present-day struggles, Weisman notes, there are also big differences. Prior to the wars in Iraq and Afghanistan, for example, Washington typically raised taxes in wartime.

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