ProPublica’s report claiming the wealthiest 25 people only pay 3.4% in income taxes contradicts publicly available Internal Revenue Service data on the top 400 income earners showing that they paid on average 32% of their income in federal income taxes, including Social Security and Medicare taxes. That same data show that the very top earners pay an effective income-tax rate of 40.1%. The rate is lower for the top 400 taxpayers because each of these individuals is a unique case in terms of how they earn income and how much they give away.

The stolen IRS data provide the story with voyeur appeal, but it turns out to be a bait-and-switch. ProPublica substitutes a magazine’s estimate of wealth appreciation, which never appears on the stolen tax returns, to falsify income. Using this deception the site calculates its “true tax rate.” ProPublica laments that taxpayers are acting “perfectly legally” in not paying a federal wealth tax, which doesn’t exist.

That wealth is taxed only when converted into income or on death may be an outrage to those in government who want to spend that wealth, but it is a purposeful, enlightened policy that lets wealth work as the nation’s seed corn, making America the richest nation in the history of the world. That wealth in turn makes it possible for the government today to provide $45,000 a year in transfer payments to the average household in the bottom 20% of American earners.

ProPublica highlights Warren Buffett, and they could have picked no better example of how this nation became wealthy. Famous for being the world’s greatest investor—and for living relatively modestly—he uses McDonald’s coupons, works in a cheap office, drives a junker and lives in a house far smaller than what he could afford. No one ever seems to ask: If Mr. Buffett isn’t benefiting from all his wealth, who is? It is at this point in the story that greed causes ProPublica and the Democrats to put their own political aspirations above the public interest.

Mr. Buffett has no vast vault of gold where he takes a daily swim like Scrooge McDuck. Instead his billions are invested to make it possible for people with good ideas and big dreams to make them a reality. Tools are bought, jobs are created, new products and services are provided, and lives are transformed.

When Mr. Buffett’s investments generate economic activity, the taxman takes slices in sales, payroll, income and property taxes. When he dies, the death tax will take 40% of his life’s work and, in doing so, will make Americans who will never know his name poorer. While it isn’t even clear government would get more by seizing Mr. Buffett’s wealth than it gets by taxing all the economic activity his snowballing investments create, how can anyone believe that the American people would benefit from stopping Mr. Buffett’s wealth from working for the economy so that government can spend it? The pressure of political correctness may induce Mr. Buffett to say he should pay more taxes, but in reality America, not Mr. Buffett, would pay those taxes in reduced opportunity and lower wages.

The miracle of our capitalist system is that it permits total strangers—as owners of wealth, possessors of productive ideas and willing workers—to come together and work for one another’s benefit and for the nation’s common good. Rich people become and stay rich by putting their savings and talents to productive use. Bill Gates reportedly owns only 7% of Microsoft ; American pension funds and mutual funds own most of the rest. Microsoft employs 101,000 people in the U.S. You may not like how rich Mr. Gates is, but as he enriched himself, he enriched all of us as workers, consumers and retirees. Was that a good deal?

Taxing wealth accumulation will mean less wealth accumulation, lower productivity growth, lower wages and a less prosperous America. If you had to pay a federal property tax on the appreciation of your home and the growth in the value of your retirement assets, farm and business every year, how could you or America ever get ahead? Private investment has created $32 trillion of equity wealth in America. “Public investment” has created $21 trillion of public debt.

Proponents of a federal property tax on wealth offer guarantees and protections that they will only tax the superrich like Mr. Buffett, promising not to touch your retirement plan, home, farm or business. But the federal income tax started out only taxing the superrich like John D. Rockefeller. The same politicians who promise to protect you from the federal wealth tax voted to impose income taxes on “wealthy” Social Security retirees with an annual incomes above $25,000. And these are the same politicians who are proposing to tax your businesses and farms at 43.4% when you die, before they take another 40% in death taxes.

Mr. Gramm is a former chairman of the Senate Banking Committee and a visiting scholar at American Enterprise Institute. Mr. Solon is a partner of U.S. Policy Metrics.

But before accepting this as proof by example, it’s worth examining how many taxpayers actually paid those top rates and what percentage of their income high earners actually paid in taxes. Economists Gerald Auten of the Treasury Department and David Splinter of the Joint Committee on Taxation have compiled an extraordinary new database using Internal Revenue Service data on taxes actually collected since 1962. The top marginal income-tax rates and the taxes actually paid, including payroll taxes, as a percentage of income for the top 1%, top 10% and bottom 50% of income earners are shown in the nearby chart. The figures for 2016-20 are comparable estimates by the Urban-Brookings Tax Policy Center.

The top tax rate of 91% in 1962 applied to families with joint incomes, in today’s dollars, of $3.38 million. After deductions and credits, only 447 tax filers out of 71 million paid any taxes at the top rate. The top 1% of income earners paid only 16.1% of their income in federal income and payroll taxes, while the top 10% paid 14.4% and the bottom 50% paid 7%. This followed the pattern set by the top Depression-era and wartime tax rates. Only three filers out of six million paid any taxes at the top Depression rate and only 13 out of 50 million paid any taxes at the top wartime rate. The top 1% of earners paid 12.6% and 23.5% of their income in federal income and payroll taxes in 1938 and 1945, respectively.

President Kennedy recognized that while confiscatory tax rates collected little revenue, they stifled growth as resources were squandered in the “avoidance of taxes” rather than the “production of goods.” When the top tax rate was reduced to 70%, individual income-tax collections continued to grow and the actual percentage of income paid in taxes by high-income earners barely changed. Only 3,626 out of 75 million filers paid any taxes at the new 70% rate. When the Reagan tax cut reduced the top rate to 50%, gross domestic product grew. Taxes collected from high-income earners as a percentage of their incomes were largely unchanged, as the chart shows. Only 341,000 of 109 million filers paid any taxes at the new 50% top rate.

The 1986 tax reform reduced the top rate to the postwar low of 28%. The reform also closed loopholes, offsetting the rate reductions and other changes in the tax code. Revenues grew as the economy expanded and asset sales surged at the lower marginal tax rate. Twenty-six million out of 115 million filers paid taxes at the 28% rate. The top rate was raised to 39.6% in 1993 and has fluctuated between 39.6% and 35% since. Only 453,000 out of 123 million filers paid any taxes at the 39.6% rate in 1993.

Remarkably, while the top marginal rate fell from 91% in 1962 to 28% in 1988, the percentage of income actually paid in income and payroll taxes by the top 1% and 10% of filers rose to 21.5% and 19.6% from 16.1% and 14.4%, respectively. As the top tax rate fell by two-thirds, the percentage of income paid in federal income and payroll taxes by the top 1% and 10% of earners rose by a third.

The percentage of income actually paid by the top 1% of earners, which the Tax Policy Center estimates to be 25.7% in 2020, is close to the average rate paid during the last quarter-century. Whether the federal government could actually impose a top rate of 50% on a significant number of taxpayers, or actually collect much more than 30% of the income of the top 1% of earners in income and payroll taxes, without crippling economic growth is a question our postwar experience certainly doesn’t answer.

Before Congress bets the future of America on the federal government’s ability to soak the rich without crippling the economy, lawmakers need to recognize that the marginal rates being proposed have never been collected from any significant number of taxpayers except under the direst circumstances such as a war for survival. Voters might also note that in the rest of the developed world, where government takes a larger share of GDP in taxes, high earners pay about the same share of GDP in income taxes that high-income Americans pay today, but everybody else pays a lot more.

Mr. Gramm is a former chairman of the Senate Banking Committee and is a visiting scholar at American Enterprise Institute. Mr. Solon is a partner of U.S. Policy Metrics.

Between the pandemic-induced recession and the years of slow growth following the 2008 subprime crisis, a brief respite of stronger growth and rising wages lifted America’s fortunes and spirits. Economic growth is generally viewed as some abstract concept, but when gross domestic product, which was projected in 2016 to grow by only 2.1% on average over the next three years, instead rose 3% in 2018, that small increase in growth made a huge difference to a lot of Americans.

The CBO responded to the increase in economic growth by adding $6.2 trillion to its 10-year GDP estimate—an extra $1,900 of annual income on average for every man, woman and child in America. The big difference this little bit of extra growth created was fully revealed in the census figures, when income growth in 2019 was the most broad-based and best ever recorded in a single year, and the poverty rate fell the most in a half a century.

Even the toughest critics of the tax cuts would grudgingly concede that the 2017 reduction in the corporate tax rate increased equity values. Despite the pandemic, the average value of the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index has doubled since the 2016 election when markets began to anticipate a corporate tax cut.

Who benefited from these gains? Numerous studies and polls show that more than half of American households own stocks, most through pension plans, 401(k)s, individual retirement accounts, mutual funds and annuities. Beyond the irrefutable benefits that flowed into retirement plans and annuities, critics never concede that corporate tax relief helped average families, much less low-income workers.

How does that view square with 2019 census data showing that real median household income hit its highest level ever for African-American, Hispanic and Asian-American workers and retirees? Or that the 2019 poverty rate was the lowest in more than 50 years for children, at 14.4%, and the lowest ever for individuals (10.5%), for families (8.5%), and for households headed by unmarried women (22.2%).

More impressive is that, even after 10 years of economic expansion, the 2019 gains shattered all records as real household income leapt $4,379 in 2019 alone, 13 times the average annual gain since data were first collected, almost half again more than the next highest annual income gain, and a quarter more in 2019 alone than in the eight years between 2009 and 2016. Black household incomes in 2019 surged by a record $3,328. Hispanic incomes leapt $3,731—a third higher than their next best year ever recorded—and Asian-American incomes surged $9,400, about two-thirds more than the previous high.

Record income gains, especially among lower-income Americans, caused the poverty rate to plummet 11% in 2019, the most in 53 years. The poverty rate fell the most for Asians since records began in 1987 and for children the most in over half a century. The poverty rate for blacks and Hispanics hit historic lows. This cornucopia, shown so vividly in the 2019 census data, was the product of a reduction in the American corporate tax rate from the highest rate in the world to roughly the average rate among developed countries, and a concentrated effort to reduce regulatory burdens.

The White House Council of Economic Advisers in 2015 described the potential effect of reducing the corporate tax rate as follows: “When effective marginal rates are higher, potential projects need to generate more income if the business is to pay the tax and still provide investors with the required return. . . . A lower effective marginal rate will tend to encourage additional projects and a larger capital stock.” That was the Obama CEA.

How much of the benefits of the corporate tax-rate reduction went to workers? A CBO study estimated that 70% of the corporate income-tax burden falls on workers. A 2011 study by Matt Jensen and Aparna Mathur of the American Enterprise Institute made a strong case that workers bear more than 50% of the corporate tax burden. But the record income gains in 2019 provide the strongest evidence yet that the corporate tax is a hidden tax on workers.

Giving American business a level playing field on corporate tax rates triggered a blue-collar boom in which the lowest-wage earners enjoyed the fastest wage growth, 10.6% in 2019 alone. Historically disadvantaged groups like veterans, high-school dropouts and the disabled experienced their lowest unemployment rates ever. Three-fourths of workers hired in the fourth quarter of 2019 were new entrants into the labor market, many forgoing government benefits for a job. When income levels in 2019 were the highest on record, when incomes rose the most ever in a single year, when the poverty rates fell the most in a half a century, and when America’s lowest-income workers gained the most, we know who really benefited from the 2017 corporate tax cut. Does this sound like “a race to the bottom” to you?

For those who burn sacrifices at the altar of big government and believe that progress for ordinary people can come only through expanded government, the Miracle of 2019 was a UFO, some inexplicable event best ignored. No one cheers progress when peddling misery.

So as the chants about greedy corporations, overpaid CEOs and a corrupt market system harmonize in support of an increase in corporate tax rates, it’s important to remember who really benefited from making U.S. corporate tax rates more globally competitive. The 2017 corporate tax-rate reduction enhanced after-tax profits, fueled a rise in economic growth and caused wages to spike even at the end of the longest and weakest recovery of the postwar era. The reduction in corporate tax rates worked for the working people of America.

Mr. Gramm is a former chairman of the Senate Banking Committee and a visiting scholar at the American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics.

Mr. Biden plans to raise taxes by three times as much as President Obama did, increase spending by 2.7 times as much, and regulate the economy at levels never before seen in America. He and his campaign refer constantly to projections by Penn Wharton, Moody’s Analytics, the University of Oxford and Goldman Sachs, which claim that the Biden economic program would produce prosperity. But why would Mr. Biden use models and projections of his souped up rerun of the Obama-Biden program when he has the hard facts of what that program actually achieved?

In early 2010 after the recession had ended, the Obama-Biden administration projected a 3.7% average increase in gross domestic product over the next seven years. The Congressional Budget Office projected 3.3% growth for the same period, while the Federal Reserve predicted growth between 3.5% and 4% through 2014. Instead, growth for the remainder of the Obama-Biden administration tanked to an 80-year low of 2.2% as its policies kicked in. Repeatedly during the 2010-16 recovery, the CBO was forced to slash its projections. GDP in 2016 alone was $1.7 trillion below the 2010 forecast, costing Americans an average of $5,238 that year. As growth faltered, federal revenues fell and debt soared.

The Obama-Biden administration blamed “secular stagnation,” but when President Trump changed policies the clouds of stagnation lifted. Census data says 2019 median household income hit an all-time high, and grew more than six times as much as average annual growth during seven years of the Obama-era recovery. The poverty rate fell more in the first two years under Mr. Trump than in all seven “recovery years” combined under Obama-Biden. Median earnings for men rose 11% more from 2017 through 2019 under Mr. Trump’s policies than during the previous seven years. Incredibly, earnings for women rose 42% more in 2019 alone than in seven years during the entire Obama-Biden recovery.

Though the Obama-Biden administration defended its economic agenda, the American people didn’t buy it. Aggregating the results of 554 polls conducted during the recovery, RealClearPolitics found that respondents disapproved of the Obama-Biden economic performance by a margin of 11.4 percentage points. In contrast, respondents before the pandemic approved of Mr. Trump’s performance on the economy by a 17-point margin. Even now, despite the Covid-induced economic shutdown, Mr. Trump’s rating on the economy is still positive. The economy is Mr. Biden’s greatest weakness and Mr. Trump’s greatest strength, so Team Biden continues to tell Americans that their memories are at fault, not Mr. Biden’s policies.

The economist Jason Furman, an architect of the Obama-Biden economy and proponent of Mr. Biden’s agenda, claimed in these pages that Mr. Biden’s tax hikes would be “broadly consistent with the tax systems under the successful economies of Presidents Clinton and Obama.” Successful? GDP growth averaged 3.9% under Mr. Clinton but only 1.6% under Mr. Obama. Real median household income rose $7,658 under Mr. Clinton but less than half that under Mr. Obama. The poverty rate fell 24% under Mr. Clinton but less than 4% under Mr. Obama.

It isn’t by chance that the recoveries under Presidents Clinton and Obama played out so differently. After Mr. Clinton raised taxes and tried to nationalize health care, voters rejected his policies in 1994 by electing a Republican Congress, and Mr. Clinton changed policies: cutting spending, balancing the budget, reforming welfare, reducing taxes and restraining regulations. Mr. Obama was also checked by voters in 2010, by the election of a Republican House, after he raised taxes, nationalized individual health insurance and smothered the economy in regulation. Yet his administration changed nothing and doubled down on taxes, regulations and debt. Does Mr. Biden’s agenda sound more like the second Clinton term or the Obama-Biden program on steroids?

Mr. Furman claims Mr. Trump’s 2017 tax cut had, by 2019, “limited revenues to 16% of gross domestic product. That’s the lowest share in half a century, with the exception of recessions and the following years.” Yet Mr. Furman failed to note that the “following years” he was referring to were the eight years of his own Obama-Biden administration, when revenues averaged only 16.1% of GDP—less than the 16.3% the CBO reported for 2019. As a share of GDP, the 2019 revenues that followed Mr. Trump’s tax cut exceeded the average Obama tax-hike-enhanced revenue levels of 2009-16. How is that possible? Obama-Biden lost more from slower growth than they gained from higher taxes. By embracing tax rates over growth rates, the Obama-Biden administration generated less income for American workers and the government.

How could anyone believe that after a progressive program of tax, spend and regulatory control failed during the Obama-Biden administration, Biden-Harris could succeed with a socialist program of taxes, spending and controls at levels Mr. Obama never dared? Those who vote for Biden-Harris because they want more government—even at the cost of less income and freedom for American families—will get what they are voting for. Those who believe they can have more government and more opportunity and freedom at the same time will be disappointed. Those who vote for Biden-Harris because they hate Donald Trump may end up wondering if it was worth it.

If Biden-Harris-Sanders-Warren-Pelosi-AOC control the White House and Congress, and kill the fossil-fuel industry with the Green New Deal, override state right-to-work laws, pack the Supreme Court, pack the Senate by admitting the District of Columbia and Puerto Rico as states, expand the spending blowout and raise marginal tax rates to over 50%, will this still be the same country you were born in or came to seeking refuge and opportunity?

Mr. Gramm is a former chairman of the Senate Banking Committee. Mr. Solon is a partner of U.S. Policy Metrics.

A socialist might see injustice in that inequality. But seniors know this wealth gap is the difference between the start and the finish of a career of work and thrift, making the last mortgage and retirement payments rather than the first. Seventy-two percent of the value of all domestically held stocks is owned by pension plans, 401(k)s and individual retirement accounts, or held by life insurance companies to fund annuities and death benefits. This wealth accumulated over a lifetime and benefits all Americans.

That means it’s your life savings on the line—not the bankroll of some modern-day John D. Rockefeller—when Democrats push to limit companies’ methods of enriching their shareholders. Several Democratic congressmen and presidential candidates have proposed to limit stock buybacks, which are estimated to have increased stock values by almost a fifth since 2011, as well as to block dividend payments, impose a new federal property tax, and tax the inside buildup of investments. Yet among all the Democratic taxers and takers, no one would hit retirees harder than Sen. Elizabeth Warren.

Her “Accountable Capitalism Act” would wipe out the single greatest legal protection retirees currently enjoy—the requirement that corporate executives and fund managers act as fiduciaries on investors’ behalf. To prevent union bosses, money managers or politicians from raiding pension funds, the 1974 Employee Retirement Income Security Act requires that a fiduciary shall manage a plan “solely in the interest of the participants and beneficiaries . . . for the exclusive purpose of providing benefits to participants and their beneficiaries.” The Securities and Exchange Commission imposes similar requirements on investment advisers, and state laws impose fiduciary responsibility on state-chartered corporations.

Sen. Warren would blow up these fiduciary-duty protections by rewriting the charter for every corporation with gross receipts of more than $1 billion. Every corporation, proprietorship, partnership and limited-liability company of that size would be forced to enroll as a federal corporation under a new set of rules. Under this new Warren charter, companies currently dedicated to their shareholders’ interest would be reordered to serve the interests of numerous new “stakeholders,” including “the workforce,” “the community,” “customers,” “the local and global environment” and “community and societal factors.”

Eliminating corporations’ duty to serve investors exclusively and forcing them to serve political interests would represent the greatest government taking in American history. Sen. Warren’s so-called accountable capitalism raids the return that wealth provides to its owners, the vast majority of whom are present or near retirees. This subversion of capitalism would hijack Americans’ wealth to serve many new masters who, unlike shareholders, don’t have their life savings at stake in the companies that are collectivized.

After dividing retirees’ rightful earnings eight ways to serve the politically favored, the Warren charter goes on to require that “not less than 2/5 of the directors of a United States corporation shall be elected by the employees.” With a mandate to share profits with seven other interest groups and 40% of the board chosen by non-investors, does anybody doubt that investors’ wealth would be quickly devoured?

At best, every U.S. company with gross revenues over $1 billion would be suddenly coerced into operating like a not-for-profit. But unlike legally recognized Benefit Corporations, the companies would be redirected to multiple competing purposes. A new Office of U.S. Corporations would decide—and lawyers would sue to determine—whether those interests are satisfied, and only then would retirees receive the remaining crumbs. Only in Sen. Warren’s socialist heaven would workers continue to sweat and sacrifice while their rewards go to publicly favored groups.

It is the fiduciary responsibility of every investment adviser, pension fund, 401(k), IRA and life insurance company to tell its clients what would happen to their investments under Sen. Warren’s bill. Her plan would devastate the income-generating capacity of every major company in America and decimate their market value in the process.

If the bill were passed, retirement plans and investors could attempt to sell their stocks and find new investments where their money would still work for them. They could sell their shares in the large companies subject to Sen. Warren’s dispossession and buy into smaller companies with receipts below the $1 billion threshold, or look for investments abroad.

Sen. Warren would roll back the economic Enlightenment that gave us private property and economic freedom, and plunge us back into the communal world of the Dark Ages. Like the village, guild, church and crown of yore, government-empowered special interests would once again be allowed to extort labor and thrift. When capital is no longer protected as private property and is instead redefined as a communal asset, prosperity and freedom will be the greatest casualties.

Socialism always destroys wealth; it doesn’t redistribute it. Unfortunately, this great truth is far from self-evident. Whether current and near-retirees will stand up and fight for their retirement savings will effectively gauge the survival instinct of our country, and our willingness to preserve the economic system that built it.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics.

The new analysis was published in April by the Cato Institute’s John F. Early, a former assistant commissioner of the Bureau of Labor Statistics, and it provides the most comprehensive accounting to date of how taxes and government payments affect income distribution in the U.S. His study includes the roughly $1 trillion of annual government spending not currently counted in the U.S. Census Bureau’s income-distribution tables. That includes Medicaid, food stamps, the earned-income tax credit, and 85 other federal payments and services, along with similar state and local income supplements. The study also subtracts federal, state and local taxes from individuals’ measured income, an adjustment not contained in the census data.

The most surprising finding is the astonishing degree of equality among the bottom 60% of American earners, generated in part by the explosion of social-welfare spending and the economic and wage stagnation during the Obama era. Hardworking middle-income and lower-middle-income families must have recognized that their efforts left them little better off than the growing number of recipients of government transfers. The perceived injustice of this equality helped drive the political shift among blue-collar workers, many of whom supported the pro-growth candidacy of Donald Trump in 2016 despite having voted for Mr. Obama in the two previous presidential elections.

The bottom quintile earned 2.2% of all earned income in 2013, but after adjusting for taxes and transfer payments, its share of spendable income rose to 12.9%—six times its proportion of earnings. The second quintile’s share more than doubled, rising from 7% of earned income to 13.9% of spendable income. For the third quintile, middle-income Americans, the increase was much smaller, from 12.6% to 15.4%.

Not surprisingly, high earners lost a considerable share of their earnings after taxes and transfers are taken into account. The fourth quintile’s share fell from 20.5% to 18.6%, while the top quintile dropped from 57.7% of earnings to 39.3% of consumable income. In other words, the top quintile’s share of earnings was 26 times that of the bottom quintile, but after taxes and transfer payments its share of spendable income was only three times as much.

Even more startling is the near equality among the bottom three quintiles. The bottom quintile, which earned only 2.2% of all earned income, had virtually the same share of spendable income as the second quintile, lower-middle-income Americans. This equality is despite the fact that lower-middle-income workers earned more than three times the share of income and worked 21/2 times as much, measured by comparing each group’s number of full-time workers relative to its working-age population. Middle-income workers earned almost six times the share of income and worked almost four times as much compared with the bottom quintile, but they enjoyed only about 20% more spendable income.

And even these numbers understate the huge difference in work effort. Compared with the bottom quintile, the lower-middle-income quintile had almost four times as many working-age families whose members worked two or more jobs, and the middle-income quintile had more than seven times as many families with members working two or more jobs.

The politics of envy based on income inequality has always been a hard sell in the U.S. Few Americans resent Bill Gates, whose innovations made him megarich but also made the rest of us better off. Who resents Warren Buffett, who became one of the richest men in the world by raising the return on Americans’ savings and retirement accounts? George Mitchell, the Texas oilman who invented fracking, made oil and gas cheaper for the whole world—and he received only a tiny share of the wealth he created in so doing.

Americans tend to believe that people become rich because they are smart and work hard, but it is easy to see how a middle-income husband and wife who both work could resent that people who don’t work are about as well off as they are. It might be fair that Bill Gates is rich, but it seems unjust that 60% of Americans have virtually the same standard of living despite dramatic differences in the effort they exert and the income they generate.

The harder people worked without getting ahead, the more reason they had to feel disrespected and alienated in November 2016. President Obama and Hillary Clinton mocked their values. The tax and regulatory policies of the Obama era caused economic growth and middle-income wages to stagnate. But what must have added insult to these injuries was the increasingly obvious fact that the boom in government benefits and the decline of economic growth had all but eliminated the rewards that middle-income Americans traditionally received for working hard. The explosion of social spending, and the dependency it generated, no doubt benefited the Obama campaign in 2012. But that same spending helped create the wagon-puller backlash that defeated Mrs. Clinton in the next election.

Mr. Gramm is a former chairman of the Senate Banking Committee. Mr. Ekelund is a professor emeritus in economics at Auburn University. This article is adapted from a forthcoming book, “Freedom and Inequality.” Mike Solon and John Early contributed to this article.

Eight stagnant years after the 1929 downturn, the great American manufacturer Lammot du Pont II identified the cause. “Uncertainty rules the tax situation, the labor situation, the monetary situation,” he said, along with “practically every legal condition under which industry must operate.”

This evaluation was borne out by a 2016 study published in the Quarterly Journal of Economics, which found that economic uncertainty peaked in the 1930s. As government increasingly dominated the economy in an effort to control prices and wages, the American recovery lagged behind every other developed country except France. In its 1938 yearbook, the League of Nations implicated policy uncertainty as the cause of U.S. stagnation: “Uneasiness accentuated the unwillingness of private enterprise to embark on further projects of capital expenditure which might have helped to sustain the economy.”

The second-highest level of economic uncertainty since 1900 occurred during the 2008 subprime crisis and the subsequent failed recovery. When the recession ended in mid-2009, the Obama administration predicted six years of 3.9% average real growth—a reasonable expectation, since strong recoveries had followed every previous significant postwar recession.

Investment atrophied as private fixed investment fell to just over a third of its historical norm for the postwar era. With the investment drought, productivity and wage growth plummeted. Uncertainty kept the economy in a stupor, holding average economic growth during the recovery to a mere 2.1%—barely half the level projected at the start of the recovery.

In America’s most dramatic deregulatory effort, the Trump administration and Congress have repealed, revised or stopped more than 1,000 regulations, reversing much of the political uncertainty produced by Mr. Obama’s onslaught. The economy quickly revived, averaging 3.1% real growth in the first three quarters of the Trump presidency—almost 50% higher than the average under Mr. Obama.

Congress and the president further strengthened the recovery by enacting tax reform, which has spurred additional business investment. But today the administration’s trade policy is beginning to create a level of uncertainty that could imperil the recovery.

The White House dismisses concerns about its trade actions, claiming aggregate tariffs are too small to do much harm. In reality, it is virtually impossible to calculate even the primary effects the Trump trade policies will produce as they ripple through the economy. The subsequent effects that would come from escalating retaliation are unknowable. Mr. Trump’s threats to terminate the North American Free Trade Agreement create massive uncertainty by jeopardizing the North American export chain.

No one knows which U.S. exports retaliating nations might penalize, so the stifling effects of uncertainty permeate a broad cross-section of the economy. For commodities already targeted for retaliation, the effects of uncertainty have begun to appear. How many soybean farmers are investing in farm equipment today? President Trump recognized that his trade policy is creating debilitating uncertainty overseas when he claimed that now “nobody’s going to build billion-dollar plants in Mexico.” But he fails to see that the same logic applies to Nafta-related investments in the U.S.

Uncertainty about trade policy lowers the value of trade-related plant and equipment in all three Nafta countries. Since U.S. investors own more than $90 billion of investments in Mexico and more than $350 billion of investments in Canada, the destruction of Nafta would wreak havoc on U.S. pension funds and other equity investments by destroying capital values in the U.S. and across North America.

The University of Michigan’s April consumer-sentiment survey noted that respondents who mentioned the tax cuts expressed high confidence in the economy, while those who mentioned tariffs expressed low confidence. The Institute for Supply Management recorded the largest drop in its manufacturing index since 2015, with more than a third of respondents citing tariffs as a source of their worries. Economists Scott Baker, Nicholas Bloom and Steven Davis —authors of the study that measured Depression-era uncertainty—have found that economic uncertainty related to trade this March was more than five times as great as the pre-election average for 2016.

The tariffs proposed by the White House may be the president’s real policy or bargaining chips in his negotiating strategy. In either case, the posturing needs to end and the policy making needs to begin. The uncertainty generated by the administration’s trade threats is beginning to corrode the recovery. If the final policy reduces trade barriers and export subsidies, America and the world will benefit. If the policy reduces trade, America and the world will lose, but at least the new landscape will be known. Uncertainty will be reduced and the economy will be able to find its way forward.

Mr. Gramm, a former chairman of the Senate Banking Committee, is a visiting scholar at the American Enterprise Institute. Mr. Solon is a partner of US Policy Metrics.