An incredible thing has happened in 2019: We’re actually talking seriously about taxing the rich. And the debate is not over whether to do it, but how.
Within the month of January, Rep. Alexandria Ocasio-Cortez and Sens. Elizabeth Warren and Bernie Sanders proposed separate measures that would, respectively, increase top marginal tax rates on income, levy a direct tax on wealth and interrupt intergenerational transfers of fortunes.
It’s important to note that these policies are not in any way mutually exclusive: When it comes to billionaires, we can tax them when they’re alive, and we can tax them when they’re dead!
But given that these proposals are already framing the terms of debate for the 2020 presidential contest, we can still ask which approach goes the furthest in abating inequality and removing the stranglehold of billionaires on our politics.
And, it turns out, there are a few different ways to answer that question. Warren’s wealth tax would raise the most money — around $2.75 trillion over the next decade, according to the calculations of experts backing her proposal. But the amount of money added to public coffers isn’t the only factor in evaluating a progressive taxation plan. Somewhat counter-intuitively, taxes on the super-rich should bring in less revenue over time because they are having a broader effect on reducing inequality and therefore the amount of concentrated wealth or income to be taxed.
That’s where two other sets of political considerations come in: How a plan to tax the rich will promote other beneficial effects, like shoring up worker bargaining power, and how it will send a political message and advance a broader working-class agenda.
There are of course also plenty of important details that go into how well a progressive tax plan actually works — how effectively it closes loopholes, how it identifies and counts assets to be taxed, etc. But those are highly technical in nature, and not as easily understood by the general public. So here, I’m going to consider the political messages that, to date, seem best conveyed through each approach.
Warren’s plan: It’s time for the rich to pay their fair share
Warren’s “ultra-millionaire” tax is sweeping in its ambition. It’s also the most radical, in the sense that we haven’t done it before.
Unlike higher income and estate taxes — which were in effect for decades — a wealth tax has primarily been the stuff of progressive economists’ fantasies. What’s more, one of the most popular proposals to date — put forward in a paper by the Institute for Policy Studies — has been a 1 percent tax on the wealthiest 0.1 percent, or those with assets of over $20 million. Warren’s proposal would tax fewer people — those with more than $50 million in assets, an estimated 75,000 families — but she would bump up the rate to 2 percent. Households with more than $1 billion in assets would get a 3 percent rate.
Warren’s proposal is extremely popular. A YouGov poll funded by Data For Progress found 61 percent overall support, including 76 percent support among Democrats and even a plurality of support among Republicans, 44 percent to 37 percent. It’s also earning accolades from center-left economists like Paul Krugman.
That doesn’t mean it’s not shaking up the status quo. At the heart of the policy is a legal argument that it’s not unconstitutional to tax wealth, and a moral and political argument that, in fact, we need to.
Where Warren’s proposal would probably be insufficient on its own is that it wouldn’t offer a particularly aggressive corrective to inequality over time. It would raise trillions for social programs, which is crucially important and would certainly have other beneficial political effects. But, as a result of the tax, the fabulously wealthy would be only slightly less fabulously so.
And while Warren has floated some potential programs that her wealth tax could pay for — universal childcare, student loan relief, millions of units of new affordable housing — campaigning on a wealth tax divorced from a specific political program could make it harder to mobilize people by laying out clear stakes.
Ocasio-Cortez: Tax the Rich or Torch the Planet
Alexandria Ocasio-Cortez kicked off this blessed discussion last month, when asked during a “60 Minutes” interview how she would pay for a Green New Deal:
“You look at our tax rates back in the ’60s and when you have a progressive tax rate system. Your tax rate, you know, let’s say, from zero to $75,000 may be ten percent or 15 percent, et cetera. But once you get to, like, the tippy tops — on your 10 millionth dollar — sometimes you see tax rates as high as 60 or 70 percent.”
By even the most optimistic estimates, this would bring in only a quarter of the revenues Warren’s plan would generate.
But at a Wednesday forum hosted by Ocasio-Cortez and the Congressional Progressive Caucus, Economic Policy Institute President Thea Lee called hiking marginal rates for top earners the “obvious and optimal starting point.”
Among other political benefits, there’s evidence that higher income tax rates would change the behavioral calculus of owners and CEOs by curbing their bargaining for ever-higher earnings. If the last million dollars someone makes is going to go mostly to taxes anyway, there’s less incentive to fight for it by, for example, keeping employee’s pay stagnant. Along these lines, the Institute for Policy Studies has proposed linking top income tax rates to the minimum wage.
Moreover, while wealth inequality is even greater than income inequality, the latter contributes to the former over time.
The Center for Economic Progress’ Eileen Appelbaum summarized this relationship at Wednesday’s forum. The top earners can’t spend their incomes on themselves, so they use them to buy more assets and continue to get wealthier.
“Unless we do something along the lines of what AOC has suggested, this situation will continue,” said Appelbaum.
Beyond these slightly more technical considerations, AOC’s framing has made the stakes crystal clear: If we want to save the planet, we can’t afford not to tax the rich.
Sanders: Abolish Billionaires
Bernie Sanders’ plan involves restoring top marginal tax rates on inheritances to where they were in the 1970s: 77 percent for estates over $1 billion.
The plan would also decrease the threshold for the inheritance tax from $11.18 million to $3.5 million and impose a 45 percent rate on this lower (but still very rich by any normal standard) tier. Even with this new threshold, just 0.2 percent of Americans would ever pay an estate tax. Thus, in the style of Occupy, the plan is called “For the 99.8 Percent Act.”
Again, Sanders’ plan would probably raise less revenue than Warren’s: About $315 billion over a decade. But by taking aim at the ultra-rich as a class, it also singles out the kind of dynastic wealth that allows a few families to wreak havoc on our political system. Just three families with multi-generational wealth — the Waltons, the Kochs, and the Mars — have a combined fortune of $343 billion, more than 3.5 million times the median wealth of U.S. families. And they use that wealth to fund all manner of right-wing policies.
The Right has steadily chipped away at the effectiveness of our existing estate tax for decades, painting it as a “death tax” on families who just lost loved ones. Admittedly, this plan would require billionaires to die before it raises significant revenue — an estimated $2.2 trillion.
Does that mean it’s vulnerable to the “death tax” rhetoric? Maybe. But in a delightfully petty move, the Sanders plan actually lists out how much money the rest of us would get when specific people like Jeff Bezos, Bill Gates and Warren Buffet depart this Earth — $101 billion, $74 billion and $64 billion, respectively.
Taken alongside Sanders’ broader efforts to target Bezos and the Waltons over worker pay, this plan sends a clear message: Billionaires are bad, and the sooner they and their unearned influence kick the solid-gold bucket, the better for the rest of us. And that message is gaining steam.
To achieve left priorities like a Green New Deal, Medicare for All and universal childcare, we probably need some version of all three of these types of taxes. But it’s important to evaluate not just how much of the price tag new progressive taxes would cover, but how they would transform the balance of power, invigorate our politics and mobilize Americans around achieving bold, transformative policies.