Liberals need a wealth tax because income isn’t enough
Liberals need a wealth tax because income tax revenues cannot fund their spending. Despite the left’s assertions, “the rich” do not earn enough — even if they pay significantly higher tax rates than less-well-off Americans. Therefore, the left must increasingly call for a revolutionary wealth tax to escape their revenue reality.
Everything about Democrats’ pursuit of their party’s 2020 presidential nomination is big. First, they have big plans. Collectively, they have called for “Medicare for All,” a Green New Deal, free college tuition, college loan debt forgiveness and massive new infrastructure spending.
Second, they already face a big federal deficit. According to the Congressional Budget Office, the 2019 fiscal year deficit totaled just under $1 trillion and 4.6 percent of GDP. Third, as a result, Democrats will need big revenues to pay for their big plans.
Fourth, they have made a big promise: Only “the rich” will pay their needed big revenues. Yet, Democrats still have a problem — an even bigger one: The “rich” do not earn enough to foot Democrats’ big bill.
According to Congress’ official revenue estimator, the Joint Committee on Taxation, the highest income earners shoulder by far the largest share of today’s income tax burden. In 2018, those making over $1 million annually amounted to 689,000 returns (0.4 percent of total returns) and paid $583 billion in income taxes (39 percent of total income taxes paid) at an average rate of 25.4 percent.
But these revenues are built into current estimates and do nothing to offset Democratic candidates’ future spending plans. So, more revenue is needed. And if you are going to tax only the truly “rich,” it must come from here.
Even doubling this group’s income tax burden hardly dints Democrats’ spending bill, though. It would raise an additional $583 billion in new annual revenue and take their average tax rate to 50.4 percent. Yet over 10 years, that would raise less than $6 trillion in new revenue.
Of course, such drastically higher tax rates would undoubtedly lead to behavioral changes. The Laffer Curve is real, and increasing tax rates would induce decreased levels of the taxed activity. How long people would continue to work, while taking home less than half their earnings, is debatable. But it is certainly likely that they would work less, preferring instead to take more of their return in untaxed form — such as greater leisure time.
The upshot is that while such dramatically higher tax rates may arithmetically promise dramatically higher – though still insufficient – new revenues, they cannot be expected to fully deliver them. So, the Democrats will need to find more “rich.”
Even going down to the next earning group, those making $500,000 to $1 million annually, does not help much. In 2018, this group paid $187 billion (12.5 percent of total income taxes) at an average 20.7 percent rate. Doubling that only raises, on paper, another $1.87 trillion over ten years, while taking this group’s average tax rate to 41.4 percent. Still more “rich” are needed.
Going to the next earning level, those making $200,000 to $500,000, offers considerably larger taxing opportunity. Laying aside whether these people are in fact rich, in 2018, they paid $381.7 billion in income taxes (25 .5 percent of total income taxes paid) at an average 13.3 percent rate. Doubling here would theoretically raise almost another $4 trillion over ten years. Of course, doing so would raise this group’s average tax rate above today’s top average tax rate.
All these “doublings” on paper still would raise only $1.152 trillion in new income tax revenue annually and just under $12 trillion over ten years. Yet, just Medicare for All, according to the Urban Institute’s estimate, would cost an additional $32 trillion over a decade.
To make matters worse, this is only the revenue side of Democrats’ problematic equation. As already discussed, as rates rise, revenues assuredly will fall short of estimates. Simultaneously, spending will rise above estimates, as its subsidization increases demand. In practice, the fiscal shortfall will widen further beyond projections.
Of course, increased spending has never been the left’s concern, but a shortfall of revenue from “the rich” is. Unable to produce more “rich,” or plausibly redefine them from the middle class, liberals are forced to look beyond conventional sources to attain revenue. This has led to their unprecedented move to target wealth – not just the wealthy – instead.
The reality is that there is not enough income in America – from the “rich” or otherwise – to pay for the left’s spending plans. Only a wealth tax can sustain the illusion that the “rich” alone will pay — despite the certainty that the burden will spread well beyond them. As income tax revenues prove: Pie-in-the-sky spending inevitably means taxes for the masses.
J.T. Young served under President George W. Bush as the director of communications in the Office of Management and Budget and as deputy assistant secretary in legislative affairs for tax and budget at the Treasury Department. He served as a congressional staffer from 1987-2000.
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