No super-wealthy individual or household is going to pay billions in additional taxes when $10 to $20 million will purchase political adjustments.
The 2020 election cycle has begun, and a popular campaign promise is “
Proposals to “Tax the rich” feed off the growing awareness that the financial wealth created since 2000 has largely flowed to the very top of the wealth-power pyramid, and so it’s payback time: tax those who have pocketed the lion’s share of income and wealth gains. Fair enough, right? Even the super-rich publicly affirm that the super-wealthy should pay at least the same percentage of federal tax as their employees.
Public pronouncements are of course good PR, but the real issue is what will the super-wealthy do behind closed doors to protect their wealth from additional taxation. There are two issues here: one is that the wealthy already pay most of the federal income taxes, and the second is the compelling cost-benefit of funding political adjustments to the new taxes.
If one has a taste for facts, it turns out the U.S. federal tax system is highly progressive: the top 1% pay the highest tax rates (see CBO chart below) and about 37% of all federal income tax.
The top 5% pay almost 60% of all federal income taxes. (Note Social Security payroll taxes are not income taxes; most wage earners pay more payroll taxes than they do income taxes.) A good source for this sort of data is the Congressional Budget Office reports (scroll down to Distribution of Household Income and Federal Taxes). The CBO data is noteworthy for including all income, not just wages: capital gains, business income and government transfers (Social Security, social welfare programs, etc.)
The new idea in current “tax the rich” proposals is to increase taxes on the super-wealthy: mega-millionaires and billionaires. Given the outsized gains secured by these mega-wealthy folks, it makes sense to nail them for the tax revenues needed to pay for more free stuff.
At this point let’s reacquaint ourselves with the enormous size of federal expenditures: roughly $4.75 trillion annually
Out of this, they pay $538 billion in federal income tax. (Source: Summary of the Latest Federal Income Tax Data, 2018 Update) According to this excellent overview of the top 1%, Never mind the 1 percent: Let’s talk about the 0.01 percent, the super-wealthy (top .01%) earn about 5% of all income, or about $500 billion. So say some new tax law was actually able to capture 50% (half) of
Since this income is already being taxed at a 34% rate according to
It’s a drop in the bucket, Baby. Jacking the top tax rate to 70% on the super-wealthy would only raise a total of $180 billion, a nice boost but hardly enough to fund
This brings us to the second reality: it’s much cheaper to buy political adjustments to the new taxes via lobbying and campaign contributions than paying the extra $180 billion. A mere $10 million will buy
The list of special dispensations and obscure tax code loopholes is endless: the wealth can be protected in a
No super-wealthy individual or household is going to pay billions in additional taxes when a fraction of that will purchase political adjustments.
Here are the two little problems with “taxing the rich” to pay for trillions of dollars in new freebies: 1. Taxing the super-rich won’t really move the needle much when the federal government spends $4.7 trillion annually. 2. Trying to double the taxes they pay from 35% to 70% will only push them to increase
Federal Expenditures (current fiscal year):
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