Taxing only the super-rich won’t fund America’s future
President Biden has offered to fund his $ 4 trillion U.S. plans for jobs and families by raising taxes exclusively on businesses and households that earn more than $ 400,000 – the top 1.5% of taxpayers. richer. Biden is right that the rich should pay more than they currently do given America’s huge income inequality that has been made worse by the COVID pandemic.
Almost 60% of Americans support financing Biden’s spending plans with his proposed tax hikes – seven times the share that supports their debt financing. But while taxing the rich is smart policy and politics, financing America’s future and realizing Biden’s political vision will also require asking more taxpayers to contribute to the public good.
Even if lawmakers fund Biden’s plans with higher taxes on corporations and the wealthy, they should raise taxes even more to fund the government we already have. Social Security, for example, is only expected to increase 83 cents in tax revenue for every dollar in benefits it pays over the next 25 years. Covering these existing deficits is a tall order: the Congressional Budget Office (CBO) found in September that stabilizing the national debt at 100% of gross domestic product by 2050 – an ambitious goal, but well above the historical average – would require reducing annual deficits. $ 730 billion over current law as of 2025. The richest 1 percent of households are expected to pay at least 70 percent more in total federal taxes to cover that amount, which does not include costs of Biden’s proposals or an additional $ 2.8 trillion COVID aid was then passed by Congress.
Such high tax rates would likely trigger a fierce political backlash, given the daunting challenges Biden’s existing plans already face. Republicans are refusing to consider changes to their 2017 tax bill, and some Democratic senators want lower corporate tax increases than the president.
The Biden administration itself has lowered its proposed overall minimum tax from 21% to 15% to gain international support. And president of the Chamber of Ways and Means Richard nealRichard Edmund NealBiden set to undo Trump’s trade legacy with EU deal Republicans open new line of attack on IRS Biden’s beloved Ireland obstructs deal tax PLUS (D-Mass.) Deferred Biden’s proposed tax on unrealized capital gains on death until the heirs sell their inherited assets, leaving owners much less incentive to sell (and pay the rate Biden’s higher capital gains tax) before their death.
As lawmakers change Biden’s plans, they will unnecessarily limit their ability to raise the revenue needed to fund new public investments if they automatically reject every tax proposal that affects anyone outside of the top 1%.
The easiest option to generate additional income would be to expand the income tax increases and capital gains that Biden has already proposed. Although the president has pledged not to raise taxes on households earning less than $ 400,000, his recent proposals are even more restrictive. Biden would raise capital gains taxes only on households earning more than $ 1 million, and income taxes only on people earning more than $ 523,600 and couples earning more than $ 628,300. Lowering those thresholds to $ 400,000 would generate more income without violating the president’s commitment – and lowering them further could generate even more without raising taxes for low- and middle-income Americans.
Congress could also tax the use of public resources, which would both increase revenues and encourage people to use these shared goods effectively. For example, taxing the vehicle kilometers traveled by each driver could fund road maintenance while avoiding unnecessary wear and tear by encouraging people to drive less. Likewise, taxing carbon emissions could finance environmental investments while providing a clean energy boon. Taxing the super-rich alone would not generate these collateral public benefits.
A bolder alternative would be to adopt a national value added tax (VAT), as all other developed countries have done. VAT is like sales tax but applied at every step of the production process. Because VAT is so broad, a rate as low as 5 percent could increase to as much as $ 3.4 trillion over 10 years when fully implemented. Joe manchinJoe Manchin Rev. Jesse Jackson and William Barber arrested in protest urging Manchin not to obstruct Democrats introduce equal pay legislation for U.S. national team athletes Democrats seek to calm nervous left MORE (DW.Va.) pointed out that this scale would also make VAT a particularly fair way to pay for infrastructure “because there isn’t a person living in America who doesn’t use the infrastructure.” And while a VAT would affect everyone, the rich who consume lavishly would pay the most.
Carbon taxes paid by polluters, mileage taxes paid by utility vehicles, and VAT paid by producers could potentially be in line with Biden’s campaign pledge as they are not paid directly by households earning less than $ 400,000. While some of the costs of those taxes are passed on to those households, so is Biden’s proposed corporate tax hike, which he has deemed in line with his pledge. To offset these costs for low-income people, Congress could reduce regressive payroll taxes and / or expand programs that benefit the poor. For example, PPI proposed pairing broad-based taxes with a new living wage tax credit, which would essentially increase the earned income tax credit in the income scale and allow people without income to ‘benefit from it.
Biden is right: After decades of rising income and wealth disparities, it’s time to increase public investment and ask the wealthy to contribute more to the common good. But all Americans have a stake in “building back better,” and a great national project of this magnitude will only be successful in the long run if all Americans contribute.
Brendan McDermott is a fiscal policy analyst at the Center for Funding America’s Future at the Progressive Policy Institute.