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As Democrats and Republicans jostle over the particulars of a new economic stimulus package to address the devastation of the coronavirus pandemic, it is not too early in President Joe Biden’s tenure to ask, “when will we start taxing the rich?” Upon joining the Senate Finance Committee, Senator Elizabeth Warren (D-MA) promptly announced she would introduce a 2 percent wealth tax on estates of more than $50 million so that the fabulously wealthy would “finally pay their fair share in taxes.” Warren’s idea is one step in the right direction.
The “Tax Cuts and Jobs Act” of 2017—the signature legislation of the Trump administration and Republican-dominated Senate—disproportionately hurt poor and working-class Americans and lined the pockets of the ultra-wealthy. It depleted the Treasury, laying the groundwork to justify cutting Social Security and Medicare benefits. According to the Congressional Budget Office, the law is projected to fuel a $1.9 trillion hole in the Treasury over 10 years. The law was also written to include numerous “Easter eggs” containing newer tax breaks on the wealthy, scheduled to hatch years after it was enacted. Now, as one of those buried tax breaks that will benefit millionaires is set to take effect, more than 100 Democrats signed on to a letter demanding it be repealed. That too is a step in the right direction.
But much, much more is needed.
As the United States remains paralyzed by a pandemic, Congress faces persistently high unemployment rates, widespread hunger, and falling state and local revenues. Money is being sucked out of the bottom rungs of American society, flowing ever upward into the hands of a few wealthy elites. According to a January analysis by Inequality.org, 660 U.S. billionaires have seen their collective wealth increase by more than $1.1 trillion over the first 10 months of the pandemic. That’s a nearly 40 percent increase in the wealth of the wealthiest among us.
To summarize, conservative lawmakers gave wealthy Americans a massive gift in 2017 at the expense of the U.S. Treasury. And on top of that, the ultrarich became shockingly richer within one year of a devastating global pandemic. There is a direct line between the mind-blowing largesse that elites enjoy and the dystopian economic wreckage that the rest of us find ourselves in. Put bluntly, there is money in this country—lots and lots of it—and it is in the hands of a few. We have to simply wrench it away from them by force. One easy and nonviolent way to do this is to impose hefty taxes on them.
For years, politicians have managed to claim, contrary to evidence, that throwing money at the rich was the path to prosperity for all. To prop up this unrealistic fantasy, wealthy elites have been labeled “job creators,” and working-class Americans have routinely been misled into believing that tax cuts for the rich are important because in some faraway future they could one day be just as rich and therefore benefit from said tax cuts. Fifty years of pursuing so-called “trickle-down” economic policies have not worked, either in the United States, or in other countries, as per a global analysis by the London School of Economics. Or, one could say they have worked as intended—by directly benefitting those who are already rich.
Even before the pandemic, a whopping majority of Americans supported increasing taxes on the wealthiest Americans to 70 percent, which is still less than the 90 percent tax rate that the nation once imposed on its richest citizens. Some wealthy Americans, embarrassed by how much their wealth has fueled inequality, are asking to be taxed at a higher rate. The recent controversy over Reddit users gleefully squeezing some hedge fund managers on Wall Street through their collective small-scale investments in GameStop has revealed a well of public anger at a moneyed class that routinely mints money with ease. Taxing the rich is uncontroversial—except in the halls of Congress, where the rules of the economy are carefully rigged to ensure financial stratification.
Like many of his Democratic colleagues, President Joe Biden has expressed a desire to level the playing field and has proposed a tax plan that moves in the right direction, raising taxes on those making more than $400,000 a year and repealing the tax cuts that the wealthiest now enjoy. Because tax-related legislation need only pass with a simple majority through the U.S. Senate, Biden does not need Republican support to change tax laws—just as Republicans did not need Democrats in 2017 to sign on to their tax giveaway to the rich.
Biden ought to consider adding a financial transaction tax on short-selling to his proposal—an idea that has been revived by the recent GameStop controversy. A small tax on every financial transaction would not only reduce the volatility of the stock market, but also help redistribute wealth and generate hundreds of billions of tax revenue dollars, as per the Economic Policy Institute.
Some have suggested that the mere action of increased funding for the Internal Revenue Service would enable the federal government to enforce tax laws already on the books and generate serious revenues. Lawrence Summers, President Barack Obama’s former Treasury secretary reviled by progressives as a “plutocrat-loving economist,” wrote a paper concluding that “investing less than $100 billion in the IRS over a decade will generate $1.2 trillion to $1.4 trillion in additional tax revenue, primarily from high-income individuals, who are disproportionately responsible for underpayment of owed tax liabilities.”
Now some states are eyeing the piles of money that their richest residents sit on. The state of Washington is considering an extremely modest wealth tax that would levy a mere 1 percent tax on the financial assets, and not the income, of its richest residents. It would even exempt the first $1 billion in taxable value. Only about 100 people in the entire state would be impacted and by so little that they would hardly notice it. Although the bill is so modest, there is so much wealth being hoarded by a few that it would generate $2.5 billion per year in state taxes. Yet, Republicans shamelessly attacked the idea, with state Representative Drew Stokesbary characterizing the bill as “7 million Washingtonians gang[ing] up on the nine richest.” He worried that the rich would simply leave the state.
Momentum is also building in the state of New York to tax the incomes of its richest residents. A group called Alliance for Quality Education is pushing Governor Andrew Cuomo to back a tax measure that would raise $50 billion in revenue. As in the case of Washington, Cuomo worries that raising taxes on the rich would force them to move out of the state. The state of Massachusetts has apparently been losing some of its billionaires to low-tax states like Florida. But there is an easy solution to the flight of elites: if the Biden administration were to raise federal taxes on the wealth and income of the richest in order to distribute it to states, they would have no place to hide.
Sure, the rich could move their money offshore, as many routinely do. But closing tax loopholes preventing such practices is also straightforward. Nearly a decade ago, Senator Bernie Sanders (I-VT) and Representative Jan Schakowsky (D-IL) introduced bills in the Senate and House to close such loopholes. For every move that wealthy elites have to hoard money, there is a simple countermove that lawmakers could take to wrest it away from them.