The U.S. had about 720 billionaires at the start of his presidency, President Joe Biden said in his State of the Union speech. “Now we have about 1,000,” he said.

He went on to unveil his administration's proposal to increase taxes on wealthy Americans — to include millionaires and billionaires — to fund other government expenditures.

Tax the rich, unburden the middle class, is Biden’s pitch on his tax increase, which also includes raising corporate taxes.

His administration’s latest proposal seeks to impose a 25% wealth tax on households that earn $100 million or more, hike the Medicare tax rate on individuals earning $400,000 or more, and increase the corporate tax, according to Tax Foundation.

Biden’s proposed tax increase on wealthy Americans and corporations polls well — one Gallup survey found that the majority of Americans are on board with the idea — but policy analysts who spoke to the Deseret News had mixed reviews.

Biden said during his SOTU address that taxing the rich could be the way to save Medicare and Social Security — which he said that “some Republicans” want to do away with, prompting GOP members to scream “liar.” But can he tax the rich enough to fill the gaps in funding for those programs?

How much tax do the rich pay?

Biden’s proposed “billionaire” tax — which also includes millionaires — would be a huge increase from 8.2%, the percentage of federal income tax paid by the wealthy from 2010 to 2018, according to an analysis from the White House’s economists. Meanwhile, a ProPublica report found that the richest Americans paid a tax rate of only 3.4%.

But in an interview with Deseret News, Adam Michel, director of tax policy at the libertarian think tank Cato Institute, said there are flaws in this narrative.

The bottom 20% of income earners pay a zero income tax rate because they are beneficiaries of various policies like the refundable tax credit and the child tax credit, while the top 10% of income earners pay an average tax rate of 27%, and, the top 0.1% of earners pay an average rate of 32.4%, he said.

So, where does the 8.2% tax rate, as quoted by the White House, come from? Michel explained that in most cases, income means payments incurred from wages as well as realized investment income from selling a stock or bond.

But the White House is proposing a higher income tax and a wealth tax because they want to tax “appreciated assets,” or things people own, like stocks or physical property, the value of which may fluctuate with the market. Right now assets are taxed when they’re sold, but under Biden’s proposal they would be taxed differently.

Federal policy analyst Joe Hughes, at the Institute on Taxation and Economic Policy, said in an interview that, overall, the tax codes are more favorable for those who acquire their income from wealth than from work.

Millionaires and billionaires “have armies of accountants and lawyers to hide their income through trusts, retirement accounts, (and) shell companies,” he said.

While an ordinary American pays taxes on every paycheck, a billionaire gets to choose when to pay taxes since most of their income comes through investments, he said.

“If they take loans against their investments to buy things like yachts or social media companies, then the tax code says they’ve never really ‘earned’ that money so they don’t have to pay taxes on it,” he said.

While Hughes said taxing billionaires is a “no-brainer,” other analysts warn a wealth tax could lead the rich to move away from the U.S. And the Tax Foundation’s senior policy analyst Garrett Watson noted another possible fallout, where wealthy Americans are encouraged to increase spending “at the expense of productive investment.”

This Washington-based think tank has suggested taxing the consumption of higher earners progressively instead of a wealth tax, because it’s simpler and more stable.

Is excessive government spending a problem?

Where Hughes considers Biden’s minimum tax on the ultra-wealthy a way to “contribute back to the country that made them enormously successful,” Michel from Cato said that Biden’s proposal has “fundamental problems.”

“No other country around the world funds the size and scope of government that we’re headed towards — and that Biden is proposing — with only high taxes on the rich,” he said. “The budget sort of perpetuates this myth that we can have big government and only charge a small segment of the population for these larger, more generous benefits that are available to everyone.”

He argued that even though a Congressional Budget Office report projected that federal tax revenue is at a two-decade high, and is projected to stay above the historical average, the budget spending is expected to continue growing — “And that’s not even factoring in the likely scenario in which there is a recession or a war, right, or some other unforeseen crisis,” he said, adding, “we spend way too much.”

Watson, from the Tax Foundation, pointed out in an email that the “combined value of billionaire wealth in late 2022 was about $4.5 trillion, compared to total debt of about $25.7 trillion held by the public expected for 2023, and a deficit of about $1.4 trillion.”

The nation’s debt is set to cross the $46 trillion threshold by the end of this decade, and taxing billionaires falls short of addressing that problem, he added, saying policymakers will need to find a way to address government spending.

Hughes doesn’t entirely agree and said that increasing taxes on billionaires isn’t “just feasible, it’s necessary in any serious discussion about reducing debt.”

“Debts and deficits can’t be blamed on government spending alone when Presidents and lawmakers from both parties have continually slashed taxes for the wealthy and cut the revenues necessary to pay for the essential functions of government,” he said.

Consider former President Donald Trump’s tax cuts, when about three-quarters of the savings under the 2017 Trump tax law went to the top 20% of income earners and foreign investors, which Hughes called “an egregious use of federal resources” that had “minimal or no impact on investment or job growth.”

“In fact, the biggest corporations collectively spent more enriching their own shareholders through stock buybacks than investing in new factories or equipment after 2017,” he said.

Could the corporate tax make America less competitive?

Michel raised another point of contention: Biden’s proposed tax increase on businesses, which he would raise from 21% to 28%. This would restore the U.S.’s title for having the highest corporate tax rate in the developed world, making American businesses “less competitive than our major trading partners in the OECD (Organisation for Economic Co-operation and Development),” he said.

“What economists understand is that businesses don’t pay those taxes, those taxes get passed on to one of three types of people — the workers who work for the business, the consumers who buy the things the business produces, or the investors who invest in the business,” he said.

A paper by Li Liu and Rosanne Altshuler, published by the University of Chicago Press, concurs with Michel’s analysis. They found a $1 increase in corporate tax revenue reduces wages by around $0.6.

Under the Trump administration, the corporate tax rate was changed from a tiered tax rate ranging from 15% to as high as 39%, depending on taxable income, to a flat 21%, according to the Center of American Progress.

Hughes said that corporations deploy many tactics to avoid paying the 21% tax rate, and Biden’s budget would close loopholes through an international corporate minimum tax. One of the tactics corporations use to pay lower taxes is to receive credits for research or expense certain investments, he said.

“While Congress may want to subsidize private research, we should certainly ask what is the socially valuable research that a company like Netflix is doing?” Hughes added.

The streaming service reported $2.7 billion in profit on a $5.3 billion income in 2021. Netflix paid $58 million in taxes that year, and a research and development credit was one of the write-offs.

Another way corporations avoid paying taxes is by disguising the profits as income earned in tax havens overseas, where corporate taxes are much lower, he said.

Biden’s budget proposal is unlikely to get much of a hearing in a divided Congress, but it does set the stage for his 2024 presidential run, as Watson, the senior policy analyst, said. So, whether or not taxing America’s millionaires and billionaires makes sense, it will likely remain part of Biden’s pitch for another term in office.