Opinion: Soaking the rich won’t solve Washington’s fiscal woes
The wealthiest Americans would have to be taxed at 102% to balance the budget in 10 years. Clearly, the nation has a spending problem
The art of taxation, according to the 18th century French economist and statesman Anne Robert Jacques Turgot, is to pluck the hen without making it cry out.
But when the hen is the wealthiest of all hens, no one seems to care. In fact, deliberately making her cry is a catchy political slogan.
Which brings me to Rep. Alexandria Ocasio-Cortez, D-N.Y. She was spotted at the Met Gala, an event for the wealthiest of the wealthy, wearing a white dress emblazoned with the message, “Tax the Rich” in bright red.
Catchy phrase. It’s been used many times in history, dating at least to Franklin Roosevelt’s Revenue Act of 1935, which taxed the wealthiest Americans up to 75%. But it’s meaningless when it comes to solving today’s enormous federal budget problems.
You want to balance the budget by taxing the rich?
The Committee for a Responsible Federal Budget did the math back in 2015. Getting the budget to balance on the backs of the rich within 10 years would require raising the top individual tax rate from today’s 37% to 102%. I’m guessing that final 2% would be the hardest to collect.
So maybe the goal ought to be more modest — say, reducing the deficit to about 2.2% of Gross Domestic Product, which was the historical average before the great recession. The committee figured that would take a top tax rate of 65%, but it added this qualifier, “In reality, that would likely also be impossible as rates at that level would lead to significant (legal and illegal) tax avoidance strategies and lower work effort and labor force participation.”
Human nature, you know.
You could come up with different ways to define wealth, making more people subject to the top tier of taxes, or to do away with many loopholes and deductions. You would still have to spread tax increases around to all Americans to make the books balance. Plus, you would have to raise corporate income taxes, the payroll taxes used primarily for Social Security and Medicare and a host of other things (taxes on cigarettes, gasoline, estates, etc.) to make it work.
You could tax net worth over a certain amount, getting at the rich from a different angle. Treasury Secretary Janet Yellen has talked about taxing assets over $50 million.
You wouldn’t have to keep plucking the screaming hen too long to realize the nation has a spending problem, and not so much a tax problem.
Social Security trust fund administrators recently said the fund will run dry in 2033, a year earlier than they predicted a year ago. Medicare Part A, which covers hospital care for the elderly, will spend its reserves by 2026. Experts have urged reforms to these programs for years. Some of these could even be described as hurting the rich, such as making Social Security benefits diminish for people over a certain income level.
Yet nothing gets done.
Add to this the nation’s (and the world’s) dwindling birth rate. Future generations of workers won’t be large enough to pay for the benefits of retirees, let alone to confront a national debt that, as I write, is approaching $28.8 trillion. Unless, that is, we allow many more immigrants per year than currently.
Under the current tax system, the top 1% of the wealthiest Americans earn 18.3% of the nation’s income and pay 25.9% of all federal taxes, according to the Tax Foundation. The top 20% earn 59.1% of the money and pay 68.9% of the taxes.
The bottom 40% pay, on average, nothing. Because of the federal response to COVID-19, 60.6% of American households paid nothing in 2020, The Tax Policy Center said. That is expected to be a temporary situation for most.
Fairness is a relative term. Maybe the wealthiest Americans should pay more to contribute a fair share, as President Joe Biden and others have said. After all, when the income tax was begun in 1913, it was intended to be paid by the rich only.
Maybe corporations should pay more. Back in the 1950s, they generated up to one-third of all federal revenues, whereas today it’s 3.9%, according to the Tax Foundation. But, of course, there are unintended consequences to every decision.
To some on the left who believe deficits don’t really matter any more, this is a curious discussion. Given that position, tax rates shouldn’t matter so much.
But one thing is certain. To truly confront the nation’s fiscal imbalance, including its current year-to-date $3.1 trillion deficit, will take much more than delicately plucking feathers or wearing a dress with a catchy slogan.
Jay Evensen is the Deseret News’ senior editorial columnist.