Tax the Rich. One might immediately associate this phrase with ideas to raise income taxes, close loopholes, and raise corporation taxes. While certainly these might be effective to an extent, the truth is what we tax matters just as much as how much we tax. While simple personal income taxes are often cited as a means of mass disparity in the wealth gap, the truth is raising the plain old income tax would have little to no effect. Jeff Bezos, for instance, has grossed a net worth over $100 billion (Bloomberg Billionaire Index). With such a fortune, one would assume his income to be quite the large tax base. However, his taxable income is just below $2 million. The tax plans of politicians like Bernie Sanders would mainly raise the income taxes on those making OVER $2 million. The Jeff Bezoses of the world would still fly under this raised amount for the most part. There must be another way, the rest of the world gives us insight. Alternative methods of taxation are preferable to focusing on the income tax because they will be better at extracting wealth and have other positive externalities. We need to be better at extracting wealth so that we can pay for a stronger social safety net and help people in poverty have basic needs met and reduce the wealth gap. Our tax system has been built to a position where it has become fundamentally impossible to truly access the wealth of our many millionaires and billionaires. To truly combat this, we must look elsewhere to other methods of taxation.
Current federal funding is made up in large part by the federal income tax which accounts for nearly half of all revenue. While many people possess the notion that other developed countries are able to afford their advanced social safety nets through high income taxes, this is not necessarily the case. To compare, the average top marginal tax rate for the Organization for Economic Cooperation and Development (OECD), a group of wealthy developed nations including the U.S, Canada, the E.U and Japan fell at 42.5%. In the United States, the top marginal tax rate is 37%. Just a few years ago under President Obama, the top marginal tax rate was 39.6%. Over the past decade, the difference between U.S. top tax rates and OECD average top tax rates has never exceeded 5.5%. While that 5% could certainly account for billions in revenue, it is not the difference needed to ensure, say, universal healthcare, affordable education, and a strong welfare state. In regards to capital gains (the tax on stocks and dividends), the closeness is even more striking. The average top capital gains rates on selling of shares for the OECD in 2022 was 19.1%. In the U.S, the top capital gains rate in 2022 was 20%. For dividends, the OECD average rate is 24.4%. That's an average capital gains difference of 2.65 percentage points. United States income is barely being taxed differently from a percentages standpoint, and yet America finds itself time and time again, short of change. One could also analyze the average tax burden experienced by citizens of the OECD and the U.S. Even then, the gap in average tax burden is only 10%. Sure, 10% may be worth billions in revenue, but that’s still rather insignificant for a country that faces trillions in expenditures annually.
Despite this small gap, the nations of the OECD are, for the most part, able to maintain strong social safety nets and affordable health care. Despite American politicians' hyper -fixation on the income tax, it remains ineffective in solving our wealth inequality. If you are to look up a politician's tax plan, it’s all about what they will lower or raise the income tax to, or what they will raise or lower the capital gains rates to. The truth is it doesn't matter. Hillary Clinton's tax plan for instance would have raised the top marginal tax rate to 42% on income over $20 million. However, one of the world's wealthiest men, the aforementioned Jeff Bezos, makes under $2 million a year. Our tax plans aren’t taxing the rich. They just aren't. If we want the revenue we need, we must look to sources other than the income tax.
There are several types of taxes present in other countries that would do a better job at accessing wealth. According to the Tax Foundation, 170 countries worldwide employ a value added tax scheme, effectively a consumption tax on corporations. More specifically, the value added by a corporation in all stages of production. If a company adds $3 to the cost of a loaf of bread, and the tax is say 20%, the company owes 20% of that $3 markup. Like a sales tax, this amount is paid by the consumer at purchase and is somewhat regressive. That disadvantage can be countered by setting price thresholds for when the tax is implemented. It also functions as a tax on companies inflating costs. If companies over inflate their product, they pay for it, literally. An analysis by William Gale of The Brookings Institute in 2020 found that the tax of only 10% could raise $2.9 trillion over the next 10 years. While this tax received lip service from failed presidential candidate Andrew Yang, the policy gained little to any traction in the United States.
Similarly, carbon taxes have been employed by 45 countries world wide. In essence, for every ton of carbon a company produces, they pay a set amount. The tax effectively curbs both carbon production and provides billions in funding from polluting corporations. Whereas a simple ban on carbon emissions may harshly affect the economy, the carbon tax allows for an easing period so the economy is kept healthy while green options are developed but still foots corporations for the bill. In regards to revenue benefits, a 2022 study by The Committee for a Responsible Federal Budget, found a carbon tax of only $20 per ton would raise $650 billion through 2031. This is just one example of how taxes may be used as a revenue source as well as an incentive for more desirable action. Still, the tax has only received mere nods and gestures from the occasional Democrat, going unimplemented.
These types of taxes, known as Pigouvian taxes, provide economic revenue as well as curb negative market externalities. Another example of these are taxes on the value of land. These taxes were discussed by American Founding Fathers Alexander Hamilton and Thomas Jefferson and were heavily promoted by economist Henry George and his followers in the late 1800s. Unfortunately, these tax-options are largely unheard of in the United States today, despite consensus from economics figures like free marketer Milton Friedman and progressive economists such as Paul Krugman. However these taxes have been widely used in the strong economies of both Singapore and Hong Kong, as well as in social democracies like Denmark and Estonia. The land value tax effectively works similarly to a property tax. However, the tax differs in that it only takes into account the raw value of the land rather than its structures or improvements. A plot of land that remains vacant or scarcely developed in the center of a city would be subject to great taxation as it possesses great value for potential developers. To ensure this tax is not overbearing, development will ensue. Where a property tax punishes the property owner for potential market changes or home improvements, which disincentivizes the property owner's interaction with the economy, the land tax encourages development while discouraging lazy profits. Landlords often pass property tax increases onto renters, making housing even less affordable. Unlike property taxes, land taxes don’t get passed on to renters because the development of the property does not increase the tax burden. This solves a major unintended consequence of America's reliance on the property tax. If the proprietor of a plot of land cannot afford the tax burden, they may sell the land, further spurring development. All in all an effective method of raising revenue, and a potential counter to the practice of property owners sitting on lots of vacant land in America's big cities. The land tax also could raise significant funds for government programs. A 2009 study from the United States Bureau of Economics found that a land value tax (as mentioned above) would generate nearly $1.15 trillion in total revenue, adjusted for inflation this figure begins to approach $2 trillion. A similar report from the Wall Street Journal in 2023 concluded further results into the taxes impact on cities. The report also showed similar revenue advantages.
To better examine the effectiveness of these potential tax alternatives, we must examine the revenue sources we currently have. According to the U.S Treasuries Data Lab, the nation's income tax revenues totaled $2.63 trillion. The country's second largest source of income, Social Security Tax, totaled $1.48 trillion. The land value tax totals adjusted for inflation in the aforementioned report from the Atlantic would likely total over $2 trillion. That’s more than Social Security and more than all other federal revenue sources combined including corporate income tax, excise taxes, and customs duties. This shows the potential of the land value tax to be a potent alternative revenue source.
What would be this additional revenue fund? Well, as mentioned, America's social services are falling behind the rest of the world, increasing our wealth gap. America is the only developed nation on earth without affordable healthcare and our social safety net once high and mighty is slipping behind the rest of the world. Our failing social services are growing America's wealth gap, the poor in this country are being dug into a hole from which they are not being supported in getting out of. Emblematic of this wealth divide is the fact that American life expectancy is nearly 6 years behind the EU. Despite the EU being our economic inferior, (By GDP and GDP per capita) our people are dying faster. And yet our rich live longer lives. America's divide in income makes our poor poorer and likely to die while our rich are permitted to live in a first class system. Americans are literally dying because the government doesn't have enough money. Some will attribute the disparity to America's vast military budget, however, the nation's expenditures never exceed 4% of GDP, that’s less than Greece spends on their defense. So why aren't we entitled to the same services? If we were to cut our most recent defense budget of $845 billion in half, we would hardly be any closer to the universal healthcare cost of $3.7 trillion (as projected by Public Citizens), or do anything to fix decades old cuts to social security. More funding is required, these new tax policies can get us there.
The opposing viewpoint is that we need less taxation overall, not different ways of taxing people. This viewpoint doesn't see lack of funding as the issue at all. As elaborated by numerous Republican politicians over the past few decades, many believe that America's tax burden is holding back economic growth. In this viewpoint, lower taxes would encourage spending by the American economy. The wealth generated from this growth would eventually seep down to the lower classes, curbing wealth inequality. They believe, to curb the perceived issues of over-taxation, many insist America needs to cut services, and cut taxes rather than spiraling into further debt. In a 2012 report from the senate budget committee, Republican Senator Jeff Sessions alleged, American welfare policy, deemed by Sessions to be “entitlement” cost the U.S. government $1.3 trillion. Today, that number is significantly higher. However, eliminating these services sets America even further behind the rest of the world. The nation already ranks among the most unequal countries on earth by GINI (a number resting to wealth inequality) contending with third world nations like Peru and Ivory Coast. To cut off America's poor from lively resources only exacerbates that matter. Furthermore, this view of taxation and government remains deeply unpopular with the American public. A 2022 Fox News survey reported by Victoria Balara found 80% of Americans opposed social security cuts such as those mentioned above. The American public are simply against this inequitable view point.
While many politicians focus on income taxes as the great solution to our growing wealth divide, the truth is the issues of efficiency, tax bases, and practicality suggest far more numerous forms of taxation to combat the safety net issues our nation faces. Our tax system has been built to a position where it has become fundamentally impossible to truly access the wealth of our many millionaires and billionaires. To truly combat this, we must look elsewhere to other methods of taxation. The world leaves us plenty of examples. Despite this wide variation in taxation approaches across the globe America's 30 year tax system remains monotonous and ineffective. If the nation wishes to change its growing wealth divide and our falling government services, and provide an increased social safety net, the way we tax and what we tax needs to change. As the esteemed American Jurist Oliver Wendell Holmes Jr. once said, “I like to pay taxes. With them, I buy civilization.” With our limited tax base, our civilization is eroding. Our services are falling behind, and so are our people. Alternative methods are demanded. From value added to products by corporations, to our carbon emissions from corporations, to the skyrocketing value of land, there exist other options. However, only if we demand action and begin to change.
Works Cited and Consulted:
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