In an American town, a group of people are waiting for a business transaction to begin. They start grumbling about the economy, including their taxes. One person asks an old man if he thinks taxes are too high. He answers that they are indeed high, but there are far greater burdens on them in daily life. Worse than taxes, says the old man, are people’s “idleness,” “pride,” and “folly.”
It would be remarkable for this scene to play out anywhere in America, in any era. The American revulsion at paying taxes is so deep that it is rare to hear anyone tell their fellow Americans — ordinary people, not millionaires — to stop complaining about their taxes. But this scene comes from The Way to Wealth, written by Benjamin Franklin in 1758. His creation, Poor Richard, observes the old man, Father Abraham, quoting Richard’s own proverbs about thrift, saying of various vices, “from these taxes the commissioners cannot ease or deliver us.” Long before he joined a rebellion kicked off by taxes imposed by a distant, unaccountable government, Franklin recognized that taxes could be a relatively minor burden on a free people.
As we approach April 15, and many Americans scramble to file their income tax returns on time, it’s worth bearing this sentiment in mind. It is a rare creature indeed who truly enjoys paying taxes, and it is perfectly natural to want your own taxes to go down, and to vote for candidates who promise to lower them. Nonetheless, we pay taxes to help ensure that our government belongs to us, to ensure that we have a say in how it’s run and what it does. Officially, that say comes from citizenship, but in the realm of hard political power, money matters a lot. Taxes are a small price to pay for accountable, democratic government.
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By all means, we should tax the richest of our fellow citizens more heavily. At a time when the top 1% of Americans hold more wealth than the bottom 90%, it is both fair and lucrative to make them pay more. Just a few of the many ways we could do this:
Raise the top income tax rate: It’s currently 37%. President Biden wants to raise it to 39.6%, where it was during the Clinton-era boom. Why not go even further, and raise it to 50%, where it was for most of the Reagan years?
Raise taxes on long-term capital gains, a form of income that goes far more to the already affluent than to the middle and working classes. Biden has called for this, and rightly so.
Undo all the cuts made to the estate tax since 2001, or else replace it with an inheritance tax, a measure that would raise more revenue while making it less appealing for rich people to leave huge fortunes to their kids.
Put a tax on big banks: President Obama proposed this back in 2010. A 2018 estimate showed a 0.15% tax on banks’ assets over $50 billion would raise more than $10 billion per year. Go higher - way higher - and put a lot more money into public goods that might otherwise go into risky lending.
Increase the 1% stock buyback tax that was created last year. Push corporations to put their money to far more productive uses.
There are more good proposals out there, but this would be an excellent start.
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If, however, we rely too heavily on the rich to fund our government, does that government really belong to us? If we depend on prosperity at the top to pay for public works and social programs that benefit those in the middle and at the bottom, don’t we have less incentive to pay close attention to public policy, to make sure the taxes we do pay are spent wisely? Don’t we become too complacent about wealth accumulating at the top, rather than looking for ways to generate more of it further down? Might we Americans not be more deeply invested in the functioning of our government if we paid for more of it?
There’s also the country’s long-term fiscal health to consider. While Biden’s recently proposed budget would cut the federal deficit by about $3 trillion over ten years, the deficit is currently projected to average $2 trillion per year during that time period. The Federal Reserve has raised interest rates eight times in the last year, and this year the government will have to devote $640 billion to paying interest on the national debt, up from $475 billion last year. The more our government can close the gap between income and outlays, while also putting ample funds into measures with sizeable long-term benefits (cutting child poverty, reducing carbon emissions, investing in medical and scientific research, continuing to arm Ukraine), the better. That means looking beyond the rich when raising revenue.
Let’s start with the upper middle class. During both his campaign and his presidency, Biden has promised not to raise taxes on Americans making less than $400,000. This was always a mistake. The upper middle class (those who make six figures but aren’t quite rich) are doing just fine economically. Certainly they don’t need tax breaks as much as those beneath them on the economic ladder do. But they do get such breaks, and it’s worth taking some of them away:
Eliminate the mortgage deduction. Less than one-tenth of taxpayers (high earners who itemize their taxes) can take advantage of this break. They get to deduct up to $750,000 in interest on their mortgage per year. People who can afford to take out mortgages that big don’t need to have their tax bills reduced.
Eliminate the state and local deduction. This also goes to the upper middle class and the rich. It’s intensely frustrating to see some Democrats call for expanding this deduction, allowing their well-heeled constituents to deduct more than the $10,000 a year from their federal returns they already can. They claim the SALT deduction is a middle class tax break (it isn’t), or if they concede that it goes to the affluent, they say it make it easier for them to pay state and local taxes that fund services for the less well-off. Alternatively, they could tell the financially secure people in their districts to suck it up and pay their fair share, and let the money Washington saves go to helping the less well-off more directly.
Eliminate the cap on the Social Security payroll tax. Right now, the tax that funds the cornerstone of the American social safety net only applies to income under $160,200. While it has always been regressive in this way, linking taxes paid to benefit earned, Social Security is on track to go bust in 12 years. Taxing all wage and salary income - without any corresponding increase in benefits for high-income retirees - would stave off insolvency and give our government time to make it sustainable through other policy changes (if they chose to take advantage of such an opportunity).
As some astute observers have noted in recent years, the very rich are not the only ones who have prospered in an age when the working classes have struggled. The sooner the upper middle class realizes this, and chooses not to resist when Uncle Sam demands more from them, the better off we will all be.
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Now for the rest of us. Given how easily the fruits of national prosperity accumulate at the top in our day and age, it certainly makes sense for the tax code to be progressive overall. But that doesn’t mean other, less progressive taxes are unwarranted.
Michael Lind, one of my favorite political and historical writers (he’s no slouch when it comes to criticizing the unwarranted power of the upper classes) has argued for a value added tax, a levy most developed countries have (including countries with far stronger safety nets than America’s). While this tax is regressive, it is also a cash cow, since it is relatively easy to collect. Moreover, because it is regressive, it means the citizens who benefit from programs funded by such a tax are less dependent on the rich for economic security.
Would Americans be open to a tax increase that helped keep Medicare going? The Hospital Insurance portion (Medicare Part A) is largely funded by a 1.45% payroll tax, but its trust fund is expected to be depleted around 2028. If politicians called for raising this tax so seniors wouldn’t have to worry about their health insurance, would voters support it? Let’s find out.
The federal gasoline tax hasn’t been raised since 1993, and its strength as a revenue-raiser for highways and transit has been eroded by inflation over three decades. There are often calls to raise it, but of course no one wants to endure pain at the pump. Let’s try something else. In 2017, more than $14 trillion in freight was transported in the U.S. - and this was well before COVID led us to do even more of our shopping online. Imagine replacing the gas and other taxes that go into the Highway Trust Fund (around $43 billion a year) with a 1% tax on the value of all that freight. Imagine what our infrastructure could be with that amount of cash pumped into it.
We could push ourselves in the direction of a healthier society by raising the taxes we already have on tobacco, alcohol, guns, and ammunition. We could do the same by taxing sugar, marijuana (it’s not a risk-free drug, but it still makes sense to legalize it), and advertising (if the cost of online ads meant social media would no longer be free, and a lot of us stopped using it, that wouldn’t be a bad thing). We could choose to pony up now for the sake of saving money on our medical bills further down the road.
Yes, woe betide any politician who comes out and says, “everyone’s taxes should go up.” I don’t expect any of them to do that. It would, however, be in the national interest for at least some of our leaders to reach that conclusion, and to slowly push their colleagues and the public at large in the direction of accepting higher taxes while also soaking the rich.
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A lot of political commentators quote Franklin’s response to a citizen in 1787 who asked what the new Constitution had delivered: “A republic, if you can keep it.” If the Philadelphia sage who warned readers not to grumble too much about taxes also wanted Americans to keep their country free and secure, he would likely have advised them not to chafe at paying for the government that protects and serves them. America today is not the league of colonies justifiably angry at a parliament that gave them no votes. For all our flaws, we are an infinitely more democratic country than we were in Franklin’s time. While it is perfectly fair for the rich to bear the brunt of taxation, just being a citizen means it is fair for your government to ask you to contribute more, as well.