Americans don’t seem to agree about much today. But one thing they do agree on is that the American tax code is unfair. A 2017 Pew Research poll found that 56% of Americans, including majorities of both Democrats and Republicans, viewed the tax system as unfair. Political scientist Vanessa Williamson’s research shows that Americans actually see tax paying as an important civic duty. But they’re angry about what they view as unfairness in the system.
We shouldn’t be terribly surprised by this, given that 55 of the nation’s largest corporations paid no taxes in 2020, despite making billions of dollars in profit. Twenty-six of those companies, including FedEx, Nike, and the Dish Network avoided paying any federal income tax over a three-year period.
While the COVID-19 pandemic has brought grief, economic instability, and massive hardship to millions of Americans, it has been a boon to the nation’s billionaires. There are 740 billionaires in the U.S., and their wealth grew by $2 trillion since the pandemic began. And many of these billionaires end up paying little or no taxes. Over a nine-year period, the nation’s 400 richest billionaires paid a tax rate of only 8.2%. My wife and I paid more than double that tax rate last year, and I can guarantee that we didn’t come anywhere close to making a billion dollars.
One of the main issues with America’s tax system is that it is primarily aimed at income — money one earns on a regular basis, like wages — rather than wealth, which includes assets like real estate, fine art collections, and investments (minus debts). Today, the top 0.1% hold nearly as much wealth as the bottom 90 percent.
This means that because billionaire Jeff Bezos’s base salary at Amazon is only about $80,000 per year, he would pay the same federal income tax as a public school teacher earning the same amount (although it should be noted that the average salary for teachers is only $62,000). But Bezos actually makes well over $80,000 per year, because as Amazon’s stock increases, so does Bezos’s wealth. In fact, one report showed that Bezos makes nearly $4,000 every second — nearly four times the median full-time weekly wage for most Americans. But because our tax system prioritizes labor income over wealth, Bezos can keep reaping in profits without having to pay taxes on his massive wealth accumulation.
But President Biden’s recent budget proposal puts forward a plan to address this disparity. The “Billionaire Minimum Income Tax” would “mandate billionaires to pay a tax rate of at least 20% on their full income, or the combination of traditional forms of wage income and whatever they may have made in unrealized gains, such as higher stock prices.” The administration estimates that the tax would raise roughly $360 billion in new revenue over the next ten years.
A system that taxed wealth in addition to income would help to reduce the concentration of wealth among the very rich and make our economy fairer and more just. Too many policymakers have sadly internalized the belief that all citizens are vehemently opposed to any form of taxation. But public opinion data and citizen referenda show that Americans have grown much more positive about increasing taxes over the past decade, so long as those increases are distributed fairly. In the last decade, “voters approved half of the 62 tax-increasing measures that have appeared on state ballots.” Rather than constantly fret about anti-tax sentiment among their constituents, policymakers should instead champion renowned economist Adam Smith’s statement that “Every tax is to the person who pays it a badge, not of slavery, but of liberty.”
Paying taxes is an important part of our collective civic responsibility. We all benefit from the public goods and services that our taxes pay for. But unfortunately, the tax burden ends up falling primarily on those on the lowest rungs of the economic ladder. A more equitable tax system would ensure that all Americans, including the wealthiest among us, pay their fair share.
Ryan LaRochelle is a lecturer at the Cohen Institute for Leadership and Public Service at the University of Maine. He is a member of the Maine chapter of the national Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear here monthly. This column reflects his views and experience and does not speak on behalf of the university.
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