Buzz
Many Democratic presidential contenders are pushing for higher taxes on the rich to finance their policy agendas. But what does that really mean in practice?
There are two main choices: Tax their income or tax their accumulated wealth. Let’s examine these options to understand how they might affect our lives.
How Democratic candidates propose to tax the wealthy
To summarize, here’s what the top three candidates have proposed to boost revenue for their initiatives—ultimately aiming to make higher education and healthcare more affordable.
Former Vice President Joe Biden: Proposes increasing income taxes for those in the highest tax bracket and imposing taxes on capital gains for the wealthiest 1%.
Senator Elizabeth Warren: Proposes a 2% annual tax on families with wealth exceeding $50 million.
Senator Bernie Sanders: Potential approaches include raising the marginal tax rate on incomes over $250,000. The wealthiest 0.1% would pay a 50% tax on income above $2 million, for example. Sanders may also tax capital gains and dividends like regular income and/or impose a wealth tax on the top 0.1%. He’s outlined multiple possibilities but has not yet settled on a specific one.
The potential impact of raising the marginal income tax rate
You might be thinking, “There’s no way this will work. I’m going to end up paying more.”
However, some experts argue that it’s not unrealistic to generate trillions by taxing only the wealthiest Americans through a progressive tax system—meaning, as you earn more, you pay a higher tax rate on the additional income you make, not all of your earnings. This is essentially how our system works now, but the candidates suggest that the current approach isn’t sufficient.
Currently, the wealthiest 1% of households contribute about 30% of their income in taxes. If that rate were increased by 10 percentage points, it could generate $3 trillion over the next decade, according to Michael Linden, executive director of the progressive Groundwork Collaborative. This would be similar to the tax rates the top 1% faced in the 1940s and 50s, Linden points out.
With $3 trillion, the country could “make college free at all public universities, make a substantial new investment in infrastructure similar to proposals by Senate Democrats, and triple the budget for the National Institutes of Health,” Linden suggests in a column in The Guardian.
In addition to raising these funds, Kimberly Clausing from Reed College highlights, in a nonpartisan piece for Econofact, that taxing the rich more could help address some of the economic inequality caused by wage stagnation over the past 35 years or so.
Economists Gabriel Zucman and Emmanuel Saez propose that increasing the marginal income tax on the top 1% of earners to about 75% could help maximize revenue and reduce income inequality without leading to a significant increase in tax evasion or a reduction in productivity among the wealthiest Americans, according to CNBC. Zucman and Saez, who co-authored the book Triumph of Injustice — How the Rich Dodge Taxes and How to Make Them Pay, are also behind Tax Justice Now, an interactive platform where you can compare tax proposals from different candidates.
What a wealth tax could accomplish
But wait, there’s more. What about taxing the wealth people already possess—not just their income each year, but their accumulated assets as well?
Linden claims that implementing a wealth tax on the top 1% could raise $4 trillion over the next decade. This amount is “more than the federal government will spend over the next ten years on foster care, school lunch, school breakfast, the Children’s Health Insurance Program, food stamps, unemployment benefits, supplemental security income for the elderly, blind, and disabled, and all tax credits for working families combined,” he says.
A proposed wealth tax stands out because it’s entirely different from the current method of taxation. At present, taxes are mainly paid when income is earned and when assets are sold. A wealth tax would essentially involve taxing the value of all the assets you own every year.
Any attempt by a president to introduce new taxes will face significant challenges, as Congress is responsible for creating that policy, not the president.
That said, it doesn’t mean Congress isn’t already addressing this issue. Senate Finance Committee Democrats, led by Senator Ron Wyden of Oregon, are considering a wealth tax that could bring in an estimated $1.5 to $2 trillion over a 10-year period. Wyden aims to use these funds to strengthen Social Security.
The tax would target individuals with income over $1 million or assets exceeding $10 million for three consecutive years and would tax the increased value of their assets each year. If your stock portfolio grows? Pay taxes. If your property appreciates? Pay taxes. If your art collection or jewelry gains value? You get the idea.
While the idea of a single candidate advocating for a tax on the ultra-wealthy may seem far-fetched, it’s a concept that is quickly gaining traction among Democrats. And even if no presidential candidate manages to pass their own tax plans through Congress, a Democratic-majority Congress might take action independently.
