Bernie Sanders’ tax plan is the first to actually tax the mega-rich. Many politicians claiming that they want to tax the rich are completely missing the point and are not taxing the rich at all with an ordinary income tax approach. They propose just taxing high ordinary income earners such as those making more than $250k per year.
People who make $250k per year are now middle-class (upper-middle, but not uber-rich). And they already pay nearly 50% if they live in a state with state tax which includes New York and California.
I have no political affiliation. I believe in science, math and data. And I am an avid free market advocate, except in extreme circumstances. As we’ve seen over the years, there are certain situations where we have to regulate to save ourselves from our own ignorance, greed, and selfishness.
And, I’m not so sure raising taxes is a good idea at this time anyway. In the current political landscape, politicians are generally a bunch of phony slimeballs that will say anything to stay in office. I wouldn’t give those liars one more penny of taxpayer money. But, if we can pull our heads out of our asses and elect even decent officials, then putting tax payer money into some targeted areas could massively improve all of our futures.
Increasing ordinary income tax does almost nothing to multimillionaires and billionaires. They make most of their money off of capital gains.
If you really want to tax the rich and are not just using it as a political marketing tool, you need to increase capital gains and not let billionaires avoid tax by storing their money in offshore tax shelters. No loopholes.
So a true mega-rich tax would be something like a net-worth-increase tax calculated annually for anyone whose net worth is more than, say, $20 million. That would generate hundreds of billions in annual tax revenue. Squeezing the upper middle class would net just a fraction of that.
However, to introduce such a plan would be political suicide. And pissing off that many billionaires would probably be actual suicide as well. You’d probably end up at the bottom of a lake.
And again, I’m not saying we should do this. I’m just saying that this is the only way to truly increase taxes on the rich. Increasing ordinary income tax on people with incomes over $250k is just punishing hard working middle class Americans and letting the billionaires get off scott free.
Why Capital Gains is so Low
In theory, having a low capital gains tax rate and no net-worth tax should increase business investment and consumer spending which grows the economy. I believe it usually does. However, taken to extremes it doesn’t work out. Wealthy people can’t even spend all the money that they have even if they wanted to. Instead they just hoard it like the Waltons who each have $40 billion in Walmart and other stocks that they will probably never sell, which means they will never spend it. If a little bit of that money was required to be invested in public education, a reasonable hypothesis is that it would stimulate the economy, which would grow the remainder of their Walmart stock by even more than what they had to give up. Even if it didn’t, it would be going to a better cause than them sitting on all the money that they could never spend.
Perhaps a more “free market” option: we could require them to invest it the primary market, i.e. investments in start ups or working capital for established companies. That way at least it’s not being hoarded and is being put toward stimulating the economy.
But alas this is unlikely happen in the short term because billionaires control our government and they have little incentive to give up their net worth to a system that they believe is inefficient and would squander their money. There is probably some truth to that. So there would also have to be a compelling plan for what to do with that money such as investing it in education in highly skilled knowledge worker fields that would make America even more of a great technology leader and stimulate our economy. I have a little faith in our existing government to be able to do that, but it would be nice.
Another option is to give the mega-rich the option to instead give a similar portion of that money to a non-profit like Bill Gates, Mark Zuckerberg, and Warren Buffett did. Not 99%, but maybe 25%.
The main point is: don’t just tax the upper-middle class and think you’re taxing the rich. The really rich require net worth and capital gains to be taxed.