Americans don’t seem to agree on much today. But one thing they agree on is that the US tax code is unfair. A 2017 Pew Research Poll found that 56% of Americans, including majorities of Democrats and Republicans, view the tax system as unfair. Political scientist Vanessa Williamson to research shows that Americans actually view paying taxes as an important civic duty. But they are unhappy with what they see as an injustice in the system.
We shouldn’t be too surprised by this, given that 55 of the largest corporations in the country paid no tax in 2020, despite billions of dollars in profits. Twenty-six of those companies, including FedEx, Nike and Dish Network, avoided paying any federal income tax over a three-year period.
As the COVID-19 pandemic has brought grief, economic instability and massive hardship to millions of Americans, it has been a godsend to the country’s billionaires. There are 740 billionaires in the United States and their wealth has increased by $2 trillion since the start of the pandemic. 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 just 8.2%. My wife and I paid more than double that tax rate last year, and I can guarantee you we didn’t come close to making a billion dollars.
One of the main problems with the US tax system is that it is primarily aimed at income – the money that one regularly earns, such as wages – rather than wealth, which includes assets such as real estate, collections works of art and investments (less debts). . Today, the top 0.1% hold almost as much wealth like the bottom 90%.
This means that because billionaire Jeff Bezos base salary at Amazon is only about $80,000 a 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 teacher salary does not is that of $62,000). But Bezos actually earns well over $80,000 a year because as Amazon’s stock grows, so does Bezos’ wealth. In fact, a report showed Bezos earning nearly $4,000 per second, nearly four times the median full-time weekly earnings of most Americans. But because our tax system prioritizes labor income over wealth, Bezos can continue to reap profits without having to pay taxes on his massive accumulation of wealth.
But President Biden’s recent budget proposal offers a plan to address this disparity. The “Billionaires Minimum Income Tax” “would force billionaires to pay a tax rate of at least 20% on all their income, or the combination of traditional forms of wage income and whatever they might have made in unrealized gains, such than rising stock prices. The administration estimates that the tax would generate about $360 billion in new revenue over the next ten years.
A system that taxes wealth in addition to income would help reduce the concentration of wealth among the very wealthy and make our economy fairer and fairer. Too many policy makers have unfortunately internalized the belief that all citizens are fiercely opposed to any form of taxation. But public opinion data and citizen referendums show that Americans have become much more positive about raising taxes over the past decade, as long as those increases are distributed fairly. Over the past decade, “Voters approved half of the 62 tax increase measures that appeared on state ballots.” Rather than constantly worrying about the anti-tax sentiment of their constituents, policymakers should instead defend the opinion of renowned economist Adam Smith statement that “All taxes are for those who pay them a sign, not of slavery, but of freedom.”
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 at the lowest rungs of the economic ladder. A fairer 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 Strategic Fellowship Network, which brings together scholars from across the country to address public challenges and their policy implications. Member columns appear here monthly. This column reflects his opinions and experience and does not speak for the university.
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