In Michigan, Democratic Senate candidate Abdul El-Sayed said he would tax billionaires to “build schools and roads, provide health care, provide child care.”
In Texas, Democratic Senate hopeful James Talarico said making “the wealthiest Americans and giant corporations pay their fair share” would cover a middle-class tax cut.
And in Maine, Democratic Senate candidate Troy Jackson said he will “tax those billionaires” if he gets elected, while promising Medicare-for-all.
Across the country this election season, taxing the richest Americans is the solution many Democrats are offering for a host of middle-class problems, from overly expensive housing to overly expensive college tuition. But while taxing the wealthy could raise substantial sums, it couldn’t even stabilize Washington’s historically large budget deficit, much less finance major new spending, according to two reports released this month.
“Even if we seized every dollar of billionaire wealth — their stock portfolios, their mansions, their cars, everything down to their kids’ toys, and sold it for full market value” — the proceeds could fund the federal government for about a year, said Jessica Riedl, author of one of the reports. “And then it’s gone.”
Riedl, a Brookings Institution fellow and former chief economist to former senator Rob Portman (R-Ohio), said she’s not opposed to taxing the rich. “But it doesn’t get us out of the tough decisions that have to be made.”
A similar finding came this month from the Budget Lab at Yale University, a research group founded by former Biden administration economists. The Budget Lab’s report posed a thought experiment similar to Riedl’s: What if the federal government took every dollar people earn above about $710,000 a year — the cutoff for the top 1 percent? Some of the most ambitious proposals would still be out of reach, the report concluded.
The appeal of taxing the rich is easy to see. While economists disagree on how fast and how much the rich have gotten richer, no one disputes that income is concentrated at the top, the Budget Lab notes. The highest-earning 1 percent of Americans will take in nearly a quarter of all income next year, the report said.
But though rich people’s incomes are substantial, the report said, they are “still finite.”
If the government could pocket all those dollars above the top 1 percent threshold next year — in other words, tax them at 100 percent, a “clearly unrealistic scenario,” the report said — the U.S. Treasury would collect about $2 trillion.
That was about the size of the federal budget deficit — the gap between what the government spent and what it took in — in the fiscal year that ended in September. Washington borrowed that amount to cover the difference, adding to the already huge national debt.
Because a dollar now is worth more than a dollar in the future, economists like to talk about such sums as a percentage of the overall annual economy, or gross domestic product. In those terms, the federal government spent about 23 percent of GDP ($7.4 trillion) last fiscal year and raised about 17 percent ($5.4 trillion) in revenue, leaving a deficit of about 6 percent ($2 trillion).
That last figure, the big hole in the budget, is projected to grow because of the increasing cost of Social Security and Medicare as the baby-boom generation retires. Those two programs alone cost more than 8 percent of GDP last year ($2.7 trillion), while defense spending cost about 3 percent ($916 billion). Interest on the national debt cost more than 3 percent ($1.1 trillion).
Over the next three decades, as programs for the aging cover more people with relatively fewer working people to pay for them, the nonpartisan Congressional Budget Office has projected that the deficit will grow to about 9 percent of GDP. Riedl expects it to get much bigger.
So how much of the problem could taxing the rich solve? At most a couple of percent of GDP per year, Riedl said — probably not enough to avoid an eventual fiscal crisis.
The Budget Lab report found that closing certain tax loopholes could help. The biggest one allows the wealthy to avoid taxes on investments that grow in value if they don’t sell them before they die. Changing that rule, the report said, would nearly double the expected proceeds of a higher tax rate on capital gains, or profits from selling investments — one of several ways Democrats have proposed to tax the rich.
But that still wouldn’t be enough to get the deficit under control.
“You need 4 to 5 [percent of GDP] in order to stabilize the debt long-term,” Riedl said. “So you’re still going to have to either significantly raise middle-class taxes and/or significantly rein in spending.”
So far, however, stabilizing the debt has not emerged as a chief campaign-trail priority.
Instead, consider the proposal to impose a 5 percent annual tax on billionaires’ wealth, which proponents said would raise about 1.2 percent of GDP per year. El-Sayed has backed such a tax, as have Sen. Bernie Sanders (I-Vermont) and Rep. Ro Khanna (D-California).
Their plans for the proceeds: Building or preserving more than 7 million affordable homes. Capping families’ child care costs. Establishing minimum salaries for schoolteachers. Expanding Medicaid home health care. Adding dental, vision and hearing coverage to Medicare. Reversing the cuts to Medicaid and the Affordable Care Act in last year’s tax law. And providing “a $3,000 direct payment to every man, woman and child living in a household making $150,000 or less.”
Or, take the “Ultra-Millionaire Tax” proposed by Sen. Elizabeth Warren (D-Massachusetts). It would target the wealthiest 260,000 households, or the top 0.15 percent, with an annual 2 percent tax on every dollar of net worth above $50 million and 3 percent on every dollar above $1 billion.
Warren said the tax would raise 1.7 percent of GDP a year, enough to pay for universal child care, new housing, a bigger child tax credit, paid family leave, free community college and Medicare eligibility starting at age 55 “with money left to spare.”
The revenue estimates behind Sanders’s and Warren’s wealth taxes come from Emmanuel Saez and Gabriel Zucman, economists at the University of California at Berkeley. In their 2019 book, “The Triumph of Injustice,” they estimated that the top 1 percent could pay roughly 3.5 percent of GDP a year in additional taxes — well above Riedl’s estimate — if the government first cracked down on “tax dodges.”
But other economists put the figures far lower.
El-Sayed, Talarico, Jackson, Sanders, Khanna and Warren did not respond to requests for comment.
Sen. Ron Wyden (D-Oregon), who is in line to chair the tax-writing Senate Finance Committee if Democrats gain control of the Senate, has not signed on to either Sanders’s or Warren’s wealth tax proposals. Instead, Wyden has pushed a narrower tax on the yearly rise in value of billionaires’ stock and other investments, even if they don’t sell them. The nonpartisan Joint Committee on Taxation estimated in 2021 that it would raise $557 billion over 10 years, or about two-tenths of a percent of GDP a year.
At a Finance Committee hearing this summer, Wyden suggested that making billionaires “pay their fair share” would allow policymakers to shore up the finances of Social Security “without a single dime of cuts to a current or future retiree,” with “no raising the retirement age, no cost-of-living haircuts and no means-testing benefits.” But all that is projected to cost significantly more — about 1.5 percent of GDP per year.
Asked about the gap, Wyden spokesman Taylor Harvey said in an email that the senator “believes that saving Social Security starts by ensuring the wealthy pay their fair share, through the Billionaires Income Tax as well as other measures like scrapping Social Security’s payroll tax cap.”
Eliminating the cap, which exempts wages above $184,500 from the Social Security payroll tax, would raise about 0.9 percent of GDP a year, Riedl estimated, leaving part of the shortfall uncovered even with Wyden’s proposed billionaire tax. Harvey pointed to a list of other Wyden proposals to raise taxes on the wealthy and corporations, but did not say whether they would close the rest of the gap to fully finance Social Security benefits.
Of course, even if Democrats take the House and Senate on Tuesday, they will be stuck with a president likely to veto their ideas for taxing the rich. And even if Democrats also win back the White House in 2028, history suggests that raising taxes may not be easy.
The biggest tax increase in more than four decades came under President Bill Clinton in 1993. It raised less than 1 percent of GDP a year — and contributed to Democrats’ loss of Congress in 1994.
Under President Joe Biden, Democrats also had “trifecta” control of the White House, House and Senate for two years, and they managed to raise net taxes by less than $6 billion per year, Riedl has calculated, or about two-hundredths of a percent of GDP.
“They’re not even able amongst themselves to pass big tax hikes on the rich,” Riedl said. “There’s not just the mathematical, economic barrier, there’s a political barrier.”
Democrats, she said, represent not just the super-rich of Wall Street, Silicon Valley and Hollywood but also upper-income professionals making $300,000 to $500,000 a year, who have become a core of the party’s voters and donors.
“They have some hesitancy about taxing them to death, too,” Riedl said.
In fact, during the 2012 “fiscal cliff” negotiations with Republicans, Democrats agreed to raise the top income tax rate for couples earning more than $450,000 and individuals earning more than $400,000 — though President Barack Obama had for years called for raising taxes on households earning more than $250,000. Biden and Kamala Harris later campaigned on not raising taxes on anyone earning less than $400,000.
“And now,” Riedl said, “I’m already hearing no taxes under a million.”
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