New Jersey is leading the way. First-term Gov. Phil Murphy campaigned in 2017 on a promise to restore a previously expired tax hike on the wealthy, and has spent the last three years trying to do just that. Last month, with the pandemic having battered state finances, as well as the bottom line of most households, Murphy and the Democratic-led state legislature finally made good on that promise.
Previously, only earnings over $5 million per year were taxed at the state’s highest rate of 10.75%, but now that rate will kick in on earnings over $1 million per year. This measure should, according to estimates, bring in around $400 million annually. The majority of that money is going to dual income households earning under $150,000, or single income ones earning under $75,000, in the form of a one-time check of up to $500. The rest of the money will shore up the state budget.
This is exactly the kind of approach progressive governments must take, especially in this time of economic crisis—namely, we must help support those who are suffering, and ask more of those who are doing disproportionately well. Lest we forget, in the aftermath of the Great Recession of 2008, 10 or more states increased taxes in order to shore up their budgets. Right now, eight other states are discussing following New Jersey’s lead.
In New York, progressives have raised the volume on their long-standing calls to enact a millionaire’s tax hike. From Washington, D.C., our good friend Rep. Alexandria Ocasio-Cortez, also known as ”AOC,” has joined with state and local Democrats in speaking out. In the state legislature, state Sen. Alessandra Biaggi didn’t mince words: “We are playing with fire: These are people’s lives. It is not OK to not act.” Biaggi’s co-sponsoring a bill, first introduced by state Sen. Jessica Ramos—titled “The Billionaire Mark to Market Tax and The Worker Bailout Fund Act,” which would raise taxes only on those worth $1 billion or more. Leaders of both houses of the state legislature are on board with raising taxes on the wealthiest. In fact, multiple bills have been proposed, but no legislation has yet passed—New York’s Democratic governor stands in the way.
When the topic was raised at a press conference on Sept. 8, Gov. Andrew Cuomo rejected it. “You want to do a billionaires’ tax? Great. Do it nationwide,” he said. “You want to do a multimillionaire tax, millionaire tax? It should be nationwide. Why force our state to increase taxes and then put us at a competitive disadvantage?” I agree that we need a nationwide tax of the top 1%—so does Joe Biden, by the way. But Cuomo’s simply wrong about states that enact such tax increases being at a disadvantage.
The concern expressed by Cuomo stands at the heart of a good part of the criticism lobbed at millionaire’s taxes at the state level—other than that coming from people who simply take pleasure at the idea of rich people grabbing more and more of our nation’s wealth. (We have a name for such people: Republicans.) Anyhoo, multiple studies have discovered no negative effects on the economy, and found that wealthy people do not leave a state that has raised their taxes in any significant numbers. The Center on Budget and Policy Priorities—generally seen as a progressive think tank—summarized their findings.
- Real-world experience suggests that raising top income tax rates is unlikely to harm state economies in the short run, contrary to some claims. In six of eight states (including the District of Columbia) that enacted millionaires’ taxes since 2000, private-sector economic growth met or exceeded that of neighboring states since enacting the tax increases. Seven of the eight states had per capita growth in personal incomes at least as strong as nearby states, and five of the eight added jobs at least as quickly as their neighbors. Only one state that raised its state income tax rates, Connecticut, has seen markedly weaker growth than its neighbors, likely for reasons other than state tax levels.
- The bulk of mainstream academic research finds that interstate differences in taxes, including differences in top personal income tax rates, have minimal effects on state economic growth. Fifteen of the 20 major studies published in academic journals since 2000 that examined the broad economic effect of state personal income tax levels found no significant effects and one of the others produced internally inconsistent results. As a pair of university researchers described in a comprehensive literature review in 2018, “The vast majority of the academic studies that examined the relationship between state and local taxes and economic growth found little or no effect.”
A study was conducted in 2018 by the liberal-leaning Institute on Taxation Economic Policy. Their research director, Carl Davis, noted: “We’re seeing a significant amount of millionaire growth in states that have comparatively higher taxes on millionaires.” The authors of a Stanford study that looked at what happened after New Jersey first raised taxes on the wealthiest in 2004, and California did so in 2005, explained that “while millionaire tax flight is an intuitive concern, evidence of it is difficult to find.”
A New York Times article—published just after New Jersey acted last month—reported that very few people are considering leaving the state—even to move next door to Pennsylvania, where state income taxes are only one-third as high. Why? Ties to their families, friends, and communities.
Here’s what David B. Root, Jr., who founded and runs a wealth management company, told The Times: “For a small-business owner or an employee earning $1 million or above, that person is probably pretty well entrenched in New Jersey. States like Florida, Texas, and Tennessee have no state taxes, but they have higher taxes elsewhere — in consumption taxes.” Ken Schapiro, who is worth tens of millions of dollars, agreed. “I have too many business ties. I own a tennis club here. I have friends and family here. Look, if they double the taxes I might do it.” For the record, no one is talking about doubling anyone’s taxes.
So what are Democrats talking about? We’ve discussed the New Jersey plans, but the ones that would have the greatest impact are those that might be enacted at the federal level. So let’s talk about what Biden has proposed. He made his plans very clear in late August: “I will raise taxes for anybody making over $400,000. The very wealthy should pay a fair share. Corporations should pay a fair share. The fact is there are corporations making close to a trillion dollars that pay no tax at all.”
In order to shore up Social Security for the long run, the former vice president will change the payroll tax so that an individual’s earnings above $400,000 are subject to that tax—for the first time in history. Currently, the payroll tax applies only to a person’s earnings up to $137,000, so this will make the tax more progressive. The Biden campaign website lays out other specific actions.
- Raising the corporate tax rate to 28%.
- Requiring a true minimum tax on ALL foreign earnings of United States companies located overseas, so that we do our part to put an end to the global race to the bottom that rewards global tax havens. This will be 21%—TWICE the rate of the Trump offshoring tax rate and will apply to all income.
- Imposing a tax penalty on corporations that ship jobs overseas in order to sell products back to America.
- Imposing a 15% minimum tax on book income so that no corporation gets away with paying no taxes.
- Raising the top individual income rate back to 39.6%. [NOTE: Trump and the Republican Congress cut it to 37% in late 2017]
- Asking those making more than $1 million to pay the same rate on investment income that they do on their wages.
Take a look at this chart below from the Biden website. It’s got a lot of data, but here’s what it shows in a nutshell: Each row represents a slice of the very richest households. The first column shows how much money that group has gained so far in 2020, the second column shows how much that group gained just from Trump’s tax giveaway, and the third shows how much additional tax that exceptionally wealthy group would pay under Biden’s proposals. The short version: The top billionaires made a ton of money this year, and Trump gave them even more through the tax code. Going forward, however, Biden would make them pay back what Trump gave them—and then some.
The website also states that “Biden is proposing more than a dozen bold policies to bolster financial security and spur economic growth by reducing taxes on the middle class.”
Matt Yglesias at Vox analyzed Biden’s proposals to tax the wealthy in depth and broke down the numbers into the graph below. The amounts cover 10 years. Please note that the single proposal that brings in the most revenue is taxing capital gains as normal income for households earning over $1 million annually. Right now, capital gains—which means the profit one makes on selling stock for more money than one paid for it—are taxed at a lower rate than money one earns on a job, as long as the stocks were held for more than a year before being sold.
This is patently unfair—why should a front-line healthcare worker or someone pulling shifts on the assembly line at an auto plant pay more in taxes of each dollar they earn than, say, a
day trader buying and selling shares of the healthcare company or the car company those other people work for? Plus, not taxing investment income the same way as payroll is a tremendous lost opportunity in terms of the sheer number of dollars our government could use to invest in the American people.
Finally, Washington Post fact-checker Glenn Kessler examined the Biden campaign’s statement that, under his tax proposals, “nobody making under 400,000 bucks would have their taxes raised.” Citing five separate independent analyses, Kessler rated the claim as accurate: zero Pinocchios. A Reuters fact check rendered the same verdict.
Biden’s statements about his plan are rock solid. He will raise taxes on the top 1%, and especially on those earning more than $1 million a year, and will cut federal taxes for those struggling to make ends meet. That’s what this country needs. In addition to combating economic inequality, it’s worth noting that both Moody’s and Goldman Sachs agree that the plan put forth by Joe Biden would do much more for the economy overall than the proposals of The Man Who Lost The Popular Vote. Both stated that a “Democratic sweep” in this year’s federal elections would be the best possible outcome for our economy.
So that’s the good news, but let’s change gears. I want to give you a statistic that is so mind-bogglingly infuriating that I had to warn you first. Please put down anything you are holding, and swallow whatever you might be drinking. Ready? You might think you are, but either way, here goes: Since the pandemic hit—from March 18 through Sept. 15—the 643 Americans whom Forbes has determined to be billionaires have, as a group, increased their wealth by $845 billion. So yeah, I think we can increase their taxes by, if not double, then a pretty decent amount.
Let’s break that information down further. The billionaires’ collective wealth is up 30% over the past half a year. On average, the total net worth of that group of lucky duckies is up just under $5 billion a day. Each has increased their wealth by an average of over $1.31 billion. That’s over a billion more per billionaire. In six months. By comparison, the bottom 82% of American earners saw the income from their jobs drop by 4.4% between mid-March and mid-August. I guess they’re supposed to feel lucky if they still have a job.
Please stop screaming. Or don’t, actually. Take that energy and put it to work. Put it to work advocating for tax hikes on the wealthiest among us. Scream to your state’s Democratic elected officials in places like New York and California, as well as in Massachusetts, where the Democrats in the state legislature have veto-proof majorities that can override any opposition from Republican Gov. Charlie Baker. Hell, you can try screaming at Republicans too, if they’re all you’ve got to work with in your state or district.
Then think about the presidential election. The current occupant of the Oval Office sends money up the economic ladder—that’s the one major legislative accomplishment of his term, and it is so unpopular he and his party barely mention it on the campaign trail. His opponent, Vice President Biden, will make the tax code more progressive, in part by asking those who have done especially well during the pandemic (and before it) to contribute an amount that would be relatively inconsequential to them—in order to help our government do everything possible for those who are suffering.
Raising taxes on the wealthiest is crucial in material terms, because it will save lives, but it is also a moral imperative. In a time when so many are suffering so greatly, while a relative few gather unto themselves ever more lucre, progressive values—as well as a kind of biblical or karmic sense of justice—require that those fortunate few part with at least a chunk of those gains. Those gains may not all be ill-gotten, but the acquisition of those gains—in particular by the very richest among us—during a pandemic, amidst so many deaths and upended lives, reflects a societal illness that must be treated aggressively.
Now let’s go out there and help make that progressive vision a reality.
Ian Reifowitz is the author of The Tribalization of Politics: How Rush Limbaugh’s Race-Baiting Rhetoric on the Obama Presidency Paved the Way for Trump (Foreword by Markos Moulitsas)
Credit for featured image: Getty Images