Turning the Tax Tables

If Democrats are serious about subjecting the top 1% to a Wealth Tax they should call the Republicans' bluff and end the Income Tax for the other 99%.

Over the past week, Kamala Harris’s economic platform came into sharper focus when her campaign publicly acknowledged support for the tax plan Joe Biden unveiled this past spring.  Biden’s plan was aggressive and ambitious - his 2025 budget sought to raise an extra $5 trillion in the next decade by eliminating some of the biggest giveaways to the top 1% found in the tax code.  In addition to raising the top marginal rate from 37% to 39.6% and the top corporate tax rate from 21% to 28%, the Biden Plan (we might as well call it the Harris Plan from here on out) also does away with the preferential treatment of capital gains over ordinary income, hiking the top rate from 20% to 44.6%. 

More radically, the Harris Plan calls for a Billionaire Tax that would tax “unrealized gains” (i.e. the increased value of an asset that hasn’t been sold, exchanged, or disposed of) on those with a net worth above $100 million.  If passed, the Billionaire Tax would be the closest our Federal government has ever come to a Wealth Tax. Talk of Wealth Taxes has gone mainstream since 2014 when Thomas Piketty's Capital in the Twenty-First Century prescribed a Wealth Tax as the only way to counteract widening inequality caused by the rate of return on investments being greater than the rate of growth for the broader economy. Candidates Bernie Sanders and Elizabeth Warren made a Wealth Tax part of their platforms in the 2020 Democratic primary. Like many Biden-era policies, the Billionaire Tax adopted by Harris is a watered-down version of their more progressive primary rivals' Wealth Tax - not everyone with over $100 million in assets would be subjected to the new tax. But Harris' Billionaire Tax still breaks with the American tradition of only taxing realized gains and will therefore face tremendous pushback from the politically connected elite. This pushback will be supercharged by the Supreme Court’s recent ruling in the Moore case suggesting that a Wealth Tax on unrealized gains could be deemed an unapportioned direct tax violating the Constitution’s Article I Section 8 Taxing Clause.

Whew!  Fun stuff!  If you've made it this far, congrats. That's as technical as things get from here on out. I’m a former IRS attorney and an obvious tax nerd.  But if you are a normal human being you now know why Kamala Harris didn’t dive into tax plan specifics during her highly-acclaimed acceptance speech at the Democratic National Convention.  Taxes are boring, confusing, and frustrating.  Voters rarely enjoy hearing speeches about taxes unless politicians are pledging to slash them.  This is one of the Democrats’ great structural disadvantages in the American political system.  Republicans can always talk about taxes in the clear language of unrestrained hatred, unhinged condemnation, and unrestrained promises to cut taxes any chance they can get.  Democrats must take a more nuanced approach to fiscal policy discussion and usually try to sell raising taxes through one of two lines of argument.  The first is what I will call the no-impact approach, where Democrats give a number (usually $400,000 these days) and reassure those who make under that amount that their taxes won’t go up.   The second approach I will call the hypothetical savings argument, which involves Democrats throwing out another number (usually a few thousand dollars these days) and telling voters that their tax bill could drop by that amount.  Unfortunately, neither of these arguments is remotely compelling, even when sold under the packaging of “Middle-Class Tax Cuts." To make matters worse, voters' brains have been marinated in Republican Free Enterprise ideology for so long that they are trained to believe their own benefit from tax reform will be offset by costs passed down to them by more heavily tax-burdened corporations and the billionaire class who owns them.

There is no better evidence of the ineffectiveness of Democratic tax policy arguments than the party’s past three decades of impotence in clawing back the massive Reagan tax cuts.  Within less than a decade of Reagan’s inauguration, Republicans cut the top marginal tax rate from 70% to 28%.  In the 32 years since, despite Democrats occupying the White House for 20 of those years, the Dems have not been able to push the top marginal rate back up above 40%.  Considering the impotence of the hypothetical savings and the no-impact arguments in inspiring voters to support Democratic tax plans in the past, Harris is going to need a much higher octane argument to build the public support needed to push forward dramatic changes like a Billionaire Tax imposed on unrealized capital gains.   

If the Democrats are serious about overhauling the tax system, enacting a Wealth Tax, and reversing decades of widening inequality then they should look for inspiration from the unlikeliest of places: Donald Trump and the Republicans.  Desperate and flailing, last week Trump floated the idea of completely ending the income tax and making up the revenue through increased tariffs.  This isn’t the first time Republicans have proposed doing away with the much-loathed income tax.  In 2023, House Republicans’ Fair Tax Act proposed substituting the income tax for a 23% national sales tax.  Both the Trump tariff plan and the House Republican Fair Tax Act would bring about economic ruin by raising the cost of living, spiking inflation, ballooning budget deficits, and shifting the tax burden in a radically regressive direction, forcing those with the least to shoulder the greatest relative load in revenue generation.  

Considering the dismal economic impact of these Republican proposals to end the income tax, it is not hard to understand why Democrats have rejected both with scorn and ridicule.  But while these two Republican proposals are garbage, Democrats should not be so quick to dismiss the idea of ending the income tax.  As the self-identified party of the working class, shouldn’t Democrats think seriously about a society where taxes are not fundamentally based on extracting the fruits of the American worker’s labor?  What if Democrats could turn the tables on Republicans and call their bluff on the desire to free Americans from income taxes? What if there was a way for the Democrats to end income taxes for the 99% but do so in a way that stabilizes the federal budget, reverses income inequality, and incentivizes a stronger and more sustainable American economy?

A progressive fiscal policy eliminating the income tax will require a Wealth Tax far more extensive and aggressive than Kamala's Billionaire Tax, or even the plans proposed by Sanders and Warren in their 2020 campaigns. But we could raise nearly $1 trillion in yearly revenue without the Wealth Tax hitting anyone with a net worth below $1 million or forcing anyone with a net worth under $50 million to pay more than 2 percent.¹  And the harsh truth is that given the current composition of the Supreme Court, any tax on unrealized gains (even Kamala’s relatively modest Billionaire’s Tax) will likely be torpedoed as unconstitutional, requiring a 28th Amendment to make it a reality.  If the Democrats take the radical step to tax unrealized capital gains they might as well go big in a way that can relieve most Americans from the burden and frustration of dealing with the IRS.  Telling the average American, “you won’t have to worry about the IRS until they are a millionaire” is the level of persuasiveness Democrats need if they truly want to tax unrealized gains and win the Constitutional fight that comes with it.

Of course, any talk of a Constitutional amendment will lead to an immediate rejection of a policy’s viability in the minds of “serious” political analysts. But with the Roberts Court tilted 6-3 in favor of aggressive pro-corporate conservatives it is only a matter of time before Americans start reconsidering the need to push for a 28th Amendment to the Constitution. Pundits don’t hesitate to discuss other potential amendments that would be far more divisive and unrealistic than the fight for a Wealth Tax. Compared to an amendment touching on a culture war issue (e.g. legalized abortion, gun control) or an amendment that alters the very structure of Federalism (e.g. eliminating the Electoral College) or tilts the balance of the three branches of government (e.g. packing the Supreme Court), a Wealth Tax Amendment would have a far greater chance of success based its ability to draw on the narrative of the 99% versus the 1%.  The fight for a Wealth Tax might be the perfect cause to rekindle belief in using Constitutional amendments to assert power in an age when the Supreme Court looks to be politically and ethically compromised for the foreseeable future.

While the struggle for a Wealth Tax would be our biggest fight in overhauling the tax system, a Wealth Tax alone will not recoup the entire $2 trillion raised by the Income Tax.  It will also require a National Consumption Tax (similar to the European Value Added Tax) with a baseline rate of 10% that can be adjusted upward or downward depending upon an item's necessity to basic human needs and its social or environmental impact.  In addition, we will need a 0.5% tax on the trading and selling of financial products similar to the Financial Transactions Tax proposed by Barbara Lee and Bernie Sanders.  Combining an expanded Wealth Tax with a Consumption Tax and a Financial Transaction Tax would radically reconfigure the American economy toward one that favors work, saving, and frugal living versus our current system that favors speculation, exploitation, and wasteful gluttony.  

Does Kamala Harris need to get behind these radical reforms ending the income tax to bury a declining Trump-Vance campaign?  Doubtful. Simply rubber-stamping Biden’s proposed tax changes should be enough to defeat Trump in the short run.  But defeating Trumpism in the long run is a whole other story. That will require reversing the extreme wealth inequality that breeds the despair, resentment, and cynicism that gave rise to Trump in the first place.  Democrats could put the nail in the coffin of Trumpism with a plan that will free Americans from the income tax burden while doing so in a way that reverses wealth inequality, lowers the deficit, and restores respect for the virtue of hard work.  While restructuring our tax system will not be easy we should draw inspiration from Kamala’s declaration, “When we fight, we win.” There is no better way to ensure that Kamala achieves her goal of restoring the American Middle Class than fighting and winning the struggle for a Wealth Tax Amendment.

1. My Proposed Wealth Tax Rate Table

• $0 - $1,000,000:                                          0%

• $1,000,001 - $5,000,000:                            1%

• $5,000,001 - $10,000,000:                          1.5%

• $10,000,001 - $50,000,000:                        2%

• $50,000,001 - $250,000,000:                     2.5%

• $250,000,001 - $500,000,000:                   3%

• $500,000,001 - $1,000,000,000:                3.5%

• $1,000,000,001 - $5,000,000,000:             4%

• $5,000,000,001 - $10,000,000,000            5%

• $10,000,000,000  and up:                          10%