Why taxing the rich works

Since the early s, states including New Jersey, California, Maryland, New York, Wisconsin, Oregon, and Connecticut have adopted additional tax brackets for the very highest income earners. Several other states, including Washington and Illinois, have tried to pass such taxes and failed.

A central question, in all of these political campaigns, has been whether these blue state policies show leadership in addressing inequality—by drafting a new social contract with the rich—or whether the rich will simply migrate to red states that offer lower tax rates. There are growing signs that the elites themselves are troubled by rising inequality and may be more tolerant of higher taxes than the current political discourse suggests.

Some of the richest people in America—Bill Gates and Warren Buffett—have led a campaign for the Giving Pledge, calling on fellow billionaires to give away at least half their wealth to charitable causes. Many have signed on. This comes from the spirit of noblesse oblige —a feeling among those at the top that they have not only amassed a great fortune but have also been very fortunate. What about the less elite millionaires like top doctors, lawyers, and business managers? Do they feel a similar sense of obligation that comes with their more modest fortunes?

Concern about inequality often comes from a more personal place for higher-end income earners: parental responsibility and concern about how their children will fare in a winner-take-all society.

Sociologist Marianne Cooper spent years interviewing rich and poor families in Silicon Valley. But high-income families were keenly aware of growing economic polarization. High-income families saw a world split between the haves and the have-nots as an existential concern for their children, and this framed much of their own self-doubts as parents. Is this enough for top income earners to see progressive taxation as legitimate? In some ways, inequality may push people at the top to even more preciously guard their income.

The top 1 percent may well alternate between feeling some noblesse oblige on one hand, yet also feeling some resentment that taxes are getting in the way of their responsibility to their children. While people at the top may genuinely wish the country was less economically polarized, they also know there is an arms race at play. So, politically, there is room for appeals to the nobler instincts of top income earners.

The Patriotic Millionaires say they reject the idea that. We [millionaires] have been the biggest beneficiaries of this system called America, and we should pay more to keep it running. We have reaped the greatest share of the benefits.

We should contribute the largest portion of the investment. In , a survey of millionaire investors by the investment group Spectrem found that a sizable majority 67 percent supported higher taxes on millionaires.

Nevertheless, many of the rich are fiercely opposed to higher taxes. A political movement led by activist Grover Norquist has made low income tax rates perhaps the deepest and most profound commitment held by the Republican Party. Millionaire taxes can be seen as penalizing the hardest-working and most productive members of society, and thus as an affront to American work ethic values.

On the other hand, millionaire taxes can been seen as calling for the largest tax contributions from those who benefit the most from American capitalism and from the protections and rights of the U.

However, in many political debates today, these crucial conversations about fairness and moral values are often sidestepped. Economists like Martin Feldstein and his political proponents argue, in essence, that the morality or fairness of the tax code is irrelevant: Millionaire taxes are simply self-defeating because the rich will leave. If millionaires are voting with their feet—and moving to the tax systems that they want—what kinds of tax plans can survive this pressure?

If there is a great deal of millionaire tax migration, perhaps questions of fairness really are just idle discussions of unworkable aspirations. This raises the central question of this book. Can different places sustain different tax rates on the rich?

Texas will never want to be a state that taxes millionaires at a higher rate. Internationally, some countries are deeply committed to tax systems with low rates on the rich. This book takes on some broad intellectual territory. It might be seen as the demography of the rich—the migration of millionaires and billionaires—with a focus on the geographic limits and possibilities of taxation. But deep at the center of this inquiry is the importance of place in the modern world.

I argue that place remains centrally important to the lives and incomes of the rich in the United States and abroad. Globalization and migration have been misunderstood for many years. And this has important implications for how we think about taxation and geographic mobility. Sociologist Saskia Sassen writes that globalization is not just a process of global dispersion, but also one of spatial concentration.

Globalization is seen in offshoring factories and jobs around the world, building global networks of franchises and subsidiaries, and the rise of international financial markets to facilitate worldwide investment and payments.

The corporate services complex—made up of the top firms in law, accounting, management consulting, and investment banking—is overwhelmingly concentrated in the major cities of wealthy countries. Globalization has not meant that elite professionals and the executive class can now live wherever they wish. On the contrary, place is more important than ever, and top income earners are more and more concentrated in major cities like New York.

Understanding how place still matters in a globalized world is important not just for the design of tax policy, and not just for millionaires, but for how we all understand our lives and the ties that bind us to where we live. How does one study the geographic mobility patterns of the highest income earners? My initial entry point into this research area was in studying the effect of a so-called millionaire tax passed in New Jersey in There were widespread criticisms, however, that the tax was causing rich New Jerseyans to leave the state.

To study the effects of this tax, the New Jersey Division of Taxation granted me and my colleagues unique access to the complete NJ tax records for the years to These administrative tax data solved a central problem in the study of economic elites: the difficulty of acquiring good data on them. Millionaires tend to be protective of their privacy and reluctant to participate in interviews or surveys. He delivered his speech before invited lawmakers and other government officials instead of the normal guests because of the ongoing COVID pandemic.

Envy has long figured prominently in efforts to discredit progressive taxation. As far back as , President Calvin Coolidge was dismissing the notion that envy could be allowed to shape tax policy. More recently, Ronald Reagan put envy at the center of his antitax arguments. In , for instance, he wondered aloud to a group of conservative activists if Americans were truly comfortable with class antagonism:.

Since when do we in America accept this alien and discredited theory of social and class warfare? Since when do we in America endorse the politics of envy and division?

Even more recently, envy has continued to figure prominently in critiques of progressive tax reform. Here are three examples, all published during the past three years by The Hill newspaper which seems to have a soft spot for anti-envy enthusiasts :. These complaints about envy have a superficial plausibility. Senate Republicans held a news conference to discuss "the need for tax reform and the impact it will have on American families, small businesses and the economy.

Given that definition, is it so unreasonable to suspect that a progressive tax — especially one that targets a relatively small number of very wealthy individuals — might be an expression of envy? Might the tax be an instrument for dispossessing the better-off rival of the wealth that is causing the discontent in the first place? The answer to that question is probably no. If we take envy seriously — and examine it carefully — it quickly falls apart as a meaningful complaint about progressive taxation.

A quick survey of U. Trying to define envy is no small task. Indeed, the philosophical literature on the subject is ancient, vast, and complex.

So far, so good. But the SEP adds another important element to the definition. Indeed, depriving the rival of the good may sometimes be more important to the envier than gaining possession of the good itself. This addition is important to the definition of envy as it might be used in fiscal policymaking. To be envious is not simply to desire something that belongs to another — a desire that might simply induce you to work harder at getting the same item.

Envy necessarily involves a desire to dispossess the other person of that envied item, regardless of whether you get to possess it yourself. The editors of The Wall Street Journal may have had this element of envy in mind when they attached the label to Biden and his capital gains proposal.

If so, then that would truly be envy. Democratic proposals will face a similar process of loose proposals, analyst scrutiny, and legislative compromise. Sign up for the Future Perfect newsletter. Our mission has never been more vital than it is in this moment: to empower through understanding. Financial contributions from our readers are a critical part of supporting our resource-intensive work and help us keep our journalism free for all. Please consider making a contribution to Vox today to help us keep our work free for all.

Cookie banner We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. By choosing I Accept , you consent to our use of cookies and other tracking technologies. Reddit Pocket Flipboard Email. In just the past few months, at least three major Democratic Party figures, two of whom are presidential contenders, have proposed large tax increases targeted at the richest Americans: Rep.

Elizabeth Warren D-MA recently became the first major American politician to propose an annual wealth tax.

Cory Booker D-NJ has proposed a 65 percent estate tax rate higher than at any point since , a higher capital gains tax rate, and applying capital gains taxes to assets held at death, all to pay for his baby bonds bill. A recent history of taxing the rich High tax rates targeting the rich used to be the norm in the United States. President George W. Erik S. The intellectual basis for taxing the rich So what accounts for the new aggressive support for taxing the rich among leading Democrats?

Is 73 percent the magic number? Capital: to tax or not to tax Saez and Diamond also argued that capital income — income from things like capital gains, corporate profits, dividends, etc. Thomas Piketty, one of a group of French economists who have made heavy taxes on the rich intellectually respectable.

Wealth taxes face an even bigger hurdle in the form of Article I, Section 9, Clause 4 of the Constitution: No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

Bernie Sanders I-VT has proposed the most aggressive estate tax plan of any candidate. Future Perfect Are we turning the corner on Covid treatments? Sign up for the newsletter Sign up for The Weeds Get our essential policy newsletter delivered Fridays.

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