Momentum for a Millionaire’s Tax
December 11, 2011
With Responses From
Dec 11, 2011
4 Min read time
The Occupy movement can push a millionaire’s tax.
Since at least the 1980s, America has increasingly become what economists Robert Frank and Phillip Cook labeled a “winner-take-all society”: those who are successful tend to stay successful, while those who are poor tend to become poorer. The Occupy movement is in large part a reaction to this trend. Our tax policies are not the cause of rising inequality in America, but they have made the problem worse. Tax reform should, therefore, be part of the Occupy movement’s agenda.
The tax system has tilted in favor of the top. Since 1980, the tax rate facing the very highest-income earners has dropped by half, from 70 percent to 35 percent. Capital gains (mostly windfalls from the buying and selling of financial assets) are now treated as protected income and taxed at a much lower rate than wages. And today, most multi-million-dollar inheritances incur no taxes at all.
The decline of manufacturing and the rise of the post-industrial service economy have been deeply polarizing. We’ve seen a tremendous loss of middle-class jobs. As those jobs fade, we also lose the economic ladder rungs between the top and the bottom. While our tax policies could help correct for these problems, they have instead contributed to greater polarization by giving the most tax relief to the most successful. Those who fail to make six-figure salaries have to pay a greater portion of the nation’s bills. Compared to the tax system of the early 1980s, we penalize people for not striking it rich. With its focus on the “1 percent,” Occupy Wall Street seems to express a broad-based discontent with this transformation.
Tax policy in America is so far out of synch with public values that even millionaires support higher taxes on the rich. Billionaire Warren Buffett has been leading the charge, supported by the “Patriotic Millionaires” activist group. A large survey by the investment advice firm Spectrem found that 68 percent of millionaire investors support a federal millionaire’s tax. So do most Republican voters and Tea Party supporters. What holds tax reform back is not a lack of popular support, but rather complete policy paralysis in Washington.
A new millionaire’s tax would return America closer to its traditional tax policies. It would also move us closer to many of our international peers. For example, the “big four” European countries—Germany, France, Italy, and the United Kingdom—all have top marginal rates on the wealthy ranging from 40 to 50 percent—all higher than the top rate in the United States.
Thanks to its nationwide presence, the Occupy movement can push a millionaire’s tax to every state legislature in the country.
How, then, to go forward? Given the perpetual threat of filibuster and de facto supermajority requirements in Congress, the states are the natural starting point for incremental steps to a more progressive tax system. The national story of budget crisis and austerity cuts plays out in nearly every state in the country. The latest jobs report shows that state and local governments have laid off 625,000 people (80 percent of them in education) in the last year. The states’ need for revenues is desperate.
Thanks to its nationwide presence, the Occupy movement can push a millionaire’s tax to every state legislature in the country. A modest slogan, modeled after tax reforms in New Jersey, would be for each state to add a marginal tax of “3 percent from the top 1 percent.”
The risk, of course, is that this kind of state millionaire’s tax will convince the richest residents to pack their bags. After all, it is much easier to move out of state than to leave the country. Indeed, as New Jersey Governor Chris Christie recently said, “Ladies and Gentlemen, if you tax them, they will leave.”
Actually, they do not. In a detailed study [PDF] of the New Jersey millionaire tax, my colleague Charles Varner and I drew on unique access to the state’s complete income tax records over eight years, which gave us a virtual census of the state’s millionaires. After the millionaire’s tax was passed in 2004, there was a huge surge in the number of millionaires in New Jersey—an increase of 38 percent (13,000 people). Of course, this spike was fueled by income growth at the top—more people becoming millionaires—rather than by an influx of millionaires into the state.
In terms of millionaire migration itself, the effect of the new tax was close to zero. For every 2,000 millionaire households in the state, one household per year migrated in response to the tax. The total number of millionaire households lost over four years was 70; they took with them $16 million in foregone tax revenue. By contrast, the tax raises $1 billion per year.
It is worth emphasizing that New Jersey is a geographically tiny state, with a higher population density than Japan. Many New Jerseyans could move 30 miles or so and find themselves in the lower tax states of Connecticut or Pennsylvania. If a tax on the 1 percent is viable in the small state of New Jersey, it should be viable just about anywhere.
In troubled times, taxing the rich is something even the 1 percent think is fair. With state governments in budget crisis around the country, a modest millionaire’s tax bill—“3 percent from the top 1 percent”—should be on every governor’s table.
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December 11, 2011
4 Min read time