What timing! Even before last week’s explosive revelations by ProPublica that billionaires have perfected the art of not paying taxes, Senator Van Hollen and Congressman Don Beyer had planned to reintroduce their Millionaires Surtax (MS). The MS, a 10% income tax surcharge on both earned and investment income on couples earning more than $2 million per year, is one of the five complementary components of what some are calling Ultra Rich Taxes, or URTs (not to be confused with yurts, although both would provide one with a good night’s sleep). URTs are laser-focused tax policies that only apply to the 0.1% (possibly 0.2%) of America’s richest households. This tiny group of people have a combined total reported income of over $1 trillion per year and sit on bank accounts and other assets worth more than $12 trillion (as a reminder, that’s a “12” followed by an unbelievable twelve zeroes)!
Close to $1 trillion in tax revenue could be raised over ten years through the Millionaires Surtax, more than enough to fund Biden’s pre-kindergarten education for all ($225b) and support for childcare ($300b). The other four URTs that have been introduced as bills in Congress are the Ultra-Millionaire Tax Act (Senator Warren, Congresspersons Jayapal and Boyle); a wealth tax on those in the 0.1% with more than $50 million in assets; The For the 99.5 Percent Act (Senators Sanders and Whitehouse, Representative Gomez) which makes the estate tax an effective tool in reducing tax-free creation of intergenerational wealth; Restoring the IRS Act (Warren) which funds the IRS to ramp up its enforcement of the tax laws with a particular emphasis on the 0.1%; and a stand-in for addressing philanthropy reform, The Accelerating Charitable Efforts, or ACE Act (Senators King and Grassley).
Many of us have been brought up thinking that–as sociologists have taught us–there are five income classes in the U.S.: poor, working class, middle class, upper-middle class and upper class. This outdated categorization ignores the huge growth in wealth inequality in this century, causing “upper class” to be replaced by the merely “affluent” and a whole new category that goes by not one but four related names: the rich, the wealthy, ultra-high net worth individuals (UHNWI) and the 0.1%.
The main distinction between the rich and everyone else is hoarding, which undermines democracy and deprives society of the revenue it requires to make public investments that benefit us all. Of course, it is theoretically possible that a wealthy person might, in an autocratic way, actually think they can do better at making public investments than the government, and thereby justify avoiding paying taxes, as rich people are wont to do. But then we’d expect to see a level of charitable giving at least commensurate with the amount of tax avoidance. Unfortunately, no such thing. Instead of seeing greater giving, we see boys playing with spaceships, buying $500 million yachts or managing 60,000 square foot homes while our country suffers from among the worst social indicators of developed nations: a growing population of homeless people; poor education; high opioid use; high incarceration rates; poor health outcomes; and so on.
Addressing the role of philanthropy in wealth accumulation is frequently overlooked when discussing taxes. The wealthy get enormous tax savings– in high tax states as much as 90% of their gift (in other words, each charitable dollar costs rich donors ten cents while the public contributes 90 cents)—which are intended to incentivize support of nonprofits. Instead, a significant portion of that money is hoarded in donor advised funds (DAFs), as recent research has shown, and private foundations. ACE addresses some of these issues, but as Chuck Collins and I have written, it should be viewed as just an opening salvo.
Taxes and philanthropy are not either/or propositions. Philanthropy has an important role to play in our society, and the more democratic that philanthropy is the better. However, it is not a substitute for the kind of funding at scale that government can provide. Taxes are, in a sense, forced philanthropy, ideally ensuring that everyone participates in supporting public investment based on their ability to contribute. We’re not at ideal. ProPublica’s bombshell only adds more evidence that the rich are nowhere to be found when it comes to investing in the public good. It’s past time for the wealthy to pay their fair share–and also charitably give more–because a civilized society requires it. It is the responsible and reasonable thing to do.
Thanks for reading, and a particular thanks to the CCC signers for stepping up to the plate.