Since Benjamin Franklin wrote, “Nothing is certain except death and taxes,” Americans have been trying to prove him wrong. And they have had some success: According to a report published by ProPublica earlier this month, there have been several years in which some of the world’s richest men, including billionaires like Jeff Bezos, Elon Musk, and George Soros, managed to avoid paying any federal income tax. In one of those years, Bezos not only avoided paying any federal income tax but also received a $4,000 tax credit from the federal government for his children.
While an individual’s tax rate ought to rise when they make more money, the reality is that the more money a person has in America, the lower their tax rate typically is. In fact, according to the ProPublica report, when the 25 richest Americans grew their wealth by over $400 billion in a five-year period, they only paid a total of $13.6 billion in federal income tax — a tax rate of only 3.4 percent. And despite how bad that looks, it’s completely legal.
Making sure that everyone pays their share isn’t just fair —it’s an untapped source of revenue for public services and a way to moderate widening wealth inequality in the United States. President Biden’s proposed tax plan makes significant improvements, and the Biden administration ought to resist the urge to water down some of the president’s proposals.
There are many things that Congress should do in order to prevent the highest earners from paying so little in taxes, from closing income tax loopholes that allow a big business owner to pay a lower tax rate than their entry-level workers to bolstering funding for the IRS (as President Biden has proposed) in order to more effectively crack down on tax evaders who underreport their incomes. Lawmakers also ought to be willing to reform the entire tax code to ensure that all Americans pay their fair share.
But with loopholes being hard to close and a full overhaul avoided by politicians for decades, even some billionaires argue in favor of going one step further: a wealth tax in the vein of what has been proposed by Senator Elizabeth Warren. In fact, 18 of the richest Americans, including Soros, signed an open letter to ask 2020 presidential candidates to support a wealth tax. (Even Donald Trump proposed a wealth tax when he explored a run in the 2000 presidential election.) If Congress and the president cannot find another way to ensure true fairness in the tax code, it may be worth a try.
Adopting such a measure permanently ought to require proof of its viability and that it doesn’t create unintended consequences. But Congress could decide that the United States will undergo an experiment with a wealth tax for a very top tier of Americans. Such a policy could be adopted with a built-in sunset — far enough down the road to actually get meaningful data and allow the IRS to work through any potential kinks — and be evaluated rigorously to determine what adjustments or complementary policy is necessary.
One reason for caution is that critics of taxing wealth in addition to income often point out that other countries that have tried levying such a tax failed at doing so. And it’s true: The majority of European countries that enacted a wealth tax within the last three decades have since decided to abolish it. The reasons were aplenty: a mass exodus of millionaires in France, exorbitant administrative costs in Austria, and tax competition between the many European states to lure businesses and the wealthy.
But despite its failure in much of Europe, a wealth tax in the United States is unlikely to be doomed to the same outcome — that is, depending on how it’s designed. For starters, Americans can’t evade their taxes by moving outside US borders in the same way that a French millionaire could avoid France’s wealth tax by moving over to Belgium, so an exodus of American millionaires is improbable. The Internal Revenue Service follows Americans wherever they are, and the only way for an American to entirely run away from any tax responsibilities is to renounce their citizenship.
Some of the wealth taxes in Europe also target people with net worths of under $1 million. Though people who have assets that are valued at around $1 million are better off than most Americans, many of them might not have enough cash to pay what they owe, meaning that they would have to sell their assets in order to pay their debts. That might hinder investment, which is why a US wealth tax should target only the top tier of wealthy Americans. Some have proposed triggering the wealth tax only after a person’s 50 millionth dollar; Senator Bernie Sanders has proposed a wealth tax that would kick in after someone’s first $32 million. If a wealth tax hits only people with such high net worths, its impact on investment could be minimized.
Enforcing a wealth tax would require a bureaucratic expansion. Though that would be costly, the IRS badly needs more money anyway. The federal government is currently losing over $600 billion each year in unpaid taxes as a result of unreported income from wealthy Americans and large businesses, and because the IRS has seen its funding decline, it does not have the resources it needs to audit enough wealthy individuals and corporations committing tax fraud on a regular basis.
How much revenue a wealth tax would raise depends on how it’s designed and who you ask. But even conservative estimates of a low tax — one that starts at a 1 percent rate and rises to 2 percent on wealth over $100 million — show that it could raise over $1.5 trillion over a 10-year period. That would at least double the revenue that Biden’s current tax plan would collect from the taxpayers in the top 1 percent of wealth.
The constitutionality of a wealth tax is uncertain, and it seems very possible that the current Supreme Court would strike it down. But just because it might be unconstitutional doesn’t mean that Congress should not test and evaluate its effectiveness. If it is struck down by the highest court, there are ways around that if it proves itself and garners wide political support. After all, the income tax was originally deemed unconstitutional until Congress and the states passed a much-needed amendment that allowed the government to raise revenue from people’s incomes.
As Congress looks to fund its bipartisan multibillion-dollar infrastructure package and beyond, it’s no secret that a source of revenue for critical public goods is being neglected: Rich Americans are by law excused from paying a fair share of federal taxes. Lawmakers need to make a more concerted effort to solve that; the same old tax policy isn’t working. And given that the majority of Americans — including the majority of Republicans — support levying a tax on wealth, it might be time for Congress to try something new.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.