Ultra-Wealthy Could Soon Be Paying 'Millionaire Tax,' Here's What That Means

By Lauren Dubois @l_dubois613
10/29/22 

In two states, the ultra-wealthy might soon see more money coming from their earnings, as ballots to enact a "millionaire tax" are on the ballot in two of the highest income states.

According to CNBC, voters in California will decide if they want to enact Prop 30, which would add a 1.75% levy on annual income of more than $2 million, in addition to the state's top income tax rate of 13.3%. In Massachusetts, the Fair Share Amendment would create a 4% levy on annual income over $1 million on top of the state's 5% flat income tax.

Both states are among the highest-income states in the U.S. According to Investopedia, Massachusetts had the second-highest median income of $85,800 in 2021, while California ranked fifth with $80,400 in median income.

If the proposals pass, the two states will be among the only ones in the country to propose larger levies on the wealthy, something that has had growing interest over the years, yet failed to gain traction at a national level.

Democratic lawmakers have floated several proposals for similar taxes, including the Ultra-Millionaire Tax Act (a 2% tax on wealth over $50 million and 3% on wealth over $1 billion), a tax on those with either more than $1 billion in wealth or an adjusted gross income exceeding $100 million for three years, and even a proposal from President Joe Biden for a 20% levy on households worth more than $100 million.

The interest in taxing the wealthiest has only grown following ProPublica's publishing of a treasure trove of documents from the Internat Revenue Service in 2021, which showed that at various points, some of the richest Americans, including billionaires Jeff Bezos, Elon Musk, Michael Bloomberg, Carl Ichan and George Soros, had managed to skirt paying income tax multiple times, despite their income and wealth. However, measures have not gained steam due to some Republican pushback, as well as voters questioning what would be done with the funds raised from such taxes.

It's unclear if the current proposals will pass based on the plans for the revenue from them. In California, the plan is expected to bring in $3.5-$5 billion annually if it passes, and the revenue will be used to pay for zero-emissions vehicle programs and wildfire response and prevention. In Massachusetts, where it would be expected to generate $1.3 billion in revenue, money would fund public education, roads, bridges and public transportation.

Some U.S. nonprofits are rewarding their top fundraisers with seven-figure salaries, but critics say executives shouldn’t become millionaires off the goodwill of private donors. 

We Can’t Afford NOT to Have a Wealth Tax

Just a small annual levy on America’s grandest fortunes could finance a better future for all of America’s kids and families.

RESEARCH & COMMENTARY
OCTOBER 29, 2022
by Jack Metzgar

Every time I hear that we as a nation cannot afford something — whether that might be assuring non-toxic water in Jackson and Flint or universal pre-K or an industrial policy with teeth — I have wondered how many dollars a national wealth tax might yield. So I looked the numbers up.

Wealth turns out to run way bigger than income. Our total U.S. wealth in 2021 sat at $150 trillion. Total income, combining personal income and company profits, amounted to about $25 trillion. A small wealth tax would clearly produce much more government revenue than a much larger income tax.

Like income, wealth in the United States remains highly concentrated. The wealthiest 1 percent of Americans hold about one-third of that $150 trillion in U.S. wealth. That comes to $50 trillion, twice the total annual income of all Americans, everyone from the millions of workers making less than $15 an hour to the corporate executives making multiple millions. Again, you don’t need an algorithm to figure out that even a tiny wealth tax on the top 1 percent could produce as much — or more — than a large income tax on everybody.

A modest national wealth tax could solve a lot of problems and fund a lot of common good, even if that tax only somewhat reduced our savage economic inequality.

Senators Elizabeth Warren and Bernie Sanders have offered pioneering proposals to introduce national wealth taxes to the United States. Critics have raised various objections to these proposals. Collecting a wealth tax would prove impractical, some charge. Others say that taxing wealth at the federal level would be unconstitutional. Senator Warren has convincingly addressed these objections, but I’d just like to add one point: Taxing wealth would provide a nearly inexhaustible source of government revenue. Collecting that revenue may well hit some administrative or political obstacles. But overcoming those obstacles would be well worth the effort.

Let’s look at what a 1 percent wealth tax on our top 1 percent could buy and then see how much pain and suffering that levy would impose on those who would pay the tax. A 1 percent wealth tax on the top 1 percent would produce $500 billion a year in revenue, or $5 trillion over the 10-year budget calculation demanded of federal legislation.

That $500 billion could buy something like a revolution in child-rearing. President Biden’s original Build Back Better proposal had elements of such a revolution, but never won full funding because implementing family-friendly policies will always be so damned expensive. With a 1 percent tax on the top 1 percent, we could meet that expense.

Here’s what a plan concentrated on helping children and making parenting more manageable could do with a 1-percent-on-the-1-percent tax:
From “Build Back Better” Annual Cost 10-Year Cost
Expanded child tax credit $160 billion $1.6 trillion
Childcare subsidies and universal Pre-K $125 billion $1.25 trillion
Paid family leave $20 billion $200 billion
Expanded earned income tax credit $13 billion $130 billion
My add-on
Baby Bonds proposed by Sen. Corey Booker $60 billion $600 billion
TOTALS $378 billion $3.78 trillion
Remaining revenue from 1-percent-
on-the-1-percent tax of $500 billion $122 billion $1.22 trillion

Sources: Congressional Budget Office, Committee for a Responsible Federal Budget, CNBC.

This package would provide $3,000 per child for virtually all parents, save an average of $11,000 for those now using day care for pre-schoolers, and open up employment opportunities for those parents with pre-schoolers who cannot now afford day care. This would all be great for children’s academic, psychological, and social development — and would transform the economics of parenting, most especially for low- and moderate-income families.

Senator Booker’s Baby Bonds would create and seed a savings account of $1,000 at the birth of every child in the United States and then add up to $2,000 each year depending on household income. The funds would earn income that would not be available for the children until they reach 18. At that point, they could use the money for education, to buy a home, start a business, or continue as a retirement account.

Taken as a whole, this package would cut child poverty by more than half, greatly improve general educational levels over time, and immediately provide substantial support for families during their most challenging years for managing both time and money. A modest wealth tax could provide all this benefit, with money left over to do still more common good. But at what cost? How much harm would a wealth tax do to those elite few who would have to pay the tax?

As illustrated below, the amount individuals would pay in wealth taxes would indeed be very hefty, often running into the millions, even billions of dollars. But in most years and on average, America’s top 1 percent would continue to get wealthier even with this wealth tax in effect. Given that the S&P 500’s annual average stock market return since 1957 has topped 11 percent, a mere 1 percent tax on wealth would amount to little more than a rounding error for anyone in the top 1 percent.

The impact of a 1% wealth tax on the top 1%

Wealth
Wealth tax Assuming 11% annual income from investments Increase in annual wealth with a wealth tax in effect
$10 million $100,000 $1.1 million $1 million
$50 million $500,000 $5.5 million $5 million
$1 billion $10 million $110 million $100 million
$190 billion $1.9 billion $20.9 billion $19 billion

Once established, a wealth tax could easily expand in small increments to a perhaps more reasonable 4 percent, producing $2 trillion a year in revenues, based on current levels of wealth. Or we could tax higher levels of wealth at higher percentages, as Senator Warren proposes, with tax rates on billionaires reaching 6 percent. Even at those higher rates, the wealthy would go on getting wealthier. But taxing the wealth of these wealthy would open a cornucopia of public capital to invest in addressing our multitude of problems and in bettering working people’s lives.

By not taxing wealth we are failing to tap by far the largest source of our potential public revenues. And because the wealth of the wealthy confers both economic and political power, we cannot adequately defend democracy if we go on allowing our economic oligarchy a completely free lunch.

A clear majority of Americans support most of the family-friendly policies listed above. Even larger majorities support the notion of a wealth tax, with nearly two-thirds of Americans favoring a tax on grand fortune. Imagine that. The polls are showing higher support for taxing the rich than for the beneficial programs that taxing the rich could finance. Makes you wonder why our elected representatives, especially Democrats, are not standing in line to support such a combination of policy and pay-fors.

Next time you hear a politician say “we” can’t afford something that clearly needs doing, just stop a moment and think — about what a wealth tax on a very small proportion of Americans could accomplish.

Jack Metzgar, a retired adult educator from Roosevelt University in Chicago, is the author of Bridging the Divide: Working-Class Culture in a Middle-Class Society (Cornell 2021).