Wealth Taxes Will Barely Slow Inequality. So Why Do the Super-Rich Resist Them?
S E E D E D C O N T E N T
Can you discuss a bit the nature of the overall structure of taxation in the U.S. and whether, in particular, it reflects who’s winning the capital-labor class struggle? Also, does it help to explain the government shutdown?
In the U.S., most attention gets focused on the federal income tax, because it is a major source of revenue, but also because Republicans have consistently pushed to reduce the tax rate on high incomes. Conservative advocates of supply-side economics have insistently claimed that this would promote economic growth, making everyone better off. No evidence supports this claim.
Policies that impose a higher tax rate on higher income individuals are labeled “progressive” and those that do the opposite, “regressive.” Both political parties have colluded in policies that have reduced progressivity steadily since the 1960s. The highest marginal tax rate (the rate on taxable income in the highest bracket) fell from about 91 percent to about 35 percent in the early 2000s. Also since the 1960s, corporate income taxes have fallen by about half even as payroll taxes increased.
Back in 2006, the famously successful investor Warren Buffet actually complained that his secretary faced a higher tax rate on her earnings than he did on increases in his wealth, which included capital gains that went completely untaxed. As he put i t, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we are winning.”
Notice that this is a very different kind of class struggle than one over profits and wages at the point of production. It’s a struggle over the social wage, payment for health, retirement, and safety net benefits that are more efficiently provided through the state than by the private sector, benefits that have been won through a process of democratic political bargaining.
Employers have obvious economic incentives to oppose increases in the social wage, if they are forced to pay for them. However, public social spending can enable them to keep wages lower by shifting some of the costs of reproducing workers to the public as a whole. This is why the incidence of taxation really matters. Increases in the social wage, such as the expansion of health insurance benefits, have partially compensated for fifty years of stagnation in the inflation-adjusted earnings of the majority of employees in the U.S. In recent years, however, even this partial compensation has declined, and it is currently under direct attack.
The Trump administration has been doing everything in its power to cut taxes for the rich and cut social benefits for low- and middle-income families (see this dissection of the so-called Big Beautiful Bill passed last summer). The current shutdown of the U.S. government is a showdown, with Democrats reduced to rather desperate efforts to simply hold the line by insisting on the maintenance of health care subsidies for the Affordable Care Act.
Indignant taxpayers who believe they are paying more than their fair share point to federal income taxes, which are relatively progressive, partly because many Americans don’t even earn enough to pay them. But federal income taxes account for only about half of total tax revenues, and more than half of corporate income taxes are simply passed on to consumers in the form of higher prices. Other taxes, including state and local sales and property taxes, are regressive.
These regressive taxes largely countervail progressive income taxes, leading to little differential impact across the income distribution. The Institute on Taxation and Economic Policy reports that in 2024 the richest 1 percent of Americans paid about 23.9 percent of all taxes, but their share of total taxable income was 20.1 percent. This estimate does not include consideration of “unrealized capital gains” (increases in the value of their wealth). The poorest 20 percent of all Americans were estimated to pay only 1.5 percent of their income in taxes, but their share of total income was only 2.6 percent. Many of them were living in poverty because they were raising children or caring for elderly family members — activities that should be counted as contributions to our “social reproduction.”
It’s a bit complicated, isn’t it? The difficulty of sorting out who is actually paying for what surely helps explain why it has become difficult to defend — much less increase — the social wage.
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