Elon Musk may not want to tweet it on Tax Day, but for America to maximize its economic growth, America’s billionaires will need to pay more in taxes.
In the past three years the United States has made investments to strengthen its economic house for the future. By staving off the worst effects of a global pandemic, the country managed to save and reopen its economy. We recently made investments to renew our infrastructure. We launched an unprecedented investment in the future of energy. We also doubled down on our investment in technology with the CHIPS and Science Act.
However, these important investments are only a down payment on the renovations we need today; there is so much more to do. More public investment is needed to renew America’s growth and secure its strength for the long term. And it is fiscally prudent to start raising revenue for that investment now, while our economy is strong.
Markets succeed when the United States makes productive investments in the things that drive growth: infrastructure, innovation, effective education, and small business development. Economists since Adam Smith have repeatedly made the case that strategic government investment helps the economy: A 2014 study by University of Maryland economists found that every $1 invested in infrastructure brings a multiplier effect of as much as $3 to GDP growth.
More revenue is needed to continue to place sufficient capital in these kinds of economically productive public investments. The United States could borrow all the money it needs to fund critical investments. But at a time when the country is doing well financially, it makes more sense to pay for many of those investments now instead of passing the whole bill on to future generations.
Like most Americans, I believe in the power of capitalism, and the power of public investments in infrastructure and innovation to drive long-term growth. One of the most efficient ways to raise revenue for productive public investments is to ensure that the most financially successful giant corporations pay sufficient taxes. President Joe Biden recently signed into law a 15% minimum tax for corporations with at least $1 billion in income. Not only does that mean giant corporations will no longer pay $0 in taxes; it also ensures that more foreign investors who profit from our country will be footing more of America’s tax bill. The job’s not done—more action is needed to close loopholes and reform rates to make sure multinational corporations and foreign investors are paying up.
Another efficient way to raise revenue is to ensure billionaires and ultra-millionaires pay more in taxes. Americans who can contribute the most to America’s future often are asked to pitch in surprisingly little. The 400 wealthiest American billionaire families pay an effective federal income tax rate of only 8.2%, less than many of our firefighters and nurses.
It is efficient to raise revenue from sources that are currently undertaxed, including most of America’s billionaires. Some say billionaires do more for the economy when they pay less in taxes than other Americans and retain more of their wealth to invest. But history paints a more balanced picture: Real U.S. GDP grew faster in the post-World War II decades of the 1950s and 1960s, when historically high top-tax rates were in place, than in the decades since, when top tax rates were lower.
Biden renewed the call in his most recent budget for a Billionaire Minimum Income Tax on the very wealthiest Americans. The time has come to implement this policy—and it is already popular with Republican, Independent, and Democratic voters. Congress should pass it and put it on his desk to sign into law.
The Billionaire Minimum Income Tax would raise an estimated $360 billion over the next decade. This could fund some of our most needed investments and could be used to reduce our national debt. Specifically:
- It would require American households worth more than $100 million to pay a minimum of 20% of their annual income in taxes.
- It only applies to the top one-one-hundredth of 1% (approx. 0.01% of households—those worth more than $100 million), with most of the revenue generated coming from households worth over a billion dollars.
- Households worth more than $100 million that are already paying 20% on their standard taxable income plus untaxed investment income won’t pay a dime in additional taxes.
- It doesn’t touch small businesses or even the vast majority of large private estates—only enormous fortunes.
Biden’s proposal not only makes good economic sense but political sense as well. Some in Washington may prefer to attend to donors rather than voters, but polling has consistently shown that about three quarters of voters support a Billionaire Minimum Income Tax. Between 55% and 63% of Republican voters already support it. In fact, 54% of voters believe a proposal like this could help with inflation. It’s incredibly popular.
Much of today’s wealth reflects the positive growth effects of investments the country made in decades past, investments that benefited everyone and enabled great fortunes. Billionaires who whine about paying a little more to America would also do well to remember that their own grandchildren and great-grandchildren will be better off in a country that is strong, successful and stable.
Voters understandably question a system when those at the top pay less than what is economically efficient. Resentments fueled by a lack of respect for our tax system drive civic division and make our country weaker. A reformed system would advance American civic unity and self-governance as well as economic freedom.
Put simply, for America to reap the harvests of economic and political freedom in the future it has to keep sowing seeds of economic growth and political stability today. A modest minimum tax on billionaires’ and ultra-millionaires’ income would help us do that. It’s popular and fiscally responsible—a productive, patriotic solution that will strengthen opportunity for all Americans.