Democrats Want To Tax the Rich More. They Can Convince Americans by Showing Them Their Money.
A new study offers some insights as to how progressives can build a movement to win higher taxes on the ultra-rich.
America’s more than 700 billionaires have a combined net worth of over $5 trillion.
Progressive Democrats argue that despite the mountains of money these billionaires sit on, they pay very low effective tax rates — that is, the rate they actually pay, as opposed to what you might expect based on the rates published in law.
Indeed, America’s richest citizens often pay little to nothing in income taxes, as ProPublica noted in a report it assembled following a leak of Internal Revenue Service data:
To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.
We’re going to call this their true tax rate.
The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%. [emphasis mine]
How do they get away with it? It’s because the tax code is chock full of loopholes, and there are ways to stash and grow your wealth that avoid income taxes.
Progressives want to close loopholes and increase the effective tax rate paid by many of America’s richest citizens. But in decades of legislative wrangling, they’ve had little luck making the rich pay more.
One challenge is convincing Americans that this is a pressing need. How can they talk to the average voter and persuade them that we should soak the rich? A new study says that it’s all about showing you their money.
How public image impacts demand for taxes
UCLA economist Ricardo Perez-Truglia has spent years studying inequality.
He worked with a colleague to conduct a study to figure out how Americans think about taxing the rich. Specifically, they wanted to see if providing participants in an experiment with various information about billionaires would boost the demand for higher taxes for the wealthy.
Surprisingly, telling the participants how rich billionaires actually are, how the billionaires pay lower tax rates than other people, how tax loopholes work, and how luck factors into how some people get rich had basically no effect on how much people wanted to tax the rich.
What did work, though? Showing people the sweet digs some billionaires live in. Participants who saw, as one example, images of Bill Gates’s $130 million mansion in Washington state — which comes with a 2,500 square foot gym and a reception hall that can entertain 200 guests — became significantly more likely to support higher taxes on the super-rich.
“That was the only one that consistently had a positive effects on the demand for taxation….our interpretation is that it may have triggered some sort of emotional reaction,” Perez-Truglia told me in an interview.
Why might providing people numbers — like how much billionaires currently pay — not change their minds the same way?
“If we are talking numbers — this is how many billions of dollars a billionaire makes or whatever — people don’t get upset or envious of that information…but if you show me a picture of a mansion…that might trigger an emotional reaction,” he said.
Thinking elephant-first
Years ago, I did some work for one of the depolarization organizations founded by the social psychologist Jonathan Haidt.
One of Haidt’s famous analogies, which we incorporated into our work, was that of the elephant and the rider.
Our calm and rational side is the rider. But our emotional side is the elephant.
We often think that people make decisions based off purely rational thought processes — like they’re setting up a spreadsheet to decide whether they want to do action A or action B.
But an elephant is much more powerful than a rider. Our emotions play a huge role in how we make decisions.
Haidt was using the analogy to say that we have to make sure people feel comfortable and calm before we can change their minds about something — get the elephant under control, and then we can talk to the rider.
But in politics, elephants are king. Think about to the famous presidential debate moment when Massachusetts Democratic Governor Michael Dukakis responded in a dry way to a question from CNN’s Bernard Shaw about what he would do if his wife was raped and murdered — would he want the death penalty to be applied?
“No, I don't, Bernard, and I think you know that I've opposed the death penalty during all of my life. I don't see any evidence that it's a deterrent and I think there are better and more effective ways to deal with violent crime,” he started his response, also talking about his state’s low murder rate.
Yet that isn’t what Americans were looking for. Why did Dukakis respond with so little emotion to a question about his wife being brutalized and killed? This is his wife we’re talking about — nobody wanted a response full of statistics.
Dukakis forgot about all the audiences’ elephants, and he lost that election.
Politics is fundamentally about emotion, and if progressives want to tax the rich, they have to make people feel the gap between the ultra-rich and the rest of us, not just throw a million facts and figures at us.
Isn’t there a perception issue with how “rich” is defined? Middle to high income citizens pay the most taxes, but the ultra rich have very little in terms of income, they are enormously rich in assets and the dividends that come from them.
So I understand where you're going and it's a nicely reasoned argument, but you talk about how we shouldn't let emotion drive us, and you are, in a way. And this is coming from a liberal perspective. I don't like the income inequality in this country, but the reason you're not going to get some people to sign on is that we understand where we live.
So let's start with some numbers. If you took the entire combined wealth of every billionaire this country has (which you state above is $7 trillion) you could run the entire country for precisely one year (maybe a few months into the next). The budget for the US government for fiscal year 2024 was $6.2 trillion (and a good chunk of that is interest on the US debt). Once you see that, you start to understand where the problem is. It's not with taxing people. It's with the spending. If all you're going to do is tax the "ultra-wealthy" without getting a handle on spending, even a liberal knows you're not fixing anything. You're just pouring more money in a black hole.
But then comes the second problem. We've already demonstrated this is not going to help in any meaningful way because the spending is out of control, but both sides see this "extra money" and they go crazy: tax cuts for corporations, "forgiving" student loans, building up the military (there has to be a war somewhere we can send weapons to at taxpayer expense). And so now you have to start looking lower on the food chain for taxes, so tax the ultra-rich becomes tax the rich becomes tax the middle class becomes tax everybody.
But more often than not, the things that are sold as "taxing the rich" are taxing everybody. I'll give you two good examples. The first one I saw in Biden's first tax plan when he said he wasn't going to tax anyone making more than $400,000, and then I saw that he'd included a tax on "stock trades." Everyone with any kind of investments would pay for a tax on stock trades, outright in their investment accounts or as part of their 401Ks or IRAs. Even pensions would get hit as pensions are basically just large, "communally owned" investment accounts. Suddenly even someone working at the local fast food chain with a 401K became "rich." The second example was the wild idea to apply capital gains rates to inheritances. So I pass away and my niece inherits my house. The suggestion was that she would pay capital gains rates (in the form of inheritance taxes) on the difference between what I bought my home for and the value at my time of death. For most people, their homes are their only real assets in this world. Right now, when someone dies, the inheritors of their estate (however large or small) get a step up in basis, which means if they inherit the house and decide to live there, they pay nothing (unless their estates go over something like $5.5 million). If they sell it in a few years, they only pay capital gains on the difference between the sale price and the value at the time of death. But they wanted to change that. I ask you, how many people could afford to pay capital gains taxes on a house (or a businesses, a farm, anything) on what they *inherited*? It would be a tax on *everyone* again, and most people would have to sell the home or business.
And that is why, even as a liberal, you're not going to sell me on taxing the "ultra-rich." You can show me all the pics you like of Bill Gates's homes. I hate the fact that we have such income inequality. And, yes, men like Bill Gates are getting far more out of the system than they're putting in. But to let the government tax Bill Gates, I have to believe they will stop with Bill Gates. And they won't. I have seen absolutely nothing to suggest they would, and much to suggest they wouldn't.