How the Tax Code Can Create a More Equal Economy
April 18, 2022
By Joseph Miller, Emily DiVito
Tax Day, more than an administrative deadline, is a reminder of the powerful potential of the tax code. Beyond raising revenue, the tax code shapes our economy—too often in favor of the wealthy and well-connected. But now, thanks to the tireless work of advocates and activists, a different understanding is gaining momentum: Our tax code, in striving for equity, fairness, and sustainability, should be designed and deployed with structural goals in mind, like remediating racial and gender inequality, tackling corporate concentration, and fighting private-sector profiteering.
For decades, conservative and neoliberal majorities in Washington championed a skewed, one-dimensional tax policy that advantaged the wealthy and corporations. Such tax policy often advanced discrete redistributional policies that aimed to help individuals, but failed to tackle the drivers of inequality or challenge corporate abuse. The economy that this tax consensus helped create is off-kilter: The top 1 percent—disproportionately white—have dramatically increased their wealth share, while the bottom 90 percent have seen their share plummet since 1980. And the ever-increasing power of corporations has weakened the impact of government investments as large, dominant firms swallow up federal dollars, funneling them to shareholders while producing and hiring less.
But in the last several months, the Biden administration and aligned policymakers have released a number of new tax proposals that each represent a welcome evolution in how we think about tax policymaking—and who it serves. In addition to ensuring the uber-wealthy pay their fair share, these proposals would result in structural reforms to increase competition, productivity, resilience, and equity in the economy, and would allow for investments in the climate, manufacturing infrastructure, and vital public services in communities across the country. For example:
- Windfall taxes would tax excessive corporate profits. Sen. Bernie Sanders (I-VT) has proposed implementing a broad-based excess profits tax reminiscent of the one the US imposed during World War II. And, Sen. Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) have put forward a tax on oil companies that unnecessarily jack up prices. These proposals, rooted in the widely held conviction that companies should not be able to profit from crises, would reduce the incentives corporations have to inflate prices, diminish the power super-profitable firms have to buy up competitors, and help compel businesses to invest in their workers and production capacity—thereby creating a more level business playing field and a stronger economy.
- Stock buyback taxes and restrictions would use the tax code and federal regulatory authority to curtail the manipulative practice of corporations repurchasing their own stock in order to inflate its value and benefit insiders. Between 2010 and 2019, publicly traded companies spent $6.3 trillion on buybacks, and analysts project they could spend as much as $1 trillion in 2022 alone. That’s money that could—and should—be spent on workers, toward technological innovation, and in production. As our fragile supply chains continue to weather the pandemic, it’s imperative that businesses be prevented from funneling money to their shareholders at the expense of company investment. Taxing share buybacks is hugely popular, and gaining traction. A 1 percent tax on stock repurchases is included in the House-passed Build Back Better package, and President Biden’s budget prevents corporate executives from immediately selling their shares after inflating the price via buybacks.
- The Billionaire Minimum Income Tax would require households worth more than $100 million to pay a minimum tax rate on all their income—including that from unrealized capital gains. Currently, gains from things like stocks and bonds aren’t taxed at all until a “realization event,” such as a sale, occurs. This allows wealthy, primarily white households to hoard valuable assets—and benefit from that hoarding via privileges like borrowing against the asset—for as long as they choose. A minimum tax would disrupt this harmful pattern—by imposing a tax rate of at least 20 percent for the uber-wealthy.
Crucially, all of the above proposals require well-funded regulatory and enforcement agencies to ensure they are implemented properly. For decades, anti-tax conservatives, aided by moderates unwilling to make the case for robust enforcement, have gutted the Internal Revenue Service (IRS). But the growing new consensus on tax policymaking—as evidenced in part by the call for increased IRS funding in President Biden’s budget for 2023—understands the folly of levying taxes without proper funding and enforcement from the agency in charge of collection.
Taken together, the above tax proposals would themselves build a more resilient and equitable economy, independent of the money they would raise to fund critical programs. So let this Tax Day not only serve as a cue to file your returns, but as a reminder that our tax code can create a more equal economy, and that we deserve to see that promise fulfilled.