Beyond Who Pays More: How Taxes Form the Foundation of Our Economy and Democracy

In recent weeks, we’ve seen a lot of eye-catching tax policy proposals coming out of Washington that reflect real and justifiable anger at an economy rigged upward. Some take head-on the effects of concentrated wealth by focusing on taxing the rich. But others, in an almost tax-revolt like fashion, would reduce or eliminate federal income taxes on large amounts of middle- and working-class earnings. And while these tax relief proposals seemingly impose some higher taxes on wealthier taxpayers, some may still deliver gains to households near the top, and all would bore a significant hole in our nation’s tax revenue.

This is only the beginning. In order to understand how to evaluate the coming deluge of tax policy proposals, we must engage in a deeper question: how our tax code structures the very foundations of our economy and democracy.

When a worker retires, a family faces illness, or a community rebuilds after disaster, federal taxes are what allow us to turn the safety net from a promise to a reality.

In a democratic, inclusive, and prosperous society, tax policy should be doing at least three things at once: First, it should provide the revenue we need to fund public goods, help people when they most need it, and invest in shared prosperity. Second, it should prevent extreme concentrations of wealth from distorting power and the economy. Third, it should bind us all to one another and to our government by fostering a sense of shared national purpose and solving problems together that we can’t solve on our own.

When a worker retires, a family faces illness, or a community rebuilds after disaster, federal taxes are what allow us to turn the safety net from a promise to a reality. Programs like Social Security and Medicare are only possible because they pool risk between hundreds of millions of people and across decades of time to protect people from what FDR called “the vicissitudes of life”—destitution, disability, and the challenges of old age.

And taxes do more than support programs that catch us when we fall. They support the investments—in education, research, and infrastructure—that make our future brighter and more inclusive while paying enormous economic dividends. And they can even shape the choices that people and corporations make every day.

There can be justifications for tax cuts, but policymakers should be wary of policies that dramatically erode the tax base. When that happens, there is a real risk of starving vital investments. That scarcity is then used to further justify weakening core public institutions, including by cutting taxes further because the government “can’t deliver.”

Many of the tax proposals we’ve seen recently begin from a real desire to help working people and address the very real squeeze that so many have been feeling. But they do so by shrinking the tax base rather than by asking what kind of tax reform can actually sustain the public goods and institutions people need. For most middle-income households, the main sources of their economic pain these days come from the cost of essentials like housing, health care, and childcare, not high income taxes.

Instead, we should be looking toward a more progressive rate structure: closing loopholes that let wealthy households pay lower effective rates than many middle-class families, and ensuring that as top incomes and wealth rise, more of those earnings and gains remain subject to tax. We can then deploy that revenue to actually address the root causes of the affordability crisis.

Crucially, this debate is not simply a question of fairness. Left unchecked, extreme income and wealth inequality creates both economic problems and democratic ones. When wealth becomes sufficiently concentrated, it buys influence over markets, public debate, and even government itself. The tax system can be a critical tool to curb wealth concentration and ensure the government has the capacity to deploy other tools to both deconstruct oligarchic power and build up the power of everyday people.

Brian Galle of Berkeley Law carries that argument beyond income tax into the law of inheritance and trusts. As he puts it, “A democratic tax system has to prevent great fortunes from passing from one generation to the next with their power intact.”

The tax system can be a critical tool to curb wealth concentration and ensure the government has the capacity to deploy other tools to both deconstruct oligarchic power and build up the power of everyday people.

That urgency will only grow in the years ahead. Brookings and the Tax Policy Center note that US household net worth rose from $47.5 trillion in 1997 to $139 trillion in 2021, and that households headed by people 55 and older captured 97 percent of that growth. This sets up what they describe as the largest intergenerational transfer of wealth in modern US history: A substantial share of that wealth will be passed down within the upper middle-class and ultra-rich in ways that preserve family dynasties and deepen inequality. Additionally, the OECD warns that AI development may further entrench concentration and wealth gains by the richest few by giving a small number of firms outsized control over key inputs such as hardware and cloud computing.

Galle’s recent Roosevelt Institute report lays out what an initial response would require: limiting the benefits of indefinite tax deferral, replacing the weak current estate-and-gift-tax regime with a much stronger tax on very large inheritances, and tightening the rules around trusts and estate freezes that allow fortunes to move across generations largely intact. As Roosevelt’s research on corporate concentration also makes clear, dominant firms can distort markets and public power alike, and countering them requires a government with the revenue, institutions, and authority to act.

That is why proposals that hollow out the tax base in the name of relief fall short: They treat taxes only as a burden to be eased rather than as a foundation for democratic governance itself. Moreover, they don’t fundamentally interrupt wealth concentration or provide long-term relief to the middle-income households that are looking for real solutions to their economic stress.

Our shared social compact and prosperity depend on our tax code. Ensuring that it can fund the public goods that underpin good lives, prevent extreme wealth from warping our markets and democracy, and reinforce our ties to each other must be nonnegotiable.