Republicans are using the need to raise the debt ceiling to demand cuts to spending. They are not showing much enthusiasm for saying what spending to cut and for good reason. Americans, it turns out, support most of what the federal government spends money on.
When President Biden said during the State of the Union that some Republican politicians want to cut Social Security and Medicare, it generated boos from Republicans in the room. But what would they support cutting? Many won’t say, probably because Social Security, Medicare and other health care and the military are the bulk of what’s in the federal budget.
For those concerned about the debt, here’s a better idea. Do more to tax rich people and corporations.
In recent decades, Congress has repeatedly cut and rarely raised taxes on wealthy people or corporations. Over 80 percent of the tax cuts passed since 2000 went to the wealthiest 40 percent. Nearly two-thirds of those went to the wealthiest 20 percent and most of that to the richest five percent. This enriched the uber-rich and simultaneously ballooned the deficit, fueling today’s debt ceiling drama.
The corporate minimum tax and other reforms in last summer’s Inflation Reduction Act show we can break that pattern. In contrast to the Bush and Trump eras, Biden-era tax changes raise hundreds of billions of dollars to preserve the planet, improve people’s health and reduce the national debt. But the increased revenue from last summer’s reform is just the beginning of what’s needed to catch up to what people and communities deserve.
In the State of the Union, the president proposed changes that would add revenue and improve tax fairness. The Billionaire Minimum Income Tax would phase in for those with wealth over $100 million, requiring they pay at least a 20 percent tax rate on all income including unrealized capital gains. Currently, the very wealthy can accumulate capital gains and pay no taxes if they don’t sell their assets. Correcting this could raise over $350 billion over a decade from only the extremely wealthy.
The president also proposed expanding the tax on stock buybacks from 1 to 4 percent. The tax hasn’t slowed stock buybacks, which are at record levels. Forecasters conservatively estimated that the 1 percent level will raise about $75 billion over 10 years. Increasing the rate to 4 percent will further increase revenue for public needs.
There are other ways, beyond those the president proposed, to raise more while addressing inequality. On the corporate side, we could close the loophole corporations get for offshoring jobs and tax huge “passthrough entities” that are currently allowed to dodge the corporate income tax. Each would raise hundreds of billions over a decade.
On the individual side, we could raise hundreds of billions of dollars by eliminating the tax break for capital gains income, making investors pay the same rate on income from wealth as workers pay on wages. And we could tax capital gains on assets at the point of inheritance, so dynastic wealth doesn’t permanently escape taxation, generating over $100 billion.
If Congress chooses, it could use some of the proceeds for debt reduction. And we’d still have more resources for essentials that citizens of other nations get, like low-cost college, universal paid leave and quality childcare.
The United States used to channel much more corporate profits toward broad support for the economy and society that made those profits possible. In the middle of the 20th century when economic growth was fastest and most broadly shared, corporations paid dramatically more, and the U.S. put more toward tackling collective challenges.
Corporate profits hit a new record of $2.8 trillion in 2021. Yet, corporate income taxes now cover just 10 percent of federal revenue, down from more than 30 percent in the 1950s
The U.S. ranks sixth from the bottom among peer nations in the share of resources spent on public needs (less than a third of GDP). In contrast, European countries put closer to half of their economy into societal investments. That’s why our competitors have universal health care, universal parental leave and lower poverty. And it pays off: People live longer throughout western Europe than here.
As one of the most prosperous countries in human history, we have enough resources for our collective needs. By better taxing corporations and the wealthiest, we can generate revenue to improve family security, strengthen our communities, and reduce the debt too.
Amy Hanauer is the executive director of the Institute on Taxation and Economic Policy.