Liberals should stop demonizing the rich

Twice in an interview on CNBC following the announcement of the President’s Build Back Better framework, Treasury Secretary Janet Yellen asserted that the taxes outlined for high-earning taxpayers and corporations by the framework (not to mention, the numerous tax breaks for news organizations, trial lawyers, unions and wealthy citizens of high tax states) represented their “fair share.” 

While I hope that Congress has the good sense not to enact Build Back Better, thank goodness a liberal politician can finally discuss taxes responsibly, without demonizing an entire class of Americans.

For decades, we have heard liberal politicians — including presidents, cabinet members and congressional leaders — demonize wealthy Americans by asserting that our deficit problems could be resolved, and progressive social policies achieved if only the “rich would pay their fair share of taxes.” It is divisive and demagogic — the height of public irresponsibility — for anyone in power to demonize any class or group of Americans. 

Even on its face, the claim that the rich were under-taxed was always erroneous. The top 10 percent of taxpayers pay 70 percent of federal income taxes. What would be “fair?” 75 percent? 90 percent? The top one percent pays 40 percent of federal income taxes, despite earning only about 21 percent of total reportable income. Is that less than “their fair share?” Since 2001, the top 1 percent’s share of federal income taxes paid grew from 33 to 40 percent.

Moreover, what goes unsaid in liberal framings of our tax system is that 50 percent of Americans pay virtually no (less than three percent of) federal income tax. This fact is especially problematic, as half of Americans have no direct personal interest in reducing federal spending. This explains why rich new social programs often poll so well — they do not cost half of Americans anything. If you don’t have to pay for Congress’s profligacy, why oppose more spending? And, would it be “fairer,” better for America, if 80 percent of Americans paid no taxes?  

Admittedly, payroll and excise taxes tend (paid by most working Americans) are more regressive, but, by almost any measure, the United States’s tax system is significantly more progressive than almost every country in the left’s beloved Europe, which relies primarily upon highly regressive value-added taxes to fund their vast social programs. Are those tax systems “fair?”

Unfortunately, in a tax system that relies heavily on its citizens’ willingness to file and report their own income, some people cheat. The IRS estimates that the tax gap (that is the difference between what taxpayers owe and what they pay) is approximately $400 billion. But cheaters span all income levels. Three of the largest areas of cheating come from low-income taxpayers who claim excessive amounts of refundable tax credits (like the earned income tax credit and the child and dependent care tax credits), middle-income small businesses (like restaurants and stores) and sole proprietors (like hairdressers, doctors and handymen) that transact with high amounts of cash and from the under-reporting of income from so-called “pass-through entities” (like limited partnerships), a favorite investment vehicle of high-income earners, for which the IRS is unable to electronically trace and verify income without an audit. Cheaters do not pay their “fair share,” but cheaters come in all sorts of shapes and sizes — and income tax brackets. 

Liberal politicians should have the integrity to say what they really mean: “We want to spend more money on social programs (or we want to redistribute wealth in America) and need to raise taxes to pay for it. For the same reason that gangster Willie Sutton  once answered for why he robbed banks, we want to tax the rich more — not because they do not pay their ‘fair’ share, but — because “that is where the money is.’” 

President Joe Biden promised a more civil, less divisive, administration. With the Secretary’s declaration that we will achieve “fairness” in Build Back Better bill if enacted, and even if it does not become law, let’s hope that liberal politicians will stop — once and for all — attempting to demonize the wealthy, or any other class, of Americans.

David F. Eisner was the assistant secretary for Management at the U.S. Department of the Treasury from 2018-2021.