The Democratic Party has been tearing itself apart over whether to spend $3.5 trillion, $2 trillion, or even $1.5 trillion on its latest reconciliation bill. Less visible, but perhaps more significant, has been the quiet demise of the progressives’ audacious “tax the rich” utopia.
For years, socialists and progressives like Bernie Sanders and Elizabeth Warren have enticed voters with free-lunch promises of a European social democracy funded primarily through new taxes on millionaires and large corporations.
Democrats can no longer blame Republicans for blocking these taxes now that they have complete control of the White House, House, and Senate.
Instead, basic politics and arithmetic triumphed. Joe Biden was elected president despite promising to increase spending by $11 trillion and raise corporate and upper-income taxes by $4 trillion over the next decade. Democrats appear to have a good chance of squeezing out more than $1 trillion in new taxes.
Despite Biden’s complaint that “two members of the Senate who vote more with my Republican friends” have stymied his agenda, the Democratic opposition does not end with Joe Manchin and Kyrsten Sinema. Several other powerful Democratic lawmakers have quietly whittled down the tax package while letting the other two bear the brunt of the criticism. Left-wing, anti-corporate views can raise enormous sums of money, as demonstrated by Bernie Sanders and Alexandria Ocasio-Cortez, and unpopular “pro-corporate” policy views necessitate additional fundraising for ads to repair the reputations of lawmakers who play ball.
Instead, these proposals to tax the wealthy failed because many of them proved unworkable, unwise, or (in certain states and Congressional districts) unpopular. Proposing a new global tax system with a 15 percent minimum tax rate for multinational companies across the OECD—and a 21 percent minimum tax rate for American multinationals—is economic malpractice. Many Democrats also opposed restoring the developed world’s highest corporate tax rate. Democrats from farm states would never support combining the existing estate tax with a new capital gains tax on assets passed down at death.
Many of the progressive tax proposals, like many bold conservative spending cuts, excite their supporters on social media and at think tanks and conferences, but are ultimately unfit for primetime when subjected to real national scrutiny. Democrats may end up simply turning a few tax rate dials rather than creating new progressive tax structures from scratch—raising the corporate, capital gains, and top-income tax rates upwards a few percentage points. When some modest IRS tax enforcement funding, pass-through business tax increases, and smaller tax proposals are factored in, the total will be between $1 and $1.5 trillion.
For progressives, this presents a math problem. The Congressional Budget Office (CBO) estimates a $12 trillion deficit over the next decade (and a staggering $112 trillion over three decades). Furthermore, Democrats are proposing roughly $6 trillion in new spending across multiple bills. Over the next decade, Biden has proposed $11 trillion in new spending, while Elizabeth Warren has proposed $40 trillion and Bernie Sanders has proposed $97 trillion.
In a government dominated by Bernie Sanders acolytes, the progressive math problem would still apply. Simply put, the numbers do not add up. Even seizing all $4 trillion in wealth held by American billionaires would fund the federal government for only eight months while destroying every 401(k), as the majority of this wealth is invested in the stock market. Seizing 100% of all household income earned over $1 million annually would not even balance the budget, and Alexandria Ocasio-Cortez’ proposed 70% income tax bracket would fund 1.2 days of federal spending.
In fact, add up all of the popular progressive tax proposals. Repeal the 2017 tax cuts, establish 70 percent and 50 percent income tax brackets, and limit the value of tax deductions. Raise capital-gains tax rates and apply them both on paper gains and at death. Employers must pay Social Security taxes on all wages. Impose President Biden’s corporate tax increases, as well as Elizabeth Warren’s “real corporate profits” tax, as well as taxes on financial transactions (such as stock trades) and financial institutions. Finally, levy a carbon tax, as well as Bernie Sanders’ 8% wealth tax and his 77% estate tax. Layer all of these taxes on top of each other without regard to policy interactions, economic effects, or combined tax rates exceeding 100 percent.