Is the Millionaire Tax a Good Idea?

In the newest issue of The New Yorker, James Surowiecki proposes a more gradated tax bracket hierarchy for the super-rich, i.e. millionaires, billionaires, and gajillionaires. Long story short, Surowiecki points out that while “the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.” Yet “someone making two hundred thousand dollars a year and someone making two hundred million dollars a year pay at similar tax rates” – the $200k guy pays a marginal tax rate of 33%, while the millionaire is taxed at 35%. A two percentage point difference in marginal tax rate for a difference of 1000x in income. That hardly seems to make much sense. So why not widen the gap between what the well-off and the really rich pay, by increasing the tax rate on the real fat cats?

Good idea, says Nate Silver, progressive statistician extraordinaire, but don’t expect it to be a silver bullet. Using IRS numbers to craft a back-of-the-envelope assessment of how much revenue a millionaire’s tax would raise, he comes in around the $33 billion a year mark. Not enough to fix every problem in the U.S. (not that money could fix all of our problems…), but still enough to cover:

• about one-third of the annual costs of health care reform
• a major boost in operations in Afghanistan
• a significant job creation incentive plan
• the entirety of the BP oil spill
• Google’s bank account if the company loses its ATM pin number. (Seriously – Google has $30 billion in the bank!)

So it’s worth discussing. Naturally, this is a slippery slope – whenever you start talking about “what we could do if we only taxed people more!” it’s not an entirely realistic conversation. Taxing too much will in fact affect productivity at some point – the question is where that point actually resides on the “Work Hard to Keep What I Make/If You Take It All Why Should I Even Work?” scale. Conservatives think the threshold is a lot lower than progressives. But either way, it’s reasonable to think that there is some threshold. So sky-high tax rates isn’t really a panacea for anything – ever. Further, as Silver points out, there just aren’t that many rich people in the U.S. Sure, they hold a hugely disproportionate share of the income and wealth in this country, but it’s hugely disproportionate in part because there’s not that many of them (7.8 million households in 2009, or 5% of all U.S. households).

But.

Plugging gaps in the tax brackets when the tippy-top has been as successful as it has been recently isn’t a bad idea. And by “recently,” I don’t mean only over the last twenty years, during which the ascension of the super-duper rich has been stunning, even when compared to the pretty rich, but even last year, when millionaires bounced back during a period of super-high unemployment. It’s honestly a different world for those in the upper echelon, and our tax system needs to recognize that. Not because high-income people deserve to be punished, but because a progressive taxation system is based on the principle that when you make a lot more than someone else, you pay considerably more taxes than that person. And even by standards of well-to-do America – hell, even by the standards of pretty damn rich America – millionaires and billionaires make a lot more than everyone else.

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