by Jerry Cayford
The wealth tax was reintroduced a few months ago. Sponsors of the Ultra-Millionaire Tax Act are leading progressive Democrats Elizabeth Warren, Pramila Jayapal, and Brendan Boyle. The sixty or so co-sponsors are all Democrats (plus independent Bernie Sanders)—hardly a surprise, since taxing wealth, rather than just income, is a progressive policy. But the wealth tax need not end in another long-shot partisan battle. I propose a different approach to the politics here.
Another big story in this political season is the national debt, which just passed forty trillion dollars. Forty trillion! Our debt is far bigger now than our country’s gross domestic product. The interest on that debt is a quarter of the federal budget. Interest alone costs us more each year than we pay for social security, the military, or Medicare—more for debt than for our comfort, our protection, our health, or anything else. Traditionally, fiscally conservative Republicans are the ones who worry about debt.
Put these two stories together. Progressive wealth taxation and conservative debt reduction could be surprisingly symbiotic. What if Democrats pledged half of any wealth tax directly to paying down the national debt?
The politics of this proposal are what interest me. Arguments about the policy details of various wealth tax designs are easy to find. The figures generally put potential revenue at two to six trillion dollars (over ten years). Discussions of the politics of a wealth tax, though, seem to just presume a rigidly partisan and polarized battle ahead.
For example, the Ultra-Millionaire Tax Act (UMTA) press release says the plan is “to pay for investments like universal child care, free community college, Medicare expansion, and more.” The “more” includes schools, clean energy, new housing, and universal paid family leave. Bernie Sanders and Ro Khanna introduced their own wealth tax bill expressly to “use this revenue to address some of the major crises facing working families, the children, the elderly, the sick and the most vulnerable.” The wealth tax framing is indisputably partisan, and many discussions simply assume that Democrats therefore need a supermajority to pass one. But what if we approach the politics differently?
Our Dilemma
The logic that got us forty trillion dollars into debt is similar to the logic of the current gerrymander wars: acting for the common good entails a huge competitive disadvantage; fair redistricting by one side means losing seats and losing political power, if the other side aggressively gerrymanders. Likewise, paying down debt means less money for the party in power to pursue its own agenda. Unless the other side will be equally restrained when it’s back in power, both sides’ incentive is to borrow and spend as much as they can when they can.
In the face of that logic, only a bipartisan solution is possible. A wealth tax could be that bipartisan solution to the debt. How would this work?
Let’s start by assuming cutthroat self-interest. The progressives want a wealth tax to fund their priorities. Fair enough. I would argue that they can maximize funding for their own priorities by giving half the money to debt reduction. Consider: the strong consensus is that national wealth taxes currently have zero chance of passing, due to opposition from some moderate Democrats and all Republicans. Explicitly devoting half the wealth tax revenue to deficit reduction would be good politics, even just as a wily, selfish tactic. It could bring all the moderates and some of the Republicans on board, and half of two-to-six trillion is a lot more than the zero we get if the bill never passes.
But can it really pass? Consider the politics of voting against a wealth tax. If only Democratic priorities will be served, it is easy for Republicans to vote against it, maybe even popular and beneficial for them. The whole Republican base will reflexively support their No vote. But if it is a serious debt-reduction tool, then the political dynamic shifts. The bottom 99.85 percent of Americans will pay no wealth tax (UMTA press release), so the Republican base has no actual stake in opposing this tax. But Republicans do have a stake in the ideology of fiscal responsibility, and they do have a stake in reducing the massive interest payments that every year eat up revenues that could be used for Republican priorities. It will be difficult for any politician to vote against a wealth tax that is half for debt reduction and half for current spending needs. It can pass.
I promised “cutthroat self-interest,” though, and I just gave away half our revenue to buy the other side’s cooperation. Well, the numbers here are quite flexible. The UMTA starts at a threshold of $50 million and tops out at 3 percent above $1 billion, while the Sanders/Khanna tax is 5 percent above $1 billion. That’s a big difference. A wealth tax can bring in more money with a higher rate or a lower threshold. So, half the revenue from a tax that brings in twice as much as is projected for the current bill could equal that current projection. Psychologically, the tolerance for a larger tax will be a lot higher for a bipartisan one serving the common good than for a tax that serves the agenda of the victor in a bitter partisan battle. Besides, the amount of revenue raised is less important than the principle of taxing wealth. Also, a tax serving both sides through debt reduction will be much harder to repeal when the power shifts.
The alternative route to trillions in funding for Democratic priorities is huge electoral wins. Some progressives, perhaps giddy at the prospect of a blue wave this year, argue that we can and must change the country so that Democrats not only have sixty Senate seats but can confidently expect to keep them through the 2030 midterms (e.g. Adam Jentleson, “Democrats Can’t Fix This Mess Without a Supermajority”). I can’t say it’s impossible, but I want to argue that changing the political dynamic will be much better—as well as much easier—than winning a durable supermajority.
Becoming Less Cutthroat
Reading political tea leaves is hard, and the meaning of electoral wins is not obvious. Two years ago, pundits thought the voters had lurched right. Lately, progressives have had an impressive string of electoral successes, and it might seem that voters have now lurched left. But I don’t think the public lurches much at all, and both apparent movements have little to do with policy, left or right. What the public wants is good governance, which they can see requires big, bold changes to our current dysfunction. In both cases, the apparent movements really signal the public’s willingness to vote for politicians they think will make those big changes.
Changing the politics of a wealth tax from partisan warfare to cooperative problem-solving has important psychological knock-on effects. Let’s go back to that logic of gerrymandering. When Texas violated deeply-held norms of fair redistricting in pursuit of partisan advantage, virtually the whole country knew the Democrats had to respond in kind. Even ardent supporters of citizens redistricting commissions, such as Common Cause, accepted that California should set them aside and gerrymander the state. People intuitively understand the logic, and they will cut politicians a lot slack for taking the low road when taking the high road would make them into doormats. We cut politicians slack for getting us into debt because the public understands that neither side can sacrifice its priorities to pay down the debt on their own watch, if the other side is running up the debt to get whatever it wants.
But just as everyone turned on a dime against redistricting commissions, they’ll turn again as quickly for a real solution. I’ve written before about what everyone has learned from the gerrymander wars: only a cooperative, bipartisan solution for gerrymandering can work. There is famous research in game theory on strategies of cooperation and conflict in the “Prisoner’s Dilemma,” research that shows the best strategy over time is to strike back against aggression but then attempt cooperation as soon as possible. People intuitively get it, and they’ll strike back as long as the battle is partisan, but cooperate when they won’t be made doormats.
As long as taxes are just tokens in a partisan battle, America’s debt problem is insoluble. Even the Ultra-Millionaire Tax Act—which at $6.2 trillion is among the biggest bills in U.S. history—even the UMTA would barely cover the expected increase in future yearly deficits. We have to go bigger, which means we have to change the dynamic around taxes. This is what making the wealth tax bipartisan can do, or at least start. If taxes are perceived by the base in both parties as really solving our problems, currently-unthinkable policies will become thinkable. When Ronald Reagan was elected president, income taxes topped out at 50 percent for earned income and 70 percent for interest and dividends (compared to our current 37 percent for both). Rates like those today could take a big chunk out of the national debt. Many other sources of money that are currently untouchable could be tapped in a different political environment.
From decades of massive tax cuts, the rich have gotten spectacularly richer while the rest of us haven’t. That perception drives this new enthusiasm for a wealth tax: the rich didn’t pay their share; we had to borrow to make ends meet; and now we pay the rich hundreds of billions per year in interest on money they lent us that they should have paid in taxes. Progressives find that story compelling and it justifies a wealth tax. A lot more people would find it compelling, though—maybe even everybody—if the revenue from the wealth tax leads to healing our country’s fiscal wound, rather than just advancing progressive policies.
It can feel like we can’t afford to give an inch when the other side never does. But that isn’t an attitude that wears well in the long run. And here is a crucial disanalogy with the gerrymander case: where redistricting is truly a zero-sum conflict carrying real risks of partisan electoral losses, allocating half the wealth tax revenue to debt reduction in a bipartisan bill carries little political downside, whether or not it succeeds. And the Democrats aren’t likely to see any revenue as long as the issue stays partisan, anyway. But aside from that, the fact remains that the debt is Democrats’ problem, too. Conservative or not, all of us are hurt by interest payments that dwarf everything else we value and spend money on. We need to solve this. If inequality has made the political moment ripe for a big move like a wealth tax, that big move can change our politics.