So You Want to Tax The Rich?

Grand Ole Evan
Apr 25, 2021
2 min read

The harsh reality of recent proposals to increase the long-term capital-gains tax on the nation's wealthy.

A near-constant obsession on the left has been the notion that a society can rid itself of all of its problems simply by taxing the wealthy to pay for widespread government programs. This obsession is reflected in Joe Biden's recent proposal to raise long-term capital-gains tax for the wealthiest Americans to 43.4% - a substantial increase from the 23.8% they currently pay. [1]

There is a problem with this idea, however – generally, the government needs the rich more than the rich need any particular government. For some perspective, the top 1% of income earners in the United States paid 40% of the income taxes in 2018. [2] If the government makes taxation for that group of earners so unattractive that they move their assets and income abroad, it could lose one of its largest sources of tax revenue.

Let’s be clear, however: wealth inequality is indeed out of control in the United States, and will only worsen if something about our current system isn’t changed. As of the fourth quarter of 2020, the bottom 50% of Americans held roughly 2% of household wealth, while the top 1% held over 30%. [3]

Such a vast concentration of wealth suggests a correspondingly vast concentration of power, which should be a concern to anyone who values individual rights and understands the ever-present threat of tyranny. So, how do we rein in the power of the superrich to protect individual rights, while also considering the individual rights of the superrich? How should we tax them?

The key thing to understand here is: It’s not up to us. We don’t decide the tax rate that pushes the nation’s wealthy to move their assets and income abroad – they do.

Like it or not, the nation must “court” the rich in a sense as we decide how to rein in their vast power. Regardless of how just or unjust the wealthy’s wealth actually is, the reality is that the rich are the ones in society who are most able to adjust their income streams such that they avoid undesirable tax structures. Raise the taxes too much in this country, and the rich will simply invest elsewhere – whether their wealth is ”fair” or not.

Ultimately, raising the taxes on the rich without taking this into account hurts the poor the most. The taxes are raised, the rich leave, public services lose a massive chunk of their tax funding, and the poor who depend on those public services suffer.

Our unavoidable reality is that the solution to helping the nation’s poor will be a solution that will require the consent of the nation’s rich.