Bold Calls to Tax the Rich, But Not Enough Talk of Enforcement

Earlier this year, Representative Alexandria Ocasio-Cortez made waves when she used her appearance on 60 Minutes to call for a 70 percent marginal tax rate on incomes over $10 million. The mainstream media establishment was further blown away when polls in the following days showed that this radical proposal was wildly popular. To anyone who had been paying attention, this was hardly a shocking revelation; Americans have long supported raising taxes on the wealthiest Americans. Nonetheless, the renewed focus on proposals to tax the rich opens the door for a long overdue conversation about biases in our tax system and how to change them.

Many groups are seizing this opportunity, including the Patriotic Millionaires who put on high profile conference earlier in the month around the theme “Tax the Rich!” They “hope to help catalyze a national movement to raise taxes on the wealthiest Americans and begin the process of healing our nation.” The event was a launch of that effort, one that served as an introduction to the wide universe of ideas on how best to make the wealthy pay more in taxes. In the space of a mere four hours, conference attendees heard from over forty millionaires, lawmakers, economists, policy experts, and activists about how the system is broken, what we need to do to fix it, and why we should.

That arguably starts with reframing the conversation around taxation, a topic around which numerous speakers had suggestions. Senator Jeff Merkley, for example, argued that we must not just think of corporate tax avoiders as naughty entities failing to pay their fair share, but malicious ones bleeding the system of resources by exploiting the infrastructure in which we collectively invest. Paul O’Brien, Vice President for Policy and Advocacy at Oxfam, similarly encouraged attendees to think about progressive taxation as a reclamation of power from individuals whose wealth gives them undue influence. This understanding of taxation has the potential to be particularly potent in a moment when corruption is at the forefront of Americans’ minds. While polls have already shown that taxing the rich is popular, these framings can help to further broaden and solidify support in anticipation of a moment when change will be possible.

Some speakers worked to highlight the tax system’s many loopholes designed to favor the wealthy. Many spoke from experience, expressing disdain for the peculiarities that lowered their tax bills. Millionaires and practitioners alike took issue with the stepped-up basis on inherited assets, a loophole that allows inheritors to pay capital gains based on the value of an asset at the time of inheritance, instead of the value when the giver acquired it, effectively cheating the American people out of billions in annual revenue. Others pointed to giveaways like the carried interest loophole for which there is not even a sliver of economic justification. Still others highlighted loopholes that have promoted offshoring. The list went on and on.

Policy experts helped to provide the context for how these giveaways made their way into the tax code. Dr. Nancy MacLean sketched out the vast network of professors, think tanks, lobbyists, and more funded and directed by the Koch brothers as one example. In so doing, she helped to reinforce the need for higher taxation as a mechanism to prevent people from accumulating massive fortunes and thus exercising disproportionate influence over the political system.

Other than closing these egregious loopholes, how do we ensure that our wealthiest citizens pay their fair share in taxes and get rampant inequality under control? Policy proposals abounded. Those included straightforward ones like raising top marginal tax rates (although there was no consensus around how much) but also comprised plans to tax financial transactions, tax capital gains at a higher rate, institute a wealth tax, and place limits on CEO pay, among others.

Altogether, the conference provided a useful, if somewhat whirlwind, tour of the state of the conversation on the “how and why” of reforming our tax code to make it more progressive and fairer. However, while it put the movement’s growing strengths on display, it also shared some of its blind spots.

Chief among these is the lack of attention to enforcement of our tax laws. In some ways it is understandable that the Patriotic Millionaires chose not to emphasize this particular issue. As wealthy individuals who are enraged that they are not being taxed enough, it seems unlikely that they are engaging in tax evasion. Unsurprisingly, therefore, the many outrageous legal avenues to reduce their tax bills took precedence over concerns about this rule-breaking. Nonetheless, enforcement must be a big part of the reform conversation. If we successfully implement all of the policy reforms outlined above only to have most wealthy individuals spirit their money out of the country by less than legal means, we will hardly be able to claim victory.

In the past several decades the GOP has led an effort to radically downsize the Internal Revenue Service (IRS), if not to abolish it entirely. Although the IRS still stands, these attacks have severely undercut the agency’s ability to do its job. Its workforce has been shrinking and it has struggled to retain top talent with the expertise to decipher wealthy people’s tax returns. The result has been falling enforcement, particularly for the country’s wealthiest citizens. Instead, the agency has focused on the easier, although revenue-negative task of auditing low-income people receiving the Earned Income Tax Credit (EITC). Any successful plan to tax the rich must have at its center a plan to drastically increase the IRS’ budget.

My second gripe is one of strategy. Conference speakers and attendees spoke a great deal of how plainly outrageous these policies are. Indeed, it is not difficult to feel rage when confronted with the plain inequities and injustices of our tax code and its effects. That makes this a powerful subject for congressional oversight. Oversight could help put this issue in front of a wider swath of people and further build support for the policies that the speakers presented.

Unfortunately, it seems as though this will not happen without a nudge (or maybe a shove). In the House, tax policy falls under the jurisdiction of the Committee on Ways and Means, which is now led by Representative Richard Neal, who has thus far shown no appetite for oversight. Despite Neal’s antipathy towards investigations, groups who are working to raise taxes on the rich should not allow Neal to leave this potentially powerful tool for their cause on the table. They should instead work hard to make oversight an explicit part of their strategy.

This article first appeared on CEPR.