Taxing high earners at 100 percent of their income would pay for about one third to just over half of the extraordinarily ambitious “progressive” or socialist programs supported by democratic socialists Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), a new Heritage Foundation study found. Even a full confiscation of all incomes above $200,000 and a confiscation of all corporate profits would still fall $13.2 TRILLION short of paying for the low estimate for Medicare for All and the Green New Deal.
“It is arithmetically impossible to pay for progressive promises by ‘taxing the rich,'” David Burton, Heritage’s senior fellow in economic policy, wrote in the study. “Progressive promises are too expensive—and the amount of income earned by the rich is too small. Even using lower cost estimates, confiscating every dollar earned by every taxpayer with incomes of $200,000 or more would only pay for about half of the progressive agenda.”
Yet even this estimate is rosy. That figure “is based on the false assumption that people would continue to work, save, and invest when subject to a 100 percent flat tax. The reality is that progressive promises can only be funded by increasing taxes on the middle class from three to 10 times their current level or, for a limited time, by dramatic and unsustainable increases in federal borrowing.”
To analyze whether or not taxing the rich could cover the socialist agenda, Heritage first estimated just how much that agenda would cost.
According to the Congressional Budget Office (CBO), without any change to current law, America will spend $57 trillion in the next ten years (about 22 percent, or $12.4 trillion, will be financed by debt). Single-payer health insurance would increase federal spending by $32 trillion to $33 trillion over the next ten years. The Green New Deal, jobs guarantees or a universal basic income, government-funded college tuition, and more would cost trillions more. Heritage estimated a ten-year total cost between $48 trillion (close to the PJ Media analysis of $49.109 trillion over ten years) and $92 trillion (close to the American Action Forum estimate of $93 trillion) for all programs.
Just Medicare for All would increase federal spending by 58 percent. The low estimate for the Green New Deal suite of socialist programs would increase that spending by 84 percent — the high estimate by 161 percent.
So what kind of tax increase would be necessary to cover this? Democrats like talking about “taxing the rich,” but even confiscatory 100 percent taxes on both high incomes and corporate profits — both of which would have devastating economic consequences and would disincentivize hard work and economic growth, leading to decreased revenue over time — would fall far short of the low estimate.
From IRS data, Heritage predicted that a 100 percent flat tax on those with incomes of $1 million or more would only raise $986 billion per year. This would not even eliminate the annual federal deficit, about $1.1 trillion. This also does not consider federal payroll taxes, Social Security taxes, Medicare taxes, or state and local income, property, and sales taxes — all of which would drive the number even lower.
Confiscating all after-tax income of those making $500,000 or more would increase federal revenues by about $1.4 trillion per year — enough to eliminate the federal deficit but not much more. Tax confiscation of all incomes of those earning $200,000 or more would add $2.7 trillion to federal revenues — but again, this does not take various other taxes into account.
Due to basic economic realities, this would be a one-time revenue increase. This kind of confiscatory tax would drive taxpayers to stop working or otherwise stop pursuing income. Taking state and local income and payroll taxes into account, earning money would cost taxpayers more money, since the effective taxes would top 100 percent.
Even with the “entirely fanciful assumption” that workers “would continue to earn income with federal income tax rates alone at 100 percent,” this enormous tax would not even come close to covering the socialist/progressive agenda.
The fanciful estimate comes to $27.0 trillion in the first ten years, which would cover 56.25 percent of the socialist agenda, on the low estimate. This would only cover 29.3 percent of the high estimate. Again, this estimate is based on a fiction that ignores economic reality.
But what about corporate profits? Surely confiscating all profits from the massive corporations that Bernie Sanders rails against will do the trick, right? Wrong.
Taxing corporate profits would be far more complicated than it may appear. A full 37 percent of corporate stock is owned by pension plans or retirement accounts, 26 percent is owned by foreigners, and 5 percent is owned by tax-exempt organizations. The burden of this tax would likely be borne by U.S. workers, since capital is mobile while labor is not.
Even assuming that a corporate profit confiscation tax is possible and that businesses and investors would continue their operations after such a tax was levied, this tax would only collect $4.6 trillion over ten years, enough to fund 10 percent of the low estimate for the socialist agenda and a mere 5 percent of the higher estimate. Even assuming that corporate profits can be taxed twice, this imaginary tax would raise $7.6 trillion.
Again, the estimates for both the 100 percent income tax for $200,000+ earners ($27 trillion) and the corporate profit confiscation tax ($7.6 trillion) rely on Goldilocks-style economic conditions. These estimates assume the tax isn’t so harsh as to prevent people from working or investing while still being harsh enough to raise the kind of money required.
Taken together, the Goldilocks tax schemes add up to $34.6 trillion, less than three-quarters (72 percent) of the low estimate for the socialist agenda and barely over a third (38 percent) of the high estimate. In the absolute best-case scenario, “taxing the rich” still leaves the government short by $13.4 trillion or $57.8 trillion.
So what do you do? Tax the middle class, of course.
“The only arithmetically possible answer” to pay for the progressive agenda is “that the progressive agenda must be paid for by radical increases in the tax burden borne by middle-income taxpayers or dramatic increases in federal borrowing,” Burton wrote. Federal borrowing is already astronomical and unsustainable. Going even further into debt for the socialist/progressive agenda would only speed up the day of reckoning. The debt crisis would certainly hit the middle class.
So the next time a Democratic presidential candidate promises the moon and says taxing the rich will pay for it, tell them that in even the most impossible Goldilocks tax scenario, all the taxing in the world will only pay for 72 percent of the Green New Deal for 10 years.
That’s not even taking into account the roughly $250,000 cost per household to actually implement the Green New Deal.
When an expansive government, driven by utopian goals and willing to remake society to reach those goals, runs into the concrete wall of reality, innocent people suffer as the government tries to break that wall.
Meanwhile, the free market system has enabled a kind of prosperity literally unthinkable one hundred years ago. America should stick with what works and reject the dangerous path of seeking a government panacea.
Follow Tyler O’Neil, the author of this article, on Twitter at @Tyler2ONeil.