Last week, Americans filed taxes and much of their nightly news centered on whether Elon Musk would buy Twitter
This week, he officially bought the company for $44 billion. While the move by the Tesla
CEO has entertained some, it represents a more pertinent reality: billionaires use their money to buy power, and many Americans continue to struggle affording basic needs.
Musk is the richest person in the world—worth about $219 billion, $68 billion more than a year ago. Yet, Americans who make far less—nurses, teachers, firefighters—pay a higher effective tax rate to a system pitted against them.
Congress has been reviewing President Joe Biden’s proposal for future tax seasons, to hit billionaires like Elon Musk with a 20% minimum income tax. If the billionaire income tax passes, Americans worth at least $100 million—just 0.01% of all households—would have to pay tax on their full income, including the unrealized appreciation of their assets, such as the increased value of their stocks and other financial investments.
“ The Scandinavian countries are capitalist, but their governments are more willing to invest in their people. As a result, Scandinavians are generally healthier, happier, better educated, and more productive than people in most other advanced capitalist countries. ”
For example, Musk’s wealth grew nearly $14 billion between 2014 to 2018, largely thanks to the rising value of his Tesla shares. Nevertheless, his total income reported to the IRS for tax purposes was only about a 10th of that. As a result, his true tax rate, including unrealized asset appreciation, was only a bit more than 3%—a tax rate far lower than what the average middle-class American paid.
The maverick billionaire takes on big tech.
One reason for the mismatch between his increased wealth and his reported income is that he makes sure that Tesla doesn’t pay dividends to its shareholders, notably himself, which would be taxed as capital gains under current law.
Therein lies a problem: a substantial loss in potential revenue for the federal government. Preliminary estimates from the Joint Committee on Taxation predict that the billionaire income tax would raise $557 billion in additional revenue over 10 years. That money could be put to good use in ways that would reduce America’s levels of poverty and economic inequality, which are among the highest in the advanced capitalist world.
How? It could restore the expired improvements in the American Rescue Plan’s child tax credit, which cut childhood poverty during the first two years of the Covid-19 pandemic by 40%. It could cover the costs of canceling student loan debt. It could pay for a nationwide paid parental leave program or free preschool programs. It could increase Medicare and Medicaid coverage. It could expand the earned-income tax credit, which is a proven way to reduce poverty and one that has received bipartisan support in Congress for years.
Competitiveness won’t suffer
But won’t all this additional taxing and spending stifle the American economy and undermine America’s economic competitiveness?
No. To the contrary, among the advanced capitalist countries, those that impose heavier tax burdens tend to be more competitive than those with lighter tax burdens. That’s because many of the high-tax countries put their additional revenues to use in ways that improve rather than diminish economic performance.
The Scandinavian countries, for instance, which have some of the heaviest overall tax burdens in the world—nearly twice that of the United States—spend their increased revenue on things like universal health care, subsidized child care, free education including college, and world-class infrastructure like better roads and bridges, light rail, and high-speed internet.
It’s worth noting that these are things the Biden administration hoped to fund through the Build Back Better program until it was derailed in Congress.
Make no mistake: The Scandinavian countries are capitalist, but their governments are more willing to invest in things like this than ours is. As a result, Scandinavians are generally healthier, happier, better educated, and more productive than people in most other advanced capitalist countries.
Their companies are also innovative and resilient in the face of whatever shocks the global economy throws at them. Consider Denmark. Despite its small size, it is a pioneer in clean-energy technologies like wind turbines, and medical products like insulin-delivery systems and pharmaceuticals. It is home to one of the world’s leading ocean freight shipping companies and a vibrant financial sector that rebounded quickly from the 2008 financial crisis.
And like its Nordic neighbors, Denmark has one of the highest standards of living and lowest rates of poverty and inequality in the advanced capitalist world. This is a well-resourced country where people—rich and poor alike—pay their fair share in taxes for everyone’s benefit.
Good for America
Republicans and some Democrats complain that high taxes cause companies to move their operations overseas, outsource jobs, and invest in other countries with lower tax rates. Yet research shows that decisions like these often depend more on political stability, access to key markets, labor-force quality, and well-maintained infrastructure than taxes alone.
The billionaire income tax would be a good thing for America. And contrary to what naysayers like West Virginia Democratic Sen. Joe Manchin claim, those affected by it could afford to pay their higher tax bill, which is why billionaire Warren Buffett has often complained that his effective tax rate is lower than the average American’s but shouldn’t be.
After all, even if Elon Musk forked over 20% of the $68 billion of new wealth he acquired last year, he’d still be able to live comfortably on the $205 billion he had left. It’s time for America’s wealthiest to pay their fair share.
John L. Campbell is the Class of 1925 Professor of Sociology at Dartmouth College. His most recent book is “What Capitalism Needs: Forgotten Lessons of Great Economists” (Cambridge University Press, 2021). He is part of the Strategy Scholars Network.