Billionaires Already Pay More than Their Fair Share

A debate on whether they should pay more.

What follows is a lightly edited version of my opening remarks at the Soho Forum debate on May 19 in New York. The resolution was: Billionaires should pay a higher share of federal taxes. Natasha Sarin defended the resolution. I encourage you to watch the full recording to hear her presentation and the productive Q&A. Under Oxford-style scoring, the winner is whoever moves more of the audience between a pre- and post-debate vote. I won on net movement and, narrowly, on the final raw vote.

I will argue against the resolution that billionaires should pay a higher share of federal taxes. National polling on this question runs about three to one for the resolution. However, I strongly believe that wealth is good and that someone has to stand up for unpopular groups.

I’ll start by being clear about my priors because this is, after all, a normative question.

When I earn a dollar, when you earn a dollar—from wages, from a side business, or from an investment—that dollar is yours. The bar for taking it is not “could this fund something useful?”

The question we should ask is: “Is this a function the federal government has to perform, and is this the least intrusive way to pay for it?” The presumption runs against the state taking your money. This holds true for me at my salary. It is true for the person making minimum wage. It is true for millionaires and billionaires. Eroding this principle for one class of taxpayers ultimately erodes it for everyone.

Instead, the debate is usually over who else we can tax and how we can tax them more. Rarely do we start by asking: “What should the feds stop doing?”

Against that backdrop, we’re running the largest intergenerational wealth transfer in history from relatively younger, poorer workers—many supporting families—to wealthier, older retirees. We are headed toward a $1.5 trillion military budget.

Against that backdrop, the question of whether billionaires should pay a higher share of taxes strikes me as precisely backward. The right question is whether the federal government should be taxing the share it already takes from anyone.

But even if you don’t share my priors and you think federal revenue should go up—I’ll argue that billionaires still shouldn’t pay a higher share of federal taxes.

Billionaires Already Pay High Taxes

Let’s start with what billionaires already pay. Because I think most Americans, when they hear this resolution, have no idea what the current bill actually looks like.

According to Treasury data across all federal taxes, the top 0.1 percent—that’s about 200,000 families—paid more than 16 percent of all federal taxes, almost double their share of national income. They paid more taxes than the lowest-income 70 percent of Americans combined, across 130 million families.

That statistic illustrates why the United States has the most progressive tax system in the developed world.

Two of the most prominent advocates for higher taxes on the rich in America and around the world are Emmanuel Saez and Gabriel Zucman. Last year, they published a study showing that US billionaires pay higher tax rates than their counterparts in the Netherlands, Sweden, Norway, and France. Other data shows that the top 10 percent of taxpayers in the United States pay more of the tax burden than the same top ten percent in any European country people point to as a model for higher taxes.

We are the outlier in how much we already concentrate the tax burden on people at the top.

Misleading Statistics

But what about the famed statistic that “billionaires pay an eight percent rate”? Or that “Warren Buffett pays a lower tax rate than his secretary.”

You are not hearing a tax rate. You are hearing a ratio of taxes paid in a year over someone’s unrealized gains. That’s not income. Putting unrealized gains—that can fluctuate by billions of dollars a day—in the denominator and actual realized income taxes in the numerator is not measuring an effective tax rate, it’s constructing a fiction that is designed to be misleading.

When you measure income the way the IRS measures it, so you can compare it to every other taxpayer, the wealthiest 92 American billionaires pay an average effective federal tax rate of 34 percent and a total tax rate, including other levels of government, of 59 percent.

The top ten percent pay total rates closer to 35 percent. And Americans who have lower incomes pay lower rates.

What is Fair?

Many billionaires already keep only 40 cents of every dollar they earn. What is their “fair share?” Should they get to keep 20 cents? 10 cents? 5? What is the number at which high tax advocates would say, yes, that’s their fair share?

I’ve never seen a consensus number, nor have I heard of a principle that would generate one. Without an underlying model, it’s hard to pursue changes in tax policy. “More” is just a vague direction. And a direction without a destination is not something I can debate against, because there is nothing on the other side of it to engage with. So it’s still an open question: beyond “more,” how much is fair?

Economic Costs

Even if you can answer the “how much” question to your own satisfaction, the economics of getting there is a lot worse than advocates let on.

Most billionaire wealth isn’t in yachts, personal houses, or jewelry; that’s only about 2 percent of it. Most wealth is in productive business capital—equity in companies that employ people, build things, make products, and fund research. When you tax that wealth, you’re taxing the buildings we all live in, the businesses that employ us, and the research labs that create life-saving drugs.

And when you tax something, you get less of it. This is why “tax the billionaires” sounds like a free lunch, but it’s not. A deep and well-established body of economic research finds that the burden of taxes on capital and businesses does not stay with the owners. A meaningful share is passed through to workers in the form of lower wages, fewer jobs, and slower productivity growth.

The historical record bears this out. Rich people move, poor people are left holding the bag.

France repealed its 75 percent super tax on high incomes in 2015 and its wealth tax in 2017. They repealed them, in part, because they cost more revenue than they raised. People and businesses left the country. Same pattern in Sweden. It abandoned its estate tax and wealth tax. Revenue went up afterward.

In Spain, which still has a wealth tax, researchers found that regions that imposed a wealth tax lost six dollars in personal income tax revenue for every new dollar of wealth tax revenue they gained. In each of these cases, high taxes on billionaires and business owners caused so much economic damage that they led to losses in total revenue.

When I look around at the best American companies, many at the leading edge of global innovation, I want more of them, and I want them to stay in the United States. Raising taxes on the people who build those businesses will drive them overseas or out of business.

The Progressive Case for Not Taxing Billionaires More

I’ll end with the argument I think should matter most to anyone who doesn’t share my point of view. Suppose you want a bigger federal government, European-style health care, fully funded family policy, and generous social insurance. How do other countries pay for all those things?

Yes, some of them pay for it by taxing the rich a bit more. But they also pay for it by taxing the poor and the middle class at much higher rates than in the US. That mechanically reduces the billionaire share of total taxes.

Every developed country with a large welfare state raises a larger share of revenue from broad-based taxes, such as the value-added tax, that falls more evenly on consumption across the entire income distribution.

This is not by accident. A welfare state funded by a small share of the population at the very top of the income distribution is unstable. The highest incomes are most volatile: in good years, it might look fine, but in downturns, when social programs need the most funding, revenue dries up. A welfare state funded by broad-based taxes on everyone is more politically and economically stable.

Franklin D. Roosevelt is said to have made this point regarding Social Security. He insisted on a broad-based payroll tax because he understood that broad funding mechanisms create a sense of ownership and durability for the program.

So, even if you want a bigger government and more revenue, it doesn’t follow that you’d want billionaires to pay a higher share to fund it. Looking around the world, it seems you’d actually want them to pay a lower share than they currently do in the United States.

The answer to the resolution is no. Billionaires should not pay a higher share of taxes. On moral grounds, on economic grounds, and on progressives’ own terms.