In 1989, Leona Helmsley, a wealthy New York business woman and hotel magnate, made the eyebrow-raising statement: “Only little people pay taxes.”  This was her response to charges of tax evasion raised against her.  She was found guilty by a jury of little people and went to prison.

Donald Trump, who has been exposed for his tendency to avoid taxation by using questionable accounting strategies, has declared in the past that it is the smart thing to do.  On the other hand, one may recall that billionaire Warren Buffett once recognized the injustice in the fact that his administrative assistant paid in taxes a much larger fraction of her income than he did.

Other billionaires, such as Bill Gates, have also signaled their willingness to pay more taxes.  That mindset was expressed in a very convincing way when, this month, 250 billionaires and millionaires signed on to an open letter presented to world leaders gathered at Davos to discuss economic issues.  The letter strongly urged leaders to increase taxes on the ultra-wealthy for the good of the world.

Such a message obviously goes against the wisdom that has been, in past decades, promoted by conservative politicians in the United States.  While Democrats have been demanding that the rich pay their fair share in taxes, Republicans have opposed any move in that direction, predicting disastrous outcomes if “job creators” were asked to give more to the “deep state.”

In this post, I will discuss the letter from the 250 billionaires.  I will also review how Americans feel about the burden in state and local taxes currently born by various income brackets.  I will then look at efforts to make state and local taxation less regressive, and conclude with a brief commentary on the biblical perspective on economic inequality.

The expression “trickle-down economics” was popularized during the Reagan administration.  It is the belief that tax policy must favor the rich because they are job creators, and when they get richer, those who are lower on the economic scale also benefit.  Therefore, Republicans have consistently fought any attempt to increase taxation on the rich, warning about adverse effects on the economy.  But the 250 ultra-rich opened their letter with a warning about the catastrophic effects of not taxing them:

“We are surprised that you have failed to answer a simple question that we have been asking for three years: when will you tax extreme wealth? If elected representatives of the world’s leading economies do not take steps to address the dramatic rise of economic inequality, the consequences will continue to be catastrophic for society.

Our drive for fairer taxes is not radical. Rather, it is a demand for a return to normality based on a sober assessment of current economic conditions. We are the people who invest in startups, shape stock markets, grow businesses, and foster sustainable economic growth. We are also the people who benefit most from the status quo. But inequality has reached a tipping point, and its cost to our economic, societal, and ecological stability risk is severe – and growing every day. In short, we need action now.”

I suppose conservatives view economic inequality as normal considering that they tend to associate poverty with laziness.  But these 250 ultra-rich see economic inequality, as it exists today, as a serious threat to normality and stability.  Also noteworthy is their concern for “ecological stability” since conservatives usually dismiss warnings about climate change and its consequences.

Why would billionaires be radically opposed to a marginal increase in their tax rate?  Would their living standard be affected? Would their purchasing power be significantly reduced? Or are they just driven by a need to own more and more without giving up anything? The 250 billionaires who signed the letter provide an answer:

“Our request is simple: we ask you to tax us, the very richest in society. This will not fundamentally alter our standard of living, nor deprive our children, nor harm our nations’ economic growth. But it will turn extreme and unproductive private wealth into an investment for our common democratic future.”

Job creators who see their wealth as “unproductive”? A concern for “our common democratic future”? It’s a good thing they are billionaires because somebody might, otherwise, call them communists.

Conservative politicians who consider themselves Christians tend to argue that helping the needy should be left to private benevolence rather than government action.  The 250 billionaires disagree:

“The solution to this cannot be found in one-off donations or in philanthropy; individual action cannot redress the current colossal imbalance. We need our governments and our leaders to lead. And so we come to you again with the urgent request that you act – unilaterally at the national level, and together on the international stage.

Every moment of delay entrenches the dangerous economic status quo, threatens our democratic norms, and passes the buck to our children and grandchildren. Not only do we want to be taxed more but we believe we must be taxed more. We would be proud to live in countries where this is expected, and proud of elected leaders who build better futures.”

They also provide a list of priorities for what they see as good governance under current conditions:

“As the wealthiest members of society, we would be:

• Proud to pay more to tackle extreme inequality.
• Proud to pay more to help reduce the cost of living for working people.
• Proud to pay more to better educate the next generation.
• Proud to pay more for resilient healthcare systems.
• Proud to pay more for better infrastructure.
• Proud to pay more for a green transition.
• Proud to pay more taxes on our extreme wealth.”

At this point, I can see that these “wealthiest members of society” will definitely be accused of wokeness.  Hopefully, their wealth gives them enough clout so they can influence the decision-makers of the world.

Credible economists, supported by economic data from the past decades, have concluded that trickle-down economics doesn’t work.  Conservatives, on the other hand, have refused to accept this reality and have continued to pursue tax cuts for the rich as seen during the Trump administration.  Before they conclude their letter, the 250 give their verdict on trickle-down economics:

“The value of fairer tax systems should be self-evident. We all know that ‘trickle down economics’ has not translated into reality. Instead it has given us stagnating wages, crumbling infrastructure, failing public services, and destabilized the very institution of democracy. It has created a shameful economic system incapable of providing a brighter, more sustainable future. These challenges will only worsen if you fail to address extreme wealth inequality.”

A report from Americans for Tax Fairness (ATF) and the Institute for Policy Studies Program on Inequality (IPS) states that “U.S. billionaires have seen their wealth surge $1.8 trillion during the pandemic, their collective fortune skyrocketing by nearly two-thirds (62 percent) from just short of $3 trillion at the start of the COVID crisis on March 18, 2020, to $4.8 trillion on August 17, 2021.”

This is an indication of the worsening of economic inequality in the United States. A YouGov poll conducted in September 2022 revealed the following:

• 52% of Americans think the federal government should pursue policies that try to reduce the gap in wealth between the richest and poorest Americans, while 27% disagree and 21% have no opinion.
• 57% of Americans think the amount that billionaires are currently taxed in the U.S. is too low, while 17% think it’s about right, 10% think it’s too high and 16% have no opinion.
• 62% of Americans strongly or somewhat support requiring American households earning $100 million or more to pay at least 20% of their income in taxes, while 22% strongly or somewhat oppose such a requirement and 17% have no opinion.
• 67% of Americans strongly or somewhat agree that “a billion dollars is far more than any person needs, even if they live a lavish lifestyle,” while 21% strongly or somewhat disagree and 12% have no opinion.

The details of the poll results indicate that Democrats are more inclined than Republicans to support policies that ask billionaires to contribute more, and Independents are in the middle.

According to the results of a more recent poll conducted by Pew Research between March 27 and April 2, 2023, 61% of Americans say it bothers them a lot that some corporations do not pay their fair share of federal taxes, and 22% say it bothers them some.  The poll also found that 60% are bothered a lot that some wealthy people do not pay their fair share, and 22% are bothered some.

The 7^th edition of a report from Institute on Taxation and Economic Policy, published in January 2024, shows how much of their personal income the various income brackets pay in state and local taxes.  The chart below is an important summary of the results in the report.

The report concludes, among other things, that “The vast majority of state and local tax systems are regressive, or upside-down. This requires a much greater share of income from low- and middle-income families than from wealthy families. The absence of a graduated personal income tax in many states and a heavy reliance on consumption taxes contribute to this effect.”

The chart clearly shows that the lowest 20% bracket pays almost 60% more than the top 1%.  The regressive nature of effective taxation is not the result of income tax rates, but comes from various sales and excise taxes as shown by the chart below.

The chart shows that personal and corporate taxes are typically progressive, which means tax rates are higher for those with higher incomes.  Property taxes are somewhat regressive, but sales and excise taxes are very regressive.  This has a particularly significant impact on effective tax rates in states with no income tax or states with a low-tax reputation.  The report states the following:

“States described as ‘low tax’ are often high tax for low-income families. States such as Florida, Tennessee, and Texas are often described as ‘low tax’ due to their lack of personal income taxes. While this characterization holds true for high-income families, these states levy some of the nation’s highest tax rates on the poor. This is indicative of a broader pattern. Nationally, we find evidence that states with lower taxes for their highest-income earners tend to have higher taxes for their lowest-income residents.”

A New York Times article published on January 23, 2024 discusses an on-going effort in the state of Vermont to introduce new taxes on the state’s wealthiest residents:

“One proposal in Vermont would tax people with more than $10 million in net worth on their capital gains, even if the gains have not yet been realized. Another would add a 3 percent marginal tax on individual incomes exceeding $500,000 a year — a measure that supporters contend could pump $98 million, or almost 5 percent of the annual budget, into the state’s coffers.”

The first proposal would be an attempt to tax wealth rather than income, and would work as follows:

“Someone whose assets, after exemptions, started the year worth $10 million and finished the year worth $11 million, for example, would have $1 million in unrealized gains that would be counted as income, and therefore subject to Vermont’s top income tax rate of 8.75 percent, even though nothing was sold and the gains were all on paper.”

The Democratic state representative who sponsors the two proposals feels that “The way our tax structure is set up, our middle class is carrying an undue burden, compared to folks at the top” and wants to “make sure that all Vermonters are paying their fair share.”

The article mentions that the effort in Vermont is part of a nationwide campaign, the Tax Justice Initiative, that “began in earnest a year ago, when legislators in seven states, including California, New York and Washington, coordinated the introduction of bills mirroring the federal wealth tax proposed by Sen. Elizabeth Warren of Massachusetts during her 2020 presidential campaign.”

So far, the campaign has not been successful but there is hope:

“None of those proposals got out of committee. But this year, with Vermont, Pennsylvania and possibly other states joining the fold, organizers are redoubling their efforts to advance the bills to floor votes and then to passage. They hope that frustration over the escalating cost of living and resentment over the many breaks afforded to the ultrawealthy will coalesce into a political groundswell.”

In Maryland, there is currently a campaign to gather support for proposals that have the potential of adding 1.6 billion dollars in annual revenue.  In Connecticut, “One new proposal tackles something that federal lawmakers have failed to do: closing the carried interest loophole, which allows hedge-fund and private equity executives to pay tax rates that are lower in some cases than those paid by entry-level employees.”

As might be expected, these initiatives face an uphill battle and the obstacles remain substantial.  For example, conservatives are trying to reverse gains made in the state of Washington:

“In the state of Washington, conservatives hope they have collected enough valid signatures to ask voters in November whether the state’s capital gains tax should be repealed. The tax, which was approved by the Democratic-controlled legislature in 2021, assesses a 7 percent excise tax on realized capital gains of more than $250,000, excluding real estate, and generated $900 million in revenues in 2023.”

The article mentions opposition from the “vice-president of state projects at the Tax Foundation, a nonprofit tax policy group which has criticized wealth tax proposals.”  This vice-president believes current proposals to tax the rich are a misguided response to a current populist mood in the nation rather than sound tax policy:

“’The problem is that feelings can make for very bad policy,’ he said. ‘It may feel good to increase taxes on the very wealthy, but that may mean they no longer have the capacity to invest in growing companies that generate employment and create opportunity in this country.’”

Obviously, the 250 billionaires who signed the letter discussed above profoundly disagree with the Tax Foundation.  They are certainly qualified to make a valid assessment since, as they said, they are “the people who invest in startups, shape stock markets, grow businesses, and foster sustainable economic growth.”

In a previous post, I discussed biblical teaching on the poor and the call for justice under God’s rule.  Here, I will only provide a brief summary.  Readers should feel free to go to the earlier post.

Early in the Old Testament, wealth is seen as a reward for righteousness, and the Law of Moses is based on the belief that God blesses those who obey him in every aspect of their lives, and severely punishes those who disobey him.  From that perspective, poverty and illness, for example, are punishment for sin.

In time, this perception of God’s activity on earth changes: the Prophets begin to denounce the rich who are primarily driven by their desire to accumulate wealth and do not hesitate to trample on the poor in the process.  The Prophets boldly and incessantly call for justice for the poor, and by the time Jesus comes, the rich are no longer seen as favored by God.  It is therefore not surprising that Jesus declared that “It is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.” (Matthew 19:24)

This does not mean there is no hope for the rich.  It means they have to reorder their lives and focus on things that matter to God rather than material wealth.  In particular, the following advice is given to them in 1 Timothy 6:17-19:

“Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold of the life that is truly life.”

I have to assume that the 250 billionaires who signed the letter, whether they are Christians or not, are at the very least eager to “be generous” and “willing to share.”