On Wednesday, Senate Democratic leaders proposed a new 5.6 percent tax on people earning more than $1 million a year to cover the cost of President Obama’s $447 billion jobs plan. While a “millionaire tax” has some populist appeal as a general proposition, I suspect that this tax won’t go through. And that’s a good thing.
First, it is a distraction from spending cuts and the reform of autopilot programs. A millionaire tax won’t solve our budget problems; there simply aren’t enough millionaires. And even if there were enough millionaires and the government could impose a surtax on them, it would be unfair, considering that they are already contributing more than their fair share to the tax bill. As I highlighted last week,
In 2009, millionaires made up 0.1 percent, or just fewer than 240,000, of the 140 million tax returns filed that year. Despite their small demographic imprint, the magnitude of their contribution in paid taxes is hard to overlook. Over the past ten years, millionaires have paid 17 to 28 percent of total income tax returns per year.
The 233,435 taxpayers who reported earning seven digits or more in 2009 brought in a total of $702.2 billion, received $77.2 billion in personal exemptions and total deductions, and paid 25 percent ($176.4 billion) of their income in taxes overall.
These guys also paid 20 percent of all federal income taxes.
Besides, advocates of a millionaire tax should be careful what they wish for, since the incidence of the tax is very likely to fall most heavily on non-millionaires, in the form of lower wages, higher prices, and fewer jobs. I doubt this is the outcome the president is looking for.
If the purpose of the tax is simply to pit one class of taxpayers against another, here too the Democrats are wasting their time. The tax code code already does that: renters versus homeowners, parents versus people without kids, married couples versus single taxpayers, and so on. This is why we need fundamental tax reform, not a millionaire surtax.
Finally, it is widely forgotten by members of Congress that the role of the tax code isn’t to milk taxpayers as much as possible. Its role is (or should be) to generate enough revenue for necessary government functions (and these don’t include Amtrak, grants to the states, loans to Solyndra, subsidies to farmers, etc.) with some level of fairness and as little economic distortion as possible. Surtaxes on millionaires do not do that.