By Robert Stewart
Our nation is living through a new Gilded Age of inequality. Similar to the late 19th Century, the United States today is facing a vast gap between those that make the most and those that earn the least. During a global public health crisis when many Americans are still enduring mass unemployment or are otherwise unable to pay rent or put food on the table, the wealth of billionaires increased by $1.62 trillion since March 2020—the start of the pandemic. With Tax Day having just passed and while massive investments paired with tax proposals are being discussed in Congress, now is the time for our nation to ask: What should tax fairness look like?
The growing divide between the haves and have-nots did not happen overnight but a contributing factor are the tax loopholes for the uber-rich and corporations that allow them to protect their wealth and otherwise escape paying their fair share. For example, 55 profitable corporations paid $0 in taxes on their 2020 income. Clearly, with some corporations enjoying record profits but still paying nothing in taxes, like Zoom, our current tax model is unsustainable. The corporate tax rate must be increased, as well as policies put in place to ensure profitable corporations can no longer get away with paying nothing.
In addition to the need to close corporate tax loopholes, the wealthy must also pay more in taxes. Not only should the top rate increase, without enough resources to enforce the tax code, our country has been leaving good money on the table for years. The tax gap (the difference between what is owed in taxes versus what is collected by the IRS) has steadily increased as the IRS has been starved for funding. IRS Commissioner Charles Retting went on record stating that the federal government’s tax gap could amount to $1 trillion or more annually. Underreporting of income by the wealthy is a main contributor to the difference between what is owed and what is collected. Investing in the IRS more than pays for itself—a $100 billion increase in funding to the IRS over 10 years could raise more than $1.15 trillion over that same period.
The wealthy and corporations—including Wall Street—not paying their fair share of means that hardworking Americans and small businesses have had to pick up the slack. Furthermore, the COVID-19 pandemic has continued to shine a light on the need to support Americans that are having trouble making ends meet. As President Joe Biden has proposed, one way to do that is to make massive, job-creating investments to shore-up the nation’s infrastructure.
As the details of the future investment packages are sorted out, members of Congress should support legislation that moves our country closer to having the wealthy and large corporations pay their fair share, creating much-needed revenues. For example, Rep. DeFazio (D-Ore.) has reintroduced the IRS Enhancement and Tax Gap Reduction Act of 2021 and Rep. Ro Khanna (D-Calif.) introduced the Stop CHEATERS (Corporations and Higher Earners from Avoiding Taxes and Enforce Rules Strictly) Act of 2021. These bills both take on the tax gap by increasing funding for tax enforcement and set audit limits for the ultra-rich and large corporations.
Wall Street must not be left out of the equation when it comes to corporate America needing to pay more of their fair share. A financial transaction tax, also called an FTT, would put a tiny fee on the trades of stocks, bonds, and derivatives and the vast majority of the tax’s revenues would come from the rich. Two bills in this vein have been introduced in the 117th Congress, Tax on Wall Street Speculation Act of 2021 from Sen. Bernie Sanders (I-Vt.) and Rep. Barbara Lee (D-Calif.) and the Wall Street Tax Act of 2021 sponsored by Sen. Brian Schatz (D-Hawaii) and Rep. DeFazio. The Sanders/Lee bill proposes a small tax of 0.5% on transactions involving stocks, 0.1% on bonds, and 0.005% on the underlying value of derivatives and could raise up to 2.4 trillion dollars over 10 years according to estimates. The Schatz/DeFazio FTT bill would institute a 0.1% across all types of instruments and is estimated to bring in $752 billion over 10 years. Not only could these new revenues from the FTT fund priorities like free college tuition, childcare, green energy jobs and more, taxing financial transactions could curb high frequency trading that upends markets and harms investors. It would also create a more equitable tax system as most stock market value is held by the top 1%.
It’s incredibly heartening that the administration’s “Build Back Better” plan has ambitious goals for massive infrastructure investments in jobs and families, paired with tax increases on the wealthy and corporations. The public agrees with this strategy. According to a poll by Pew Research, 80% of Americans are bothered that the wealthy and corporations are not paying their fair share of taxes. This moment presents a crucial opportunity to right our tax code while we invest in our recovery and strengthening our nation for the long-term.
While President Biden has embraced some of these progressive tax ideas as funding mechanisms for his recovery plan, such as increasing the corporate and income tax rates and increasing IRS enforcement, others like the FTT have not yet been added to the list—though both he and Vice President Harris signaled support for taxing Wall Street trades while on the campaign trail.
America is watching as the Biden-Harris administration and Congress make decisions that not just affect our nation’s immediate future but to make our country more equitable and redistribute some of the wealth that has made it into the hands of the too few. Let’s make sure another Tax Day does not pass while Americans are governed by a tax code that is seeped with massive inequality.