Taxes are having a moment.
Tomorrow night, President Biden will deliver his annual State of the Union address before both houses of Congress. He is expected to touch on a number of critical issues, but early reports suggest the President will emphasize economic populism, and in particular, call for the ultra-wealthy and corporations to pay more in taxes. In what may be his biggest televised appearance before the November election, Biden will tout his administration’s economic achievements – including the bipartisan infrastructure bill, the CHIPs Act, and the crackdown on corporate “junk fees” – while outlining his economic vision for a second term.
President Biden is right to spotlight taxes in his address. After yesterday’s Super Tuesday elections, it is now a virtual certainty that Biden will face former President Trump as his Republican opponent in the general election. As he spends the next eight months drawing a contrast between himself and Trump, Biden will be selling voters on a different vision for the economy and the country. Taxes are a great place to start.
We know that the 2017 GOP Tax Cuts and Jobs Act (TCJA) showered ludicrously generous benefits on the wealthy and corporations, but recent reporting paints a clearer, starker picture. Researchers from Harvard, Princeton, the University of Chicago, and the Treasury Department recently published their analysis of the TCJA, which found that, while the law did boost investment in the US economy, it delivered few benefits to workers and also exploded the deficit, contrary to Republicans’ stated aims. Specifically, it found that the law’s tax cuts have given workers an average annual $750 wage gain – “an order of magnitude below” the $4,000 to $9,000 boost that Republicans originally promised – and have added more than $100 billion a year to the national debt.
A new report from the Institute on Taxation and Economic Policy (ITEP) tells a similar story about the Trump tax cuts, but ITEP zeroed in on the extreme corporate tax avoidance that emerged after the introduction and extension of various loopholes and breaks. The report found that between 2018 and 2022 (after the TCJA went into effect), 342 of the country’s most profitable companies paid an average effective corporate tax rate of just 14.1%, below the 21% statutory rate that the TCJA instituted. Of these 342 companies, 55 paid effective corporate tax rates below 5% while 23 actually paid nothing in taxes over that five-year period, including household names like T-Mobile and Office Depot.
While Republicans have changed the tax code to give handouts to their wealthy corporate donors, Democrats have focused on ensuring that those same people pay their rightful share. Perhaps no greater example of this contrast can be found than through their work with the IRS. Thanks to the billions in new funding that the Democrats granted the IRS through the 2022 Inflation Reduction Act, the IRS has roared back to life and reengaged its efforts to crack down on wealthy tax cheats. Last week, the agency announced that it would send roughly 125,000 notices to high-income earners who failed to file their taxes at least once between 2017 and 2022. If these taxpayers don’t file within two months of receiving the notice, the IRS could go so far as to file a “substitute” tax return on the person’s behalf and collect money from their paychecks or bank accounts. This promising development comes on the heels of a report released last month from the Treasury Department, which found that the IRS could collect at least $561 billion in extra taxes over the next decade with the full $80 billion that the agency was allocated under the Inflation Reduction Act. (Unfortunately, $21.4 billion of that funding was clawed back in May last year as part of an ill-advised handshake deal during the debt ceiling negotiations, which the study estimates could cost up to $100 billion in lost tax revenue.) In short, with their funding, Democrats have made it possible for the IRS to rebuild and recover from decades of Republican-led cuts. This is a significant win.
President Biden and the Democrats clearly have the upper hand over Republicans when it comes to their recent track records on tax policy, and neither should shy away from saying so on the campaign trail over the next few months. That said, there’s still a long way to go on the road to creating a more equitable economy. Wealthy people like us still manage to pay next to nothing in taxes compared to working people, and inequality is still spiraling out of control.
But recent developments in international tax cooperation have the Patriotic Millionaires optimistic about the fights ahead. Last week, finance ministers and central bank governors from G20 countries met in São Paulo, Brazil ahead of the G20 gathering for heads of state in the fall. At their meetings, they discussed the idea of instituting a global minimum tax on the world’s nearly 3,000 billionaires. This initiative – which tracks with a proposal from the EU Tax Observatory and its lead economist, Gabriel Zucman – follows in the footsteps of an agreement that 136 OECD countries reached in 2021 to institute a 15% global minimum tax on corporations.
We cannot emphasize enough how big a deal this is. In our increasingly global and connected world, it is easier than ever for the ultra-wealthy to move themselves and their capital to avoid paying their rightful share in taxes. To put a stop to this, countries cannot go it alone – they must work together. It may take years to figure out how a global minimum tax on billionaires could function, just as it did with the global corporate minimum tax. But the hardest obstacle in tackling any global issue is finding the political resolve to actually do it, and thankfully world leaders are making good headway in this regard.
The Patriotic Millionaires played no small part in making this moment happen. In 2021, along with a few other global millionaires, our Chair, Morris Pearl, sent a letter to the Secretary General of the OECD urging him to start conversations about instituting global minimum standards for taxing wealth. Last August, in a speech to members of the Brazilian Parliament, Morris stressed the importance of including wealth taxation as part of Brazil’s formal G20 agenda. (Brazil took over the G20 presidency in December.) And finally, in September, we organized a letter campaign that garnered over 300 signatures from economists, millionaires, and politicians – including 18 former heads of state – that called on the G20 heads of state to tax extreme wealth. Last week’s G20 meeting was the culmination of years of dogged advocacy.
In São Paulo, seven countries – India, South Africa, France, China, Saudi Arabia, Brazil, and Japan – all voiced their support for a global minimum tax on billionaires. (Brazil’s and France’s finance ministers, Fernando Haddad and Bruno Le Maire, were particularly vocal.) And as we’ve said, that’s no small achievement. But to institute this tax, all G20 countries have to get on board – and that includes us, the United States. If President Biden really wants to prove he is the real champion of tax fairness ahead of the November elections, this is a slam-dunk, no-brainer opportunity to do it.
The Patriotic Millionaires have plans in the works to encourage US leaders to publicly support a global minimum tax on billionaires, and we’ll be sure to keep you apprised of our efforts in the coming months. For now, we’re glad to see taxes getting the attention they deserve, both on the national and international stage, and we look forward to seeing President Biden use the State of the Union to amplify our call to tax rich people like us.
