Photo: Kent Nishimura / Los Angeles Times via Getty Images
the national interest

Biden Wants to Tax Billionaires Because U.S. Politics Is Still a Class War

Democrats and Republicans are mostly divided over redistribution.

Photo: Kent Nishimura / Los Angeles Times via Getty Images

A large swath of commentary about American politics is built on the premise that the Democratic Party represents the economic elite, while Republicans are the party of the working class. The belief is shared by large segments of the left and right alike, and the theme runs below the surface of the hundreds of “diner journalism” accounts of downtrodden Trump voters, as well as of polemics against “neoliberalism” and “woke capital,” and is the explicit foundation of the red-brown collaboration Compact Magazine.

But while the voting bases of the two parties have changed some, and the thematic content of American commentary has changed a lot, the prosaic reality has changed very little. The main battle lines between the two parties are fixed around Democrats proposing more redistribution and Republicans proposing less. That reality has been highlighted once again by President Biden’s new plan to tax the income of billionaires.

Democrats have long wanted to find a way to tax wealth, since one of the problems with the tax code is that enormous fortunes can accrue and be passed from generation to generation without any tax at all. Figuring out how to tax that wealth presents both a technical problem and a political one.

The political problem is that the legal basis for taxing wealth, as opposed to income, is unclear. The pre–New Deal activist right-wing court struck down income tax as unconstitutional, and so it remained until the 16th Amendment specifically authorized an income tax. Since the Court is once again controlled by activist conservative justices, they might well strike down any tax on wealth on the theory that is distinct from income.

The technical problem is finding a way to fairly and efficiently tax the income wealthy people enjoy from their accrued savings. Biden’s solution is to levy a minimum tax of 20 percent on all income plus unrealized capital gains on any household worth more than $100 million. The capital gains would be taxed as a prepayment on the sale of the capital gains — which makes it a tax on income, rather than wealth, even though it is targeted at the very wealthy.

There are technical critiques of Biden’s method of taxing this income. Jason Furman has mounted a persuasive defense of it.

It’s clear, however, that the thrust of the opposition on the right has nothing to do with the program’s design and everything to do with its objective. The Wall Street Journal editorial page, after listing some narrow objections, complains that Biden’s plan would hit “hundreds of successful entrepreneurs and small business owners who accumulated wealth over decades through innovation and hard work.” That is true, though it would also hit many people who simply inherited these assets. In any case, there’s no way to tax the wealthy that does not satisfy the objection against taking money from people who are economically “successful.”

National Review, even more transparently, calls the very idea that wealthy people pay too little tax “demagoguery,” insisting, “The top 1 percent make about 20 percent of all income but pay 40 percent of the federal income tax — their income-tax burden is twice their share of income.”

This misleading statistic is a favorite of plutocrats, but it is deeply misleading. Yes, the federal income tax is highly progressive. But the income tax is just one component of the federal tax code, and the federal tax code is just one component of the total tax code. Other federal taxes, as well as state and local taxes, are far more regressive, and Republicans are busily working to make them more so.

If you look at the total redistributive effect of the tax code, it is quite modest:

The point is that Republicans without exception believe that this slim level of redistribution nonetheless punishes the rich too heavily. Since the New Deal, the Democratic Party has been organized around greater levels of economic redistribution and the Republican Party around lesser levels. Following the Reagan era, the Republican position radicalized — since 1990, an era when Republican rhetoric has routinely presented the deficit as a first-order social crisis, there have been zero Republican votes at the federal level for even a penny of higher taxes on the rich.

Meanwhile, every Democratic presidency has devoted substantial political capital to raising taxes on the rich. Biden hasn’t succeeded yet, a failure attributable to the narrowness of his congressional majority. Joe Manchin opposes Biden’s plan to tax unrealized billionaire capital gains but favors other plans to tax the rich. At least some increase in tax on the rich seems likely to pass on a party-line vote.

There are several reasons why the tightly drawn class warfare between the two parties tends to recede into the background of the political debate. It is familiar and long-standing, i.e., not new. The media is more drawn to social-issue controversies than economic-policy fights. Conservatives are strategic about changing the subject away from economic-policy fights in which their party has an unpopular stance, while progressives are not strategic enough to focus on them. And the Trump era has made it especially fashionable for analysts across the spectrum to conceptualize Republicans as the proletarian party, an idea that substitutes a focus on the party’s voters for one on its policy agenda.

But the banal fact remains that redistribution in general, and taxing the rich in particular, remains the primary ground the two parties are fighting over on a daily basis. The best thing Biden can do for himself is to remind people of this.

Biden Wants a Billionaire Tax Because Politics Is Class War