The Trouble With Taxing Exclusively The Rich

In their sketch version of a budget (PDF) the Congressional Progressive Caucus makes a heroic effort to finance progressive government basically exclusively by raising taxes on rich people.


The big problem I have with this is that if you raise high-end marginal rates while leaving deductions alone, what you do is massively increase the value of the deductions. The home mortgage interest tax deduction, for example, is both distributively regressive and also economically damaging by shunting too much money into the housing sector. If wealthy people start paying a marginal income tax rate of 47 percent, then the incentive to overconsume housing becomes much more intense. A economically sound approach to the tax code needs to go after some of these deductions, and that means some middle class families will have to pay somewhat more.

Not so much a problem, but an observation, about this plan is that it actually does implicitly recognize the non-viability of a rich people only strategy. After all, even though the legal incidence of these corporate tax changes is on the corporations, the reality is that some of the bite will be felt by middle class consumers of these firms’ products and middle class employees of the firms. We really shouldn’t be handing out so much corporate welfare to oil and gas companies. But it’s not like everyone working in the oil and gas industry is an evil fatcat, it’s mostly regular everyday folks. And that’s fine. But once you’re willing to concede the point that pursuing increased revenue in a sensible way will entail some sacrifice by some middle class people, you may as well apply that principle to the individual income tax as well as the corporate income tax.