The tax code is progressive. Economists and analysts and politicians agree on very little when it comes to economic policy, but on that they broadly concur. Rich people fork over a higher percentage of their earnings to the government than poor people do, and the whole of government acts as a kind of Robin Hood Rube Goldberg machine, taking from the well-off and redistributing to the less fortunate.
Or perhaps not. In a new paper, the influential tax economists Emmanuel Saez and Gabriel Zucman, both of UC Berkeley, advance their argument that the tax code is not progressive at all. Right now, Republican and Democratic politicians alike are not soaking the rich; they’re watering their gardens. And some of the leading left-of-center candidates for president would not do much to change that.
The paper is an update of an earlier analysis of candidates’ tax plans, and comes after a holistic reassessment of the tax code found in their book, The Triumph of Injustice, released last year. Unlike many other tax analysts, Saez and Zucman include state and local taxes in their accounting. They count corporate earnings somewhat differently than other analysts. They also omit certain payments made to lower-income households through the earned-income tax credit and child tax credit, arguing that they function more as benefits, like food stamps. In the end, they find that the tax code asks families from top to bottom to pay something like 25 or 30 percent of their income to the government—except at the very top. The richest of the rich pay just a little more than 20 percent.
That finding, featured in a viral New York Times story in the fall, initiated a heated, months-long debate among many of the country’s top economists, including former Treasury Secretary Larry Summers and former Obama economic adviser Jason Furman. (Summers has also pushed against the wealth taxes that Zucman and Saez, among others, have proposed.) Is the tax code regressive or progressive? How much is government policy responsible for today’s inequality?
There is no determining who is definitively right in the debate. Income is complicated. Taxes are complicated. Accounting is complicated. But Saez and Zucman have shown how focusing only on federal taxes, and not state and local taxes, has skewed our understanding of the tax code. They have also powerfully demonstrated that the very richest play by very different tax rules than the merely well-off and the working poor.
In their analysis of the presidential tax plans, Saez and Zuman find that Joe Biden’s tax proposal is more progressive than current law, but not progressive up at the very top. The very wealthiest Americans would have lower tax rates than those earning less than them. Pete Buttigieg’s plan would raise more money than that of either Elizabeth Warren or Bernie Sanders, but would do less to tax billionaires. Warren and Sanders, both of whom are being advised by Saez and Zucman, would drop taxes on middle-class families and make the code starkly progressive. They are the candidates who would really soak the rich.
Saez and Zucman have also advanced the argument that health-insurance premiums function as flat-rate, per capita taxes—in other words, poll taxes—albeit ones paid to private companies rather than the government. Workers have no choice but to have their employers pay them, and they have nothing to do with a given worker’s income. “The health insurance poll tax hammers the working class and the middle class,” the economists have written. If you understand health-insurance premiums as taxes, as they do, replacing the country’s public-private system of insurance with a purely public system would reduce most working families’ tax burden. They would have far more take-home pay.
That is what really matters: How much money families have left after the tax-and-transfer system is done with them. And right now, it is too little.