President Biden wants to reverse Trump’s 2017 tax cut for the wealthy and use the money to pay for infrastructure.
Republican leaders have drawn a line in the sand, saying they will not support any tax increase. And now the two parties are stuck.
But conservative budget expert Brian Riedl of the Manhattan Institute says that there’s a better way: an approach that raises more revenue and that both parties could agree on. Instead of fighting over taxes, why not cut back on some of the money that the federal government spends on rich people?
Listen to the full conversation here:
This conversation has been condensed and edited.
Matt Robison: How much do the wealthiest Americans finance in our country?
Brian Riedl: A lot. The top 20% wealthiest Americans pay 87% of all the income taxes, and 69% of all federal taxes. The rich pay a higher portion of the tax burden relative to their share of the income earned than any other major developed country.
Matt Robison: How has that tax rate on the rich evolved in recent decades?
Brian Riedl: The effective rate – what people actually pay after they apply all the credits and write-offs – has generally gone up. People point out that under Eisenhower we had a 91% income tax rate. But only eight people actually paid it!
Matt Robison: So could we raise more revenue by increasing tax rates on the wealthy?
Brian Riedl: Yes, but not nearly as much as people think. The amount of additional money that our country can raise from taxing the rich is vanishingly small. For example, what if we did what Congresswoman Alexandria Ocasio Cortez suggested, and put in a 70% tax rate for anyone making over $10 million? We would raise about $20 billion a year out of a $5 trillion budget. It’s basically a rounding error. We could raise more with other taxes that mostly affect the wealthy, but not even enough to balance the budget.
Matt Robison: So why does it make sense to cut spending on the wealthy first?
Brian Riedl: For one thing, you don’t affect behavior like you might with a tax increase. You’re not going to make them work, save or invest less. Second, you can only raise taxes so much. And we know it doesn’t generate a lot of revenue. And third, it’s very well targeted. We know exactly who we are going to affect with a spending cut. With taxes, there are economic effects that can hit broadly, including to working people, middle-class people.
Matt Robison: One of the places you suggest cutting spending on wealthier Americans is Social Security?
Brian Riedl: Today, there are 4 million retiree households that hold more than $1 million in invest-able assets. We have 2 million seniors who are earning over $200,000 a year after retirement. A lot of these wealthier seniors get an opening annual benefit as high as $50,000 per person. This group will receive $1.6 trillion in Social Security benefits over the next decade. We could trim that back and generate a lot of savings.
Matt Robison: You also suggest that there is an opportunity in Medicare?
Brian Riedl: The case for reform is even stronger here. The average couple retiring into Medicare will get $522,000 in benefits from paying $161,000 in taxes. That’s about triple. Medicare faces a $70 trillion shortfall over the next 30 years. Even the rich get Medicare subsidies for doctors and prescription drugs. If you’re making half a million dollars after retirement, why are you getting any subsidies at all?
Matt Robison: What about farm subsidies?
Brian Riedl: We have the stereotype that we’re subsidizing small struggling family farmers out of a Norman Rockwell painting who are one drought away from bankruptcy. In reality, farm subsidies that are America’s largest corporate welfare program. Decades of farm consolidation mean that 75% of all farm production comes from commercial farms who report an average income of $300,000 per year. We spend a quarter of all subsidies on families earning more than $400,000 a year. Why are we taxing middle class families to write big checks that people making that much, and especially when less than 3% of farms are in any financial distress?
Matt Robison: Is the biggest reason that you prefer cutting spending on the wealthy to raising taxes that it has a chance of getting support in both parties?
Brian Riedl: Exactly. I think there is legitimately bipartisan hope for this. Democrats are always talking about taxing the rich, because they want to increase spending on programs. Republicans say, I don’t want to raise taxes, I want to cut spending. I want smaller government. Well, cutting spending on the rich is a win-win. If Republicans and Democrats were actually locked in a room together and had to find a trillion dollars, this is as close to an agreement as you’re going to get.
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Matt Robison is a writer and political analyst who focuses on trends in demographics, psychology, policy, and economics that are shaping American politics. He spent a decade working on Capitol Hill as a Legislative Director and Chief of Staff to three Members of Congress, and also worked as a senior advisor, campaign manager, or consultant on several Congressional races, with a focus in New Hampshire. In 2012, he ran a come-from-behind race that national political analysts called the biggest surprise win of the election. He went on to work as Policy Director in the New Hampshire state senate, successfully helping to coordinate the legislative effort to pass Medicaid expansion. He has also done extensive private sector work on energy regulatory policy. Matt holds a Bachelor’s degree in economics from Swarthmore College and a Master’s degree in public policy from the Harvard Kennedy School of Government. He lives with his wife and three children in Amherst, Massachusetts.