Let's Fight for Tax Justice to Achieve Inclusive Growth

The current tax system is rigged against the working class in favor of protecting the wealth of the top 1%. But it doesn't have to be this way. Imagine a government funded in full off the excess of the overwhelming successes of our wealthiest citizens, a society where the exceptional achievements of a few can significantly and routinely raise the standard of living for everyone across the board. This is what economists call inclusive growth. And we can achieve this with a slight — but significant — tweak to the tax code.

Figure 1. A Required Minimum Dividend for corporations worth at least $100 billion, taxed at ordinary income rates.

The economy is a vast, intricate network of millions of individuals that buy and sell goods and services from each other. Think of a giant web of circles, connected organically by lines of volition. Each transaction is a mutually-agreed-upon exchange of value. For example, I can trade $6 for a carton of eggs. Most people see money as inherently valuable, but I believe that money is a resource. Before I spend the $6, it could be used to buy anything, whether that be a carton of eggs, 24 gumballs, or a jpeg of a monkey with a beanie hat. But the money only becomes tangibly valuable when it is realized to buy something that is valuable.

For a vast majority of people, this is a distinction without a difference, because we all have a plan to use the money to improve our lives — for groceries, gas, entertainment, school, a car payment, insurance, rent, a house, a wedding, raising a family, that next vacation, retirement — basically, to finance the American Dream while being able to afford the cost of living and discretionary luxuries.

But some extraordinarily wealthy people sit on vast fortunes with no plans to use them. It's not greed or malice — past a certain point, there's simply nothing left to buy. The biggest lie they teach you in economics class is this concept of "infinite demand." If billionaires really did have infinite demand, then I assure you they wouldn't be billionaires anymore.

And it's not even "the economy of the 99% vs. the economy of the 1%." A vast amount of the wealth in the top 1% has no realistic expectation of ever being used for anything, so it is, by definition, not in the economy. Hoarded wealth can't be used in the economy to improve the lives of millions of Americans.

In a healthy economy, the money moves around. Yes, we all own money, but there is a social contract to it, too: Make sure you have a plan to realize the value of that money. I'm not about to collect my paycheck at work, then dig a hole in the ground and bury it under 6 feet of dirt and leave it there for 100 years.

According to the Bipartisan Policy Center and the Congressional Budget Office, 84% of all federal tax revenue for fiscal year 2024 came from income and payroll taxes. In my mind, it's not the amount of money flowing into the government that's the problem, as the taxes are primarily used to promote the general welfare and provide for the common defense of the United States (Article I, Section 8), which is practically the sole mission of the U.S. federal government (Preamble to the Constitution). The problem arises from the fact that income and payroll taxes take away funds that would otherwise be used in the economy to improve workers' individual lives. Under the current tax system, serving the common good of the United States requires a tax on workers.

But this is a false choice. While this has been the case for over a century, it does not have to be that way any longer. By shifting the burden of tax from the workers to the wealthy, we can increase take-home pay for workers and fund federal programs to serve the people of the United States. Why do we tax workers up front, when we could instead wait for some of them to become multi-millionaires or billionaires, and tax them then? Additionally, a wealth tax serves as an incentive for the rich to use their wealth in the economy, and more broadly punishes economic stagnation while rewarding productivity.

Maybe it used to be the case that high wealth meant high income. But these days, there are trillions of dollars of wealth that are simply being hoarded, while even the highest earners in America would need to work for centuries to catch up. It should easily be possible to fund the government entirely from excessive wealth from the richest among us, which would create a tax system that lauds and rewards people for making it big instead of penalizing productivity. Achieving an astronomical net worth in America is a remarkable, exceptional achievement. And it's worth noting that if we were to implement a wealth tax, then the existence of billionaires could not be construed as a policy failure. To the contrary, we would benefit from billionaires who generate an outsized proportion of the wealth tax revenue. (Please read my thoughts on what I believe to be the real policy failure.)

In summary: Hands off the working class; we'll tax the rich, and they'll like it!

As an engineer, and not a lawyer, I cannot, for the life of me, understand why people collecting their direct deposits on pay day can easily be subject to a federal income tax on realized income, and the total value of Harlan Crow's properties and land can be taxed indirectly through a municipal split-rate tax, and yet Elon Musk's net worth cannot be taxed in any way other than a direct wealth tax, which is made completely unviable due to the apportionment requirement in Article I, Section 9 of the Constitution, a requirement that wasn't even a good idea in a 1780's agrarian society. It's almost by design that the tax code is rigged against ordinary people to protect the ill-gotten gains of the CEOs who ship jobs overseas for profit. Why is it so easy to tax income from poor workers, but not income from multi-billion-dollar stock portfolios?

And yet, while a constitutional wealth tax would be the holy grail of just and equitable tax law, it would probably be easier to make a strong, viable statutory argument that a wealth gains tax is constitutional.

For individuals with a high net worth, any increase in net worth shall be treated as taxable income under the Haig-Simons definition of income — a framework consistent with the 16th Amendment and thus not subject to the apportionment requirement for direct taxes under Article I, Section 9 of the Constitution.

We should let the economists of today define what income is, not a financially illiterate 5-4 Supreme Court majority from over 100 years ago. In the Eisner v. Macomber decision, the Supreme Court made a ruling that directly contradicted the 16th Amendment by deciding that not all income is taxable. It was a blatant and flagrant authoritarian overreach of judicial power that invalidated the 16th Amendment with just 5 unelected votes, instead of the overwhelming supermajority of elected officials nationwide that would have been required to pass a new constitutional amendment. Furthermore, the Eisner v. Macomber ruling undermines the original intent of the 16th Amendment, which was to make it easier for the government to promote the general welfare and provide for the common defense — the very spirit of the Constitution itself.

It is far past time that we tax the rich, not only so that we can infuse an extraordinary amount of unrealized value into the lives of millions of Americans, but also so that we can completely and permanently defuse, on a legal and structural level, the most notorious and long-standing point of contention in modern politics — the false choice between the common good of the United States and the individual economic freedom of workers.

Come on! We live in the 21st Century! ¿Por qué no los dos? We can easily fund programs that serve the people of the United States while reducing income taxes for millions of workers; we really could have it all if we would just allow ourselves to — yes — tax the rich!

It is true that wealth gains taxes can only generate revenue if the rich get richer. If the wealth gains tax were to be applied against the total wealth of individuals, there would be the same problems with implementation as the wealth taxes that several European countries attempted, where it leads to large-scale capital flight outside the taxable jurisdiction, which would result in a huge retraction in the economy.

However, my argument for the wealth gains tax would still apply to an unrealized capital gains tax, similar to President Biden's proposed Billionaire Minimum Income Tax. Capital gains taxes are already easily administered by all brokerages and very difficult to avoid. For one, the exit tax prevents billionaires from renouncing their American citizenship to avoid the tax. Additionally, it would be very difficult to move stocks around without selling them, which in and of itself is a taxable event.

The specific policy I'm envisioning is as follows: we tax the rich, and the tax revenue gets distributed to tax payers in the form of a tax credit and to all childrens' Trump Accounts. Yes, this is exactly what it sounds like: a plan to force the wealthy to pay their fair share in taxes and save Social Security.

The mechanism I’m proposing to tax the gains of the ultra-wealthy is a Required Minimum Dividend (RMD) applied to large-cap U.S. corporations. The RMD would be taxed as ordinary income to shareholders.

The tax revenue generated from the RMD would be distributed evenly among the approximately 170 million tax returns filed every year and all Trump Accounts for minors. For taxpayers, this would be called the Robin Hood Tax Credit. The end effect of this policy is that the people who actually run the economy would pay less in taxes, and the billionaire wealth hoarders who skate by at the top paying next to nothing in taxes would start to pay their fair share. Additionally, all children would receive sizable investments in their retirement accounts.

I coded a quick simulation in Python using current U.S. stock market data and found that if we implement a Required Minimum Dividend (RMD) at a 5% yield on all U.S. corporations worth at least $100 billion, this policy would generate over $2,300 per year per person — distributed as tax relief to all taxpayers and as annual deposits into every child's Trump Account.

GitHub: My Python Simulation