The Impossible Dream of Raising Taxes On the Rich

A new report has been released which shows that the progressive goal of raising taxes on the rich and big corporations to fund new spending plans is nothing but an impossible dream. The report, “The Limits of Taxing the Rich,” was written by Brian Riedl of the Manhattan Institute, and it details how the tax rate increases proposed by progressives are implausible and economically harmful.

The report is a comprehensive fact-filled analysis of the viability of the various tax increases pushed by progressives and their impact on the economy and federal revenues. According to the author, he wrote the paper to “rein in the unrealistic perception that taxing the rich and corporations can eliminate budget deficits and finance the progressive agenda.”

The paper debunks many of the tax-the-rich talking points that are accepted as facts by the left and the media. The author writes that contrary to the fair share rhetoric, taxes in America are “extraordinarily progressive,” and are already much too high. Since Reagan, tax rates have actually risen higher for the top 1%, and the federal income tax is “extraordinarily top-heavy,” where the top earning quintile pays 90% of all income taxes.

Despite conventional wisdom in Washington, taxes  in America on individuals, corporations, and investors are higher than much of Europe and the OECD. The notion that the U.S. is a low-tax nation is only because we are the only country in the OECD without a value-added tax. As the report shows, US tax rates on individuals, corporations, and capital gains are higher than the OECD average.

The paper cautions that sharply higher tax rates must be balanced against “the economic costs of reduced work, saving, and investment and job creation,” and whether they would be sustainable in a competitive global economy. 

For example, raising the corporate tax rate to 28% would push the combined federal-state rate to 32.8%, higher than every other OECD country except Columbia. The current US rate of 25.8% is the 13th highest among 38 OECD nations, and is higher than all four Nordic nations.

Since 1980, the global trend has been to reduce, not increase, corporate rates, with the average rate declining from 46.5% in 1980 to 25.4% in 2022. Since 2000, all but two OECD countries have cut their corporate rate, motivated by “intense global competition for investment, markets, consumers, and workers.”

The author points out that our international competitors recognize that high corporate tax rates are the most economically harmful, “resulting in higher prices, lower wages, and depressed investment and innovation.”  Even progressive countries like Sweden, Greece, and Canada have realized that high corporate tax rates were “strangling their competitiveness and harming their workers.”

The report shows that these proposed massive tax increases would substantially reduce economic growth, wages, and job creation. Taxes in America are already too high, increasing 45% in the last two years and reaching near record highs as a share of the economy. The last thing we need is higher taxes to fund more spending.