The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [98]
Another part of the solution might be to tax some of the massive accumulated wealth of the rich. The top 1 percent of wealth holders owns around 35 percent of the nation’s total wealth, which is roughly equal to the wealth of the bottom 90 percent of the population.26 According to the latest wealth data of the Federal Reserve Board in the Flow of Funds, the total net worth of households is around $56.8 trillion.27 The wealth of the top 1 percent is therefore around $20.6 trillion. With roughly 113 million households, the average wealth of the richest 1 percent is roughly $18.2 million per household. Suppose that we levy a tax on the net worth above $5 million per household, so that the average tax base would be roughly $13.2 million per household ($18.2 million minus $5 million), for a total tax base of $14.9 trillion. A tax of merely 1 percent on net worth above $5 million per household would therefore collect around $150 billion, or 1 percent of GDP.
The combination of higher income taxation and wealth taxation would thereby raise at least 2 percentage points of GDP from the very top earners. But even if they had to pay another 2 percent of GDP, there would certainly be no need to shed tears for the rich. Their net-of-tax income would remain around 10 percent of GDP, a share of national income two-thirds higher than the 6 percent of GDP in 1980.
There are still other approaches to raising taxes on top earners and those engaged in tax evasion. The corporate income tax is now a sieve, with so many loopholes and ways to shelter income in foreign tax havens that the tax collection has declined from around 3.5 percent of GDP in the 1960s to around 1.5 percent of GDP now. By tightening the rules on foreign income and other loopholes, it should be possible to raise another 1 percentage point of GDP. Such a tax would be borne largely by the top wealth holders, who are the predominant shareholders. Of course, the current global political dynamic is to cut corporate taxes rather than to raise them, as part of a race to the bottom being played by the leading economies, even though virtually all economies would benefit by collecting higher corporate tax payments. International coordination in corporate tax policies among the major economies (such as the G20) could therefore be a boon for all countries by enabling each country to hold the line against tax cuts made in competition with other governments.
Curbing tax evasion is another route to added revenues. In a very detailed study of 2001 tax returns, the IRS concluded that there was a “tax gap” of roughly $345 billion (implying a noncompliance rate of 16 percent of taxes owed).28 Around $55 billion of that nonpayment was clawed back by the IRS through enforcement processes, leaving a net underpayment of taxes of roughly $290 billion, equal to almost 3 percent of GDP in taxes not paid. The single greatest cause is the underreporting of personal income from business activities, especially from nonfarm proprietorships and various kinds of partnership income. Tightening tax compliance through a variety of means could likely reduce the underreporting by perhaps 0.5 to 1 percent of GDP (a not inconsiderable $75 billion to $150 billion per year).
Yet another way to raise revenues would be higher taxes on oil, gas, and coal, both to collect more revenues and to help shift energy demand to low-carbon sources for both climate and national security reasons. A rough calculation shows that a price of about $25 per ton of CO2 emitted, equivalent to roughly 2.5 cents per kilowatt-hour of electricity and 25 cents per gallon of gasoline,