The wealthy as a barrier to tax reform

Abstract

Abstract In the optimal design of tax reform proposals, and in decisions about when and how to recommend them, it is useful to take explicit account of issues of political feasibility. In the United States—and probably around the world—important political barriers work against the enactment of major progressive tax reforms. A close look at US poll and survey data indicates that opposition by the general public is not a significant barrier: large majorities favour progressive taxation in general and favour a number of specific progressive tax changes, including higher top personal income tax rates; higher taxes on corporations; increased taxation of realized capital gains; and taxation of unrealized gains at death. But there exist other serious political barriers against tax reform, including an institutional status quo bias that makes any major policy change (especially any progressive change) very difficult; and strong political opposition from business corporations and wealthy individuals. The best available evidence indicates that nearly all US business firms, and most multi-millionaires and billionaires, oppose practically any sort of progressive tax reform. The best evidence also indicates that these firms and individuals exercise far more influence on policy-making than ordinary citizens do. We mention some possible strategies for dealing with this problem.