3 Ways Taxing the Rich Would Help the Middle Class — And 2 Ways It Wouldn’t
Written by
Kerra Bolton
Edited by
Amber Barkley
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Calls to “tax the rich” have become a rallying cry in recent years.
The volume of the calls depends on consumer confidence and whether recent market fluctuations are causing Americans to reflect on their financial situations.
Could higher taxes on the wealthy translate into better services, lower costs or fairer economic outcomes for the middle class, or is it a political distraction from more direct solutions?
Here are three ways taxing the rich would help the middle class and twoways it wouldn’t.
Also, find out who really pays more in taxes — billionaires or the middle class.
More Money for Social Security
Social Security is a critical source of income for millions of retirees. However, the trust fund is expected to run low within the decade.
In addition, President Donald Trump proposes eliminating federal taxes on Social Security benefits, which experts say could accelerate the depletion of the fund.
“Significantly raising the cap on how much earnings are subject to Social Security taxes would shore up Social Security,” said Annette Nellen, a tax professor at San Jose State University.
The IRS does not collect Social Security taxes on income over a certain cap — $168,600 in 2024 and $176,100 in 2025.
“Likely raising this to even $500,000 would be helpful,” Nellen said.
Level the Economic Playing Field
Economic researchers at the Peterson Foundation found that a 1% wealth tax imposed on all assets — and properly enforced — would raise an additional $94 billion.
The additional revenue could be used to address after-tax income inequality and the wealth gap in the United States.
“High levels of inequality are associated with negative social and economic consequences, such as a loss of confidence in institutions, weaker social cohesion and slower economic growth,” Peterson Foundation experts wrote.
The Peterson Foundation report stated, “Revenues raised through a wealth tax could fund programs that invest in a more inclusive economy and benefit lower-income Americans, effectively evening the playing field and giving a boost to those in need.”
Fairer Share of the Tax Burden
Using Federal Reserve data, Peterson Foundation researchers found, “the wealthiest 10% of households saw their share of the nation’s total wealth grow from 61% at the end of 1990 to 67% in 2024.”
At the same time, “the middle 40% and bottom 50% both saw their share of wealth decrease,” according to the Peterson Foundation report.
In addition, many of the wealthiest Americans pay lower effective tax rates due to capital gains and tax loopholes.
However, during last year’s annual Berkshire Hathaway shareholders meeting, chairman and CEO Warren Buffett called on the wealthy to pay more taxes. He said, for example, that his company made a $5 billion tax payment to the federal government.
“If 800 other companies had done the same thing, no other person in the United States would have to pay a dime of federal income taxes,” Buffett said. “Whether income taxes, no Social Security taxes, no estate taxes.”
No Guaranteed Relief
According to the Congressional Budget Office, taxing capital gains at death could raise an estimated $50 billion annually.
Nellen said this closes a loophole that lets billionaires pass down untaxed wealth, shielding hundreds of millions in gains from ever being taxed.
However, measures to tax the wealthy are difficult to enforce. And unless the revenue from increased taxes is specifically allocated to middle-class priorities — like tax relief, public benefits or cost-of-living support — the impact may be indirect at best.
According to the Peterson Foundation report, “Wealthy families also have substantial flexibility in their mobility. So, a wealth tax could drive America’s fortunes out of the country and weaken the U.S. tax base.”
Doesn’t Solve the Problem
The public and some policymakers turn to ideas like taxing the wealthy because they believe it would promote income equality and pay for essential government services.
However, researchers at the Tax Foundation said taxing the wealthy could offset any potential benefits.
Citing examples from Norway and Spain, Tax Foundation researchers said, “Even a small increase in the wealth tax rate can lead to capital flight and wealthy individuals relocating to neighboring jurisdictions.”
According to the Tax Foundation, “Wealth taxes disincentivize entrepreneurship, leading to less innovation and less long-term growth. A wealth tax reduces wages, destroys jobs and reduces the stock of capital. All income groups are worse off under a wealth tax due to decreased economic activity.”
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