Let's tax the rich: pay what?

An interactive data visualization showing how a wealth tax on the rich can help the poor and reduce income inequality
by Brian Lee Yung Rowe
 

Income inequality in the US steadily increased for the past 35 years and are now as high as they were a century ago. One way to tackle inequality is by taxing the wealthiest among us and redistributing that wealth. But where do those taxes go? Tax revenue used for infrastructure spending and the like often rely on trickle-down economics that have minimal impact on the poor. For example, the current stimulus plan includes a $285 billion tax cut for wealthier Americans. Policies like universal basic income (UBI) attempt to address this issue by directly giving money to people unconditionally.

A Robin Hood tax

Here’s another idea: apply a wealth tax on the richest billionaires and use the proceeds to pay the taxes of the poorest Americans. Some benefits of this approach include:

  • it’s simple - just rank households by tax amount and apply credits until revenue collected from wealth tax is used up
  • it’s empowering - it helps those at the bottom of the income scale
  • it’s agreeable - nobody likes paying taxes, so imagine how many people will like paying no tax

How much impact would such a policy have? The below data visualization shows the impact of such a wealth tax. Choose which of the top 20 billionaires you want to tax. Then decide how much to tax them. The histogram on the right shows the proportion of households that would have their tax bill paid by the billionaire tax.

Choose your billionaires

How much do you want to tax them?

Percent of wealth: 0%
Total tax revenue: $0 B collected from selected billionaires
Households served: 0 households have tax bill paid by billionaire tax

Wealth tax impact

The histogram shows the number of households (thousands) in each income bracket. There are about 12 million households with annual income under $15k. The blue area shows the number of households that would have their taxes paid via this wealth tax.




Methodology

First, a disclaimer: I am not a tax nor policy expert. This data visualization is meant to provoke thought and discussion around inequality and wealth redistribution via taxation. It is not rigorous analysis and has many embedded assumptions.

Income distribution data comes from the US Census Bureau and uses 2020 data. (If there is interest, I can show the affect on past years as well.) This dataset provides 9 income brackets and percentage of households in each income bracket. The total number of households is 129.931 million. Tax rates are for the 2020 tax year, as published by the IRS.

Billionaire wealth comes from Forbes' real-time billionaires list and was accessed on 2021-11-17. To compute the tax liability for each household, I first defined a median income for each income bracket. Then I determine the tax bracket and apply the tax rate. The tax revenue is then applied starting at the lowest income bracket until no revenue is left. This shows the number of households that can have their taxes paid by the wealth tax.