Taxing the Top

As the distribution of both wealth and income has become more and more unequal, willingness to tax those at the top has blossomed. 

In a world in which some people keep getting way more than they need, while others can hardly get by, Robin Hood starts to look better and better. Efforts to increase tax rates on the rich have long been held in check by the threat that this would discourage investment, innovation, and economic growth. However, economic growth is taking forms that benefit the very rich far more than everybody else, while also undermining ecological and social sustainability. 

Proposals to tax the top are coming into fashion. I say “the top” rather than the rich, because the political efforts I describe here are focused on the tippy top, rather than the rich in general. 

The business press is both fascinated with and alarmed by a proposed wealth tax in France that has widespread support among voters (though not so much among politicians). The so-called Zucman tax, affectionately named after the economist who proposed it, would require people with assets worth more than 100 million euros (about $117 million) to fork over at least 2% of their value annually to help finance French public spending. A September poll showed support from 86% of French respondents, not terribly surprising since only about 1,800 people would be paying up. Yet this small group is so fabulously rich that the proposed wealth tax could raise substantial revenue—enough to put a big dent in the country’s existing budget deficit. 

The Economist magazine has fulminated against it, referring to it as an unrealistic strategy, simply “poking plutocrats in the eye.” It favors instead an increase in the Value Added Tax (VAT), a sales tax that falls especially heavily on low-income consumers. Quoting a conservative Stanford economist who insists that tax policy should be based on incentives rather than moral sentiments, the magazine ignores the incentives that plutocrats have to dismiss the social benefits of taxing luxury consumption to finance public services.

Meanwhile, in the United States, the winner of the Democratic primary for mayor of New York, Zohran Mamdani, has proposed a 2% extra-income tax on those earning more than $1 million per year, to help finance—among other things—a significant expansion of public childcare provision in the city and free buses. Here too, indignation erupted. As the watchdog organization FAIR points out, the Wall Street Journal ran 10 op-eds in one week to try to take Mamdani down. 

As the self-described democratic socialist continued to poll well, the journal turned to discussion  of how the 2008 financial crisis—combined with the acute shortage of affordable housing—has led to the “rise of America’s young socialists.”

Conservatives commonly argue that high state and local taxes simply send rich people packing to more tax-friendly locations, defeating their purpose. However, as I learned from a newsletter from the Patriotic Millionaires, research based on 13 years of tax returns has shown that extensive tax flight is largely mythical. Wealthy households typically have strong personal and business ties to the communities they live in.

More recent empirical evidence comes from my home state of Massachusetts, where voters narrowly approved a “Fair Share Amendment” to the state constitution in November 2022, imposing a 4% surtax on taxable income exceeding a certain threshold (originally set at $1 million). The amendment, which went into effect in 2023, offers something of a precedent for Mamdani’s proposal, albeit on the state rather than local level. 

In the first 10 months of fiscal year 2025, the state of Massachusetts had collected almost $2.6 billion from the surtax, exceeding expectations. While some millionaires fled, their overall presence in the state increased between 2022 and 2024 (perhaps partly as a result of stock market gains). Also, many millionaires enjoyed some of benefits generated by increased public budgets,  such as increased investment in Boston’s public transit system and improved maintenance of local roads and bridges across the state (fewer potholes!). Educational investments included free community college tuition for students over the age of 25, helping to meet local labor demands as well as generating higher earnings. 

Although the mainstream of the Democratic Party has remained timid on the issue, a large majority of Americans favor higher tax rates on household income over $400,000, as well as on large corporations. More progressive taxes at the state and local level can’t necessarily countervail federal policies  that are moving in the opposite direction, such as the big beautiful tax breaks afforded to the wealthy in recent legislation. However, they can demonstrate the economic benefits of investments in public infrastructure, including health care and education.

Taxes are higher in so-called blue states controlled by Democrats than in red states controlled by Republicans. Yet life expectancy is significantly higher in blue states, a relative advantage that has been growing over time. Are higher taxes economically efficient? The answer to this question depends on the value we place on human lives. Some economists might consider this a “moral sentiment,” but most people would pay as much as they could possibly muster for another year of healthy life for themselves or their family members.  

The next time someone tells you that taxing the top will discourage investment, explain why it could shift investment from the stock market toward our own health and well-being—and how that’s better for all of us.

Nancy Folbre is Professor Emerita of Economics at the University of Massachusetts Amherst. Her research explores the interface between political economy and feminist theory.