How Will You Pay For It?
The tax policy candidates propose to pay for their spending plans is going to reveal their priorities and how they would govern.
Many of you may feel exhausted – but buoyed! – after sprinting through the finish line of Tuesday’s election. But I hope you caught your breath; the next race is beginning very soon. In the days, weeks, and months to come, dozens of Democrats are expected to launch their campaigns for President.
If you are willing and able to cast your mind back to the 2020 Democratic Presidential primary, you’ll remember incessant policy fights between the 29 candidates. Medicare for All. The Green New Deal. Free college and student debt cancellation. There was a reoccurring question that hounded candidates: How will you pay for it?
This time around will be no different. Democrats can’t spend two years hiding from the question. As they propose expansions of healthcare and childcare programs, new investments in housing, or expanding the social safety net, they will need an answer for how they will turn those proposals into reality. At a time when the federal deficit has crossed $2 trillion and the debt has surpassed $40 trillion, it will be impossible and irresponsible to wave the question away.
The more progressive candidates will have a quick answer: tax billionaires. That’s an appealing solution for two reasons. First, 74% of Democrats say a handful of billionaires have too much influence while 73% say billionaires are a sign of a dysfunctional economy. Moreover, a majority of Democrats and Independents believe billionaires’ wealth comes more from exploitation than from hard work. It’s a popular position!
Second, billionaires accumulate significant wealth through assets and capital, which largely are not taxed until and unless they are sold. From 2000 to 2018, the wealthiest 400 billionaire families in America paid an average tax rate of just 8.2% on their income when accounting for these unrealized capital gains. That’s why proposals like the wealth tax Elizabeth Warren offered in 2020 and the one California voted on this week aim to tax wealth instead of just income.
But a new book, The Everywhere Millionaire, by economists Eric Zwick and Owen Zidar is changing how policymakers in Washington are thinking about tax policy. The two authors reveal America’s 3 million “main street millionaires” – beverage distributors, car dealers, dentists, restaurant operators – who have at least $5 million and are business owners outside of tech and finance. Collectively, this group holds $55 trillion, more than 13 times the collective wealth of the Forbes 400 list.
Members of this large but relatively anonymous cohort serve in Congress, run local chambers of commerce, and form effective lobbying groups, portraying themselves as your friendly neighborhood small business owner. In practice, they have benefitted from targeted tax cuts that Republicans claim were for small businesses. For example, in 2025, Republicans made permanent a provision called Section 199A, which allows certain business owners to deduct 20% of their income, dropping the top marginal tax rate from 37% to 29.6%. In addition, many of these businesses can avoid paying payroll tax on much of their income by counting most of it as profit “distributions,” which are not subject to Social Security or Medicare taxes, rather than salary.
Calling for a repeal for Section 199A is decidedly less likely to spur a campaign rally chant a la Elizabeth Warren’s call for a 2-cent wealth tax. But, it is an effective way to raise money from a broad group of wealthy business owners and would face far less legal uncertainty than novel wealth taxation, especially with today’s conservative court. Of course, candidates could pursue both policies at once and many more. Former Treasury officials Kimberly Clausing and Natasha Sarin laid out a smorgasbord of conventional tax policy options – like just raising existing tax rates – that could collectively raise $15 trillion.
So why do these technical differences matter in the broader scheme of a campaign? President Biden often quoted his father as saying: “Don’t tell me what you value. Show me your budget – and I’ll tell you what you value.”
The tax policy candidates propose to pay for their spending plans is going to reveal their priorities and how they would govern. When they are inevitably asked, “how will you pay for it?,” their answers will be telling us a lot more than some budget math. They will show us to what degree candidates want to prioritize tackling income and wealth inequality, whether they want to set up a fight with the courts, how much they will focus on the debt, and how serious they are about offering ideas that can become law. Their answers are going to be about a lot more than the question.
