Our decisions about whom and how to tax are decisions about which community needs we have the capacity to address and at what scale. Progressive taxes like personal, investment, and corporate income taxes generate more revenue from those who have the greatest ability to pay, and for whom the cost of losing the next dollar is small, relative to the last dollar of a family struggling to make rent and afford groceries. On the other hand, regressive revenue strategies like non-strategic tariffs, fees and fines, and an overreliance on sales taxes, especially when combined with cuts to social programs, heighten the sense that the system is unfair. Where progressive revenue strategies can bind a community together in mutual support and expand capacity to meet needs through good governance, regressive strategies erode people’s trust in the public sector.

H.R. 1 presents a vision of public finance that is unsustainable and erodes trust in government

Much of the federal tax code is in fact progressively structured, but for decades conservatives have weakened and attacked that progressivity. H.R. 1 (which the White House has referred to as the “One Big Beautiful Bill Act” or “OBBBA”) is the latest Republican-led effort toward breaking down trust in the public sector and social contract. H.R. 1 provides a suite of tax breaks to households across the income distribution; however, the wealthiest households and corporations see a far bigger tax cut from the package than the typical household does. In service to these tax breaks, the bill introduces devastating cuts to Medicaid, SNAP, and critical government agencies designed to help workers and their families thrive. Despite their size and the pain they will cause, these drastic cuts in the federal government’s capacity to serve and support working families are not enough to cover the costs of the corporate tax breaks; the Tax Policy Center estimates that H.R. 1 could increase the federal deficit by between $3.7 trillion and $5.1 trillion by 2034.

But unlike the federal government, states and localities cannot run budget deficits; their budgets must be balanced yearly. When major federal cuts happen, states and localities that rely on federal dollars to maintain critical services are forced to curtail and eliminate services, dive into emergency savings where they exist, or else shift to revenue generation strategies that often fall disproportionately on Black, brown, and poor households. The combination of directly hampering public services working people rely on while shifting more of the burden of raising revenue toward Black, brown, and poor workers and their families weakens worker power and exacerbates racial disparities.

H.R. 1 combines a shift toward regressive revenue strategies with massive tax breaks to corporations and the wealthiest households, in service to the Trump administration’s overarching goal: reasserting white, wealthy, and corporate privilege through tax cuts, deregulation, and the defunding of public institutions.

Regressive revenue strategies: Taking from the poor to give the rich even more breaks

The Trump administration has floated using tariffs as a replacement (either in full or part) for the federal income tax. This is not a new Republican strategy: Tariffs are a kind of consumption tax (on imported goods, along with the intermediate products businesses need to create goods and provide services domestically), and Republican-led state governments tend to rely more on consumption taxes1 (like sales taxes) and less on income taxes to increase revenue. Because poorer households spend a larger share of their income purchasing goods and services than the rich do, consumption taxes are inherently more regressive. The current federal income tax is progressively structured, in spite of the ways conservatives have attempted to weaken that progressivity over time. While tariffs can be a sensible part of a larger industrial policy strategy, governments place too large a burden on low- and moderate-income households when they try to use consumption taxes as a primary source of revenue. 

States and localities may turn to fines and fees to raise revenues in the absence of adequate federal support. These penalties are a poor substitute for progressive taxes. Fines and fees historically have only been able to cover a small fraction of state and local budget costs. And this is baked into the design: If the point of a fine or fee is to deter behavior, the best-case scenario (ending the behavior) would result in no revenue.

Even so, fines and fees cause significant economic pain for working-class families in the Black communities that are most affected by them. On an ethical level, a modern idiom applies: “If the penalty for a crime is a fine, that crime only exists for the poor.” The criminal justice system can trap poor folks in a cruel cycle of penalization for being unable to pay traffic tickets, court fees, and even their own surveillance through ankle monitors. Fines and fees increase the economic burden on those with the least ability to pay, all for a low return, making them a poor substitute for broad, progressive taxes.

Faux-progressive revenue strategies are ineffective and distract workers, their families, and policymakers from the need for real change

Ineffective tax gimmicks like temporary deductions on overtime and tipped income distract from the need for real reform around worker pay and scheduling. The point of requiring businesses to pay time-and-a-half for overtime is to discourage pushing workers to work beyond what we have collectively decided is a full and reasonable period of labor. Tipping is an outdated practice with racist roots, designed to shift the cost of maintaining a workforce onto consumers, rather than having employers properly compensate employees. Instead of cynically gesturing toward affordability through encouraging bad business practices, we should empower workers to fight for better wages and consistent scheduling.

Conservatives may also try to balance budgets by allowing progressive tax expenditures to expire (e.g., the recent expiration of the ACA premium tax credits or the expiration of the expanded child tax credits passed as pandemic relief). Temporary tax breaks themselves are not the most effective means of addressing structural economic issues; if health care or health insurance is persistently inaccessible to wide swaths of the population, we should seek to remedy that by making access universal—or, at the very least, making the credits that allowed greater access in the first place permanent. Allowing tax breaks implemented to address structural inequities to expire without an alternative solution to the problem being addressed is negligence. There are ways to balance budgets that do not involve reversing hard-won progress toward equity.

Progressive ways to generate revenue: Worker-centered tax policies can reduce inequality and expand the tax base

There are better ways of raising revenue that will support workers and their families, rebuild public trust in government, and get us the public goods and services we want and need. Since most Americans earn their living through selling their labor, it makes sense to keep some progressive tax on income to ensure people remain invested in the social contract. But with so much wealth and income concentrated amongst a few individuals, a necessary step is shifting more of the tax burden toward extremely high earners, wealth, and investment income. This will generate more revenue to improve public services and infrastructure, while tamping down on inequality. Adding tax brackets for the highest earners, adopting a legitimate tax on wealth holdings, and taxing the income made from investments at a rate closer to that of income from wages and salaries progressively raise revenues without increasing the burden on most U.S. households.

Proper enforcement of the current tax code would go a long way toward improving both our ability to raise funds and the public’s trust in public finance. The tax code is rife with opportunities for wealthy individuals and corporations to evade paying their fair share of taxes, allowing them to skirt holding up their end of the social contract. The IRS is also critically underfunded and recovering from recent staff reductions from the Trump administration. With enough resources to enforce existing tax law effectively, the IRS could go after the largest tax evaders and see returns that matter, as opposed to disproportionately targeting Black households without the funds to instigate a drawn-out legal battle over an audit.

Table 1

We need a tax code that supports states and localities and promotes full economic participation, not temporary tax gimmicks and handouts to the wealthiest

Taxpayers (literally) cannot afford to accept the conservative propaganda that all taxation is a burden on households. Taxes are one way of binding a democratic community together and allowing us to share in the costs of creating collective prosperity and community. Especially at the state and local levels, tax revenues are essential to providing the services people need to thrive. When federal funding gets pulled back and states and localities turn to regressive revenue strategies, it is working-class families who pay the price.

If we are going to rebuild a sense of trust in the social contract, we need to structure the tax code such that it becomes more progressive, tapping into a greater portion of the massive amounts of wealth and income that have pooled at the top. We can use that revenue to fund programs and new infrastructure that allow more people to fully participate in the economy:

• improved funding for public schooling, increasing teacher pay and quality of education
• a fully funded federal food assistance program, and/or adequate funding to states to support their own cash-assistance programs more comprehensive than Temporary Assistance for Needy Families (TANF)
• expanded access to and adequacy of Medicaid, or Medicare for All

Each of these initiatives could improve affordability and remove the need for state and local governments to pursue revenue regressive strategies that do more harm than good (like fines and fees). We won’t solve every structural inequality and eliminate all disparities through reforming the tax code; but building the resources and will to collect taxes in a progressive way are steps toward a fairer economy and a government that earns the public’s trust.

1. Consumption taxes have some potential uses. Carbon taxes, for example, tax the consumption of goods whose production intensively uses greenhouse gas-emitting inputs; if consumers look to avoid these goods by switching to others whose production involves fewer greenhouse gas emissions, we achieve an important social good.

Further, the Republican-led One Big Beautiful Bill (OBBB) that passed last year will sharply cut Medicaid and SNAP over the next decade by well over $1 trillion combined.

The combination of these trends—low-road employers paying insufficient wages and big upcoming cuts to Medicaid and SNAP—has led to a flurry of policy proposals at the state level to address them. One proposal—employer assessment fees (EAFs)—appears at first glance to address both problems by imposing a tax on firms that employ workers who receive Medicaid or SNAP, with the tax often calculated as the number of workers receiving these benefits multiplied by the average cost of those benefits. But EAFs are not the optimal solution to either problem and might cause undesirable collateral damage.

Here’s why:

• Medicaid and SNAP do not make it easier for employers to offer lower wages. In fact, they likely raise the wages needed to attract workers—and that’s a good thing.
  • This is not universal across all safety net and income support programs. Some of these, like the Earned Income Tax Credit (EITC), do see some of their benefits likely bypass workers and captured by low-wage employers.
• If you make Medicaid-receiving workers more expensive to employ, then employers will try to employ fewer of them and/or lower their market wages. And if the tax is proportional to the average cost of benefits like Medicaid, this incentive is large.
• Employer assessments fees are generally a large tax imposed on a small base. But revenue is maximized when tax bases are broad.
• The targets of EAFs can be more effectively reached with other policies.
  • Raising minimum wages and passing legislation to strengthen workers’ rights to unionize and bargain collectively are alternative policies for forcing employers to pay more.
  • Broad-based taxes are alternative polices for raising revenue.
    • Higher corporate income taxes or employer-side payroll taxes would be more progressive alternatives for taxing employers.
    • Another alternative would be to penalize firms that don’t offer employer-sponsored health insurance (ESI) to workers. This is not a huge base, but it is by definition wider than those who receive Medicaid (which is just a subset of all workers not receiving ESI through the firm.)

Below, we expand on these points.

Medicaid and SNAP do not make it easier for employers to offer lower wages

A concern is often expressed that Medicaid and SNAP “subsidize” low-wage employers by making it easier for them to offer lower wages. Intuitively, thinking that Medicaid and SNAP subsidize low-wage employers actually gives these employers far too much credit for caring about the living standards of their workers. Higher pay is not given out of the goodness of employers’ hearts—it happens when policy or market conditions change. Medicaid and SNAP do not change labor market conditions in any way that lowers workers’ pay, and when these programs are cut in coming years, low-wage employers are not going to think “we need to raise our wages to help these employees who are seeing cuts to other income sources.” They will instead raise wages only if policy mandates they do or if market conditions change.

In reality, Medicaid and SNAP actually boost lower-wage workers’ meager leverage to demand higher pay by making periods of non-work less miserable. This slightly improved fallback position for low-wage workers keeps them from being forced as quickly by material deprivation into accepting any possible wage offer from employers. Policy changes that reduce how many workers receive Medicaid or SNAP will put further downward pressure on wages. We should support policies that expand the number of workers who have their wages supplemented by safety net programs, not policies that penalize and stigmatize using benefits.

This wage-boosting effect is not universal among all public income support programs. The Earned Income Tax Credit (EITC), for example, pays more as workers supply more hours to the paid labor market. This boost to labor supply puts some downward pressure on market wages and can lead to some of the EITC benefits bypassing workers and being captured by employers (unless it is complemented by strong minimum wages.)

Making workers who receive safety net benefits more expensive will reduce demand for them

If you make workers who receive safety net benefits more expensive for employers to keep on payroll, then you increase the incentive for these employers to hire fewer of them or offer them lower wages.

Supporters of EAFs could argue this logic could be employed against any effort that made workers more expensive, like minimum wages. But minimum wages apply to all workers, and employers by definition cannot lower wages to absorb the higher costs minimum wages impose. Fully substituting away from workers whose pay has been lifted by minimum wages and toward other inputs essentially means employers would have to make costly investments in plant, capital, equipment, and processes.

Conversely, only a small fraction of workers receives safety net benefits. Absent binding minimum wages, employers can lower their market-based pay to recoup the EAFs (at least until they run into the relevant minimum wage in the labor market.) Trying to substitute away from workers who receive safety net benefits toward workers who are less likely to receive these benefits is more doable for employers than substituting away from all lower-wage labor.

These employer efforts to figure out who on their payroll is likely to trigger an EAF could lead to collateral damage. Workers from groups that are more likely to receive safety net benefits might be discriminated against across-the-board, regardless of whether or not they are actually enrolled in Medicaid or SNAP. Basically, EAFs mean that populations who are more likely to use benefits—like low-income single moms—would face even greater barriers in the labor market. Workers of color are also overrepresented among the families who use SNAP and Medicaid.

Further, the direct benefits of broad-based minimum wages to workers are large—all low-wage workers get a raise if their pay was lower than the new minimum. The direct benefits to any worker from an EAF is nonexistent—their pay does not rise, and they are not more likely to receive employer benefits.

The indirect benefits of EAFs are simply the revenue they raise, and if this revenue can be raised in less costly ways, then EAFs are not optimal.

EAFs are a large tax on a small base

Workers who receive Medicaid benefits constitute roughly 10% of the overall workforce (and their share of total hours is significantly less than this). This is a relatively small base for a tax. But the size of proposed EAFs is often quite large, sometimes as large as the average Medicaid benefit. This benefit can reach more than $9,000 annually in many states. For a full-time, year-round worker making $15 an hour, this constitutes a tax on employers equivalent to 30% of that worker’s entire earnings.

Large taxes on small bases often lead to behavioral responses that erode the revenue gained from the tax. The large value of the tax incentivizes this avoidance behavior, and the small base allows substitution away from workers who trigger the tax. This means that EAFs would raise—at best—a highly uncertain amount of revenue and could well end up raising small amounts.

Sometimes, behavioral responses to taxes that reduce the revenue they raise are socially useful. For example, when cigarette taxes lead to reduced smoking or even when workers facing higher taxes are able to voluntarily substitute more leisure for work. But the behavioral response to EAFs that lowers the revenue gained from them also directly inflicts harm on low-wage workers.

There are better alternatives for the policy goals of EAFs

The recent pushes to use EAFs come from very good impulses: the desire to force employers to pay more and stop defecting on the social contract, and the desire to raise revenue so that states can buffer their residents from the terrible coming effects of the OBBB.

But there are better alternatives to achieve these goals. To raise wages, higher minimum wages are an obvious first step. A second step is policy changes that better enable willing workers to form unions and bargain collectively, even in the face of steep employer resistance. Policymaker inaction has largely destroyed the fundamental right of association in much of the U.S. labor market. Reversing this would, in the long run, solve many of the problems of employer behavior that EAFs are trying to target.

There are also better sources to raise reliable revenue to buffer residents from the OBBB’s steep cuts. If the desired target for these revenue increases is employers, higher corporate income taxes or higher employer-side payroll taxes (for all workers) could be used. Another revenue source specifically targeted at low-road employers could be increasing penalties for firms based on the number of their employees who are not covered by employer-sponsored health insurance through the workplace. This is not a huge tax base, but it is by definition larger than just employers with workers receiving Medicaid, as it would also include workers with no coverage at all. Further, this tax would incentivize the provision of ESI to more workers, a good thing in itself.

This FAQ answers key questions about the “no tax on overtime” policy and what it means for working people.

Summary  

The public has supported raising taxes on the ultrarich and corporations for years, but policymakers have not responded. Small increases in taxes on the rich that were instituted during times of Democratic control of Congress and the White House have been consistently swamped by larger tax cuts passed during times of Republican control. This was most recently reflected in the massive budget reconciliation bill pushed through Congress exclusively by Republicans and signed by President Trump. This bill extended the large tax cuts first passed by Trump in 2017 alongside huge new cuts in public spending. This one-step-forward, two-steps-back dynamic has led to large shortfalls of federal revenue relative to both existing and needed public spending.

Raising taxes on the ultrarich and corporations is necessary for both economic and political reasons. Economically, preserving and expanding needed social insurance and public investments will require more revenue. Politically, targeting the ultrarich and corporations as sources of the first tranche of this needed new revenue can restore faith in the broader public that policymakers can force the rich and powerful to make a fair contribution. Once the public has more faith in the overall fairness of the tax system, future debates about taxes can happen on much more constructive ground.

Policymakers should adopt the following measures:

• Tax wealth (or the income derived from wealth) at rates closer to those applied to labor earnings. One way to do this is to impose a wealth tax on the top 0.1% of wealthy households.
• Restore effective taxation of large wealth dynasties. One way to do this would be to convert the estate tax to a progressive inheritance tax.
• Impose a high-income surtax on millionaires.
• Raise the top marginal income tax rate back to pre-2017 levels.
• Close tax loopholes for the ultrarich and corporations.

Introduction

The debate over taxation in the U.S. is in an unhealthy state. The public is deeply distrustful of policymakers and doesn’t believe that they will ever put typical families’ interests over those of the rich and powerful. In tax policy debates, this means that people are often highly skeptical of any proposed tax increases, even when they are told it will affect only (or, at least, overwhelmingly) the very rich. People are also so hungry to see any benefit at all, no matter how small, that they are often willing to allow huge tax cuts for the ultrarich in tax cut packages if those packages include any benefit to them as well. The result has been a continued downward ratchet of tax rates across the income distribution.1 This is a terrible political dynamic for U.S. economic policy, given the pressing national needs for more revenue.

As countries get richer and older, the need for a larger public sector naturally grows.2 Yet the share of national income collected in taxes by the U.S. government has stagnated since the late 1970s. This has left both revenue and public spending in the United States at levels far below those of advanced country peers.3 This stifling of resources available for the public sector is not only inefficient but has led to frustration over its inability to perform basic functions. The political root of this suppression of resources for the public sector is a series of successful Republican pushes to lower tax rates for the richest households and corporations. This attempt to use tax policy to increase inequality has amplified other policy efforts that have increased inequality in pre-tax incomes, leading to suppressed growth in incomes and declining living standards for low- and middle-income households and a degraded public sector.4

In recent decades the dominant strategy for many on the center–left to combat the public’s tax skepticism is to pair tax increases with spending increases for programs that lawmakers hope will be popular enough to justify the taxes. This strategy has worked in the sense that some tax increases have been passed in the same legislation that paid for valuable expansions of income support, social insurance, and public investment programs in recent years. But this strategy has not stopped the damaging political dynamic leading to the sustained downward ratchet of tax revenue and the tax rates granted to the ultrarich and corporations.5

Part of the problem with a strategy of trying to attach tax increases to allegedly more popular spending increases is that it takes time for spending programs to become popular. The Affordable Care Act (ACA), for example, was not particularly popular in the year of its passage but has survived numerous efforts to dislodge it and has seemingly become more popular over time. Conversely, the expanded Child Tax Credit (CTC) that was in effect in 2021 and cut child poverty in half only lasted a single year, so there was little organic public pressure on Congress to ensure it continued.

In this report, we suggest another strategy for policymakers looking to build confidence in the broader public that tax policy can be made fairer: Target stand-alone tax increases unambiguously focused on ultrarich households and corporations as the first priority of fiscal policy. The revenue raised from this set of confidence-building measures can be explicitly aimed at closing the nation’s fiscal gap (the combination of tax increases or spending cuts needed to stabilize the ratio of public debt to national income).6 Once this gap has been closed with just highly progressive taxes, the public debate about the taxes needed to support valuable public investments and welfare state expansions should be on much more fruitful ground.

This approach takes seriously the work of scholars like Williamson (2017), who argue that the U.S. public is not rigidly “anti-tax.” Indeed, this public often views taxpaying as a civic responsibility and moral virtue. Yet they have become convinced that too many of their fellow citizens are not making a fair and adequate contribution. Part of this perception rests on underestimating the taxes paid by the poor and working people, but a good part of this perception also rests on the accurate impression that many rich households and corporations are not paying their fair share. Policy can change this latter perception, particularly if the policy is explicitly identified with ensuring that the rich and corporations—and only the rich and corporations—will see their taxes increase.

The rest of this report describes a number of tax policy changes that would raise revenue from the rich and corporations with extremely small (often zero) spillover into higher taxes for anybody else. It also provides rough revenue estimates of how much each could raise. It is not exhaustive, but it demonstrates that the nation’s current fiscal gap could certainly be closed with only taxes on the very rich. Making this policy agenda and target explicit could go a long way to restoring trust and improving the quality of the debate about taxes.

Targeting the ultrarich

The vast majority (often 100%) of the tax policy changes discussed below would only affect the taxes paid by the top 1% or above (those making well over $563,000 in adjusted gross income in 2024). Many of the taxes—and the vast majority of the revenue raised—will actually come from households earning well above this amount. We will be more specific about the incidence of each tax in the detailed descriptions below. The tax policy changes fall into two categories: increasing the tax rates the rich and ultrarich pay and closing the tax loopholes they disproportionately benefit from. We first present the tax rate changes, and we list them in declining order of progressivity.

Both the rate changes and the loophole closers disproportionately focus on income derived from wealth. By far the biggest reason why rich households’ tax contributions are smaller than many Americans think is appropriate has to do with rich households’ source of income. So much of these households’ income derives from wealth, and the U.S. federal tax system taxes income derived from wealth more lightly than income derived from work. If policymakers are unwilling to raise taxes on income derived from wealth, the tax system can never be made as fair as it needs to be.

Levying a wealth tax on the top 0.1% or above of wealthy households

The WhyNot Initiative (WNI) on behalf of Tax the Greedy Billionaires (TGB) has proposed a wealth tax of 5% on wealth over $50 million, with rates rising smoothly until they hit 10% at $250 million in wealth and then plateauing. With this much wealth, even a household making just a 1% return on their wealth holdings would receive an income that would put them in the top 1% of the income distribution. A more realistic rate of return (say, closer to 7%) would have them in the top 0.1% of income.

The $50 million threshold roughly hits at the top 0.1% of net worth among U.S. families, so this tax is, by construction, extremely progressive—only those universally acknowledged as extremely wealthy would pay a penny in additional tax. The WNI proposal also imposes a steep exit tax, should anybody subject to the tax attempt to renounce their U.S. citizenship to avoid paying it.

The Tax Policy Center (TPC) has estimated that the WNI wealth tax could raise $6.8 trillion in additional net revenue over the next decade, an average of $680 billion annually. In their estimate, the TPC has accounted for evasion attempts and the “externality” of reduced taxes likely to be collected on income flows stemming from wealth holdings. Despite accounting for these considerations, the $6.8 trillion in revenue over the next decade could completely close the nation’s current estimated fiscal gap.

A key consideration in the long-run sustainability of revenue collected through a wealth tax is how quickly the tax itself leads to a decline in wealth for those above the thresholds of the tax. If, for example, the tax rate itself exceeded the gross rate of return to wealth, wealth stocks above the thresholds set by the tax would begin shrinking, and there would be less wealth to tax over time. The Tax Policy Center’s estimate includes a simulation of this decumulation process, assuming an 8.5% rate of return.7 It finds only very slow rates of decumulation.

Other simulation results (like those in Saez and Zucman 2019b) find faster decumulation for wealth taxes as high as this, but even their findings would still support the significant revenue potential of a wealth tax targeted at sustainability. Whereas the WNI wealth tax raises roughly 2.2% of GDP over the next 10 years, the Saez and Zucman (2019a) results highlight that over half this much could essentially be raised in perpetuity.8

It is important to note that even if revenue raised from any given wealth tax came in lower than expected due to the decumulation of wealth, this decumulation is itself highly socially desirable. The wealth would not be extinguished. It would instead accumulate to other households throughout society. An analogy is carbon taxes targeted at lowering greenhouse gas emissions. If a carbon tax were implemented and the revenue it raised steadily fell over time, this would be a sign of success, as the primary virtue of such a tax is not the long-run revenue it can raise but the behavioral changes it can spur, such as switching to less carbon-intensive forms of energy generation and use.

The benefits from wealth decumulation could be profound. For one, much of the rise in wealth in recent decades has been the result of a zero-sum transfer of income claims away from workers and toward capital owners (Greenwald, Lettau, and Ludvigson 2025). To the degree that higher wealth taxes make these zero-sum transfers less desirable for privileged economic actors, the imperative to keep wages suppressed and profits higher will be sapped, leading to a broader distribution of the gains of economic growth.

Further, highly concentrated wealth leads naturally to highly concentrated political power, eroding the ability of typical families to have their voices heard in important political debates (Page, Bartels, and Seawright 2013). Studies show that popular support for democratic forms of government is weaker in more unequal societies, demonstrating that a greater concentration of wealth can lead to the erosion of democracy (Rau and Stokes 2024).

Converting the estate tax to a progressive inheritance tax

The estate tax in the United States currently only applies to estates of more than $11.4 million. At the end of 2025 it would have reverted to pre-2017 levels of roughly $7 million, but the Republican budget reconciliation bill passed in 2025 will raise it to a level more than twice as high starting in 2026—at $15 million. The 40% estate tax rate applies on values above these thresholds.

The estate tax threshold has been increased significantly since 2000, with changes in 2001, 2012, 2017, and 2025 all providing large increases. In 2000 the threshold for exemption was under $1 million, and the rate was 55%. If the 2000 threshold were simply updated for inflation, it would have been $1.3 million today, instead of $11.4 million. At this $1.3 million threshold and with a 55% rate, the estate tax would raise roughly $75 billion more in revenue this year than it is currently projected to.9 In short, our commitment to taxing wealthy estates and their heirs has eroded substantially in recent decades.

Batchelder (2020) proposes a new tax on inheritances that would replace the estate tax. Batchelder’s inheritance tax would not fall on the total value of the estate, but simply the portion of it inherited by individual heirs. Her proposal is to tax inheritances of various thresholds as ordinary income. Because the tax would be triggered by the lifetime level of gifts and inheritances, it cannot be avoided just by using estate planning to time these bequests and gifts. For a threshold of $1 million, the tax would raise roughly 0.35% of gross domestic product annually, or roughly $1 trillion over the next decade.

An inheritance tax is naturally more progressive than an estate tax. To see why, imagine an estate of $5 million that faced 2000-era estate tax rules. An estate tax would lower the value of the inheritance to all heirs by an amount proportional to the tax. Conversely, under an inheritance tax, the effective rate of the tax felt by heirs would be significantly different if the estate was spread among 10 heirs (each receiving $500,000 and, hence, not even being subject to the Batchelder inheritance tax that starts at $1 million) versus being spread among two heirs (each receiving $2.5 million and paying an inheritance tax). Fewer heirs for a given estate value imply a larger inheritance and, hence, a higher inheritance tax (if the inheritance exceeds the tax’s threshold).

Imposing a high-income surtax on millionaires

Probably the most straightforward way to tightly target a tax on a small slice of the richest taxpayers is to impose a high-income surtax. A surtax is simply an across-the-board levy on all types of income (ordinary income, business income, dividends, and capital gains) above a certain threshold. As such, there is zero possibility that lower-income taxpayers could inadvertently face any additional tax obligation because of it.

A version of such a high-income surtax was actually a key proposed financing source for early legislative versions of the Affordable Care Act. The bill that passed the House of Representatives included such a surtax.10 This surtax was replaced with other revenue sources during the reconciliation process between the House and Senate versions.

One proposal is to enact a 10% surtax on incomes over $1 million. This would affect well under 1% of households (closer to 0.5%). Using data from the Statistics of Income (SOI) of the Internal Revenue Service (IRS), we find that roughly $1.55 trillion in adjusted gross income sat over this $1 million threshold among U.S. households in 2019.11 A purely static estimate with no behavioral effects, hence, would argue that $155 billion annually (10% of this $1.55 trillion) could be raised from this surcharge. In tax scoring models (like that of the Tax Policy Center or the Joint Committee on Taxation), behavioral effects tend to reduce estimates roughly 25% below such static estimates. Applying such a discount would still suggest that the revenue potential of a high-income surtax with a $1 million threshold could be $1.5 trillion over the next decade.

Raising the top marginal income tax rate back to pre-TCJA levels

During the Clinton and Obama administrations, the top marginal tax rate on ordinary income was increased to 39.6%. During the George W. Bush and the first Donald Trump administrations, it was reduced and currently sits at 37%. This lower marginal top rate would have expired at the end of 2025, but the Republican budget reconciliation bill, passed by Congress and signed by Trump in July 2025, ensured that it would stay at 37%.

In 2025 the bracket that this top tax rate applies to will begin at $626,350 for single filers and joint filers. This is well under 1% of taxpayers. If the bracket for top tax rates was dropped to $400,000 and the rate was raised to 39.6%, the Tax Policy Center has estimated that this could raise roughly $360 billion over the next decade. Earlier in 2025, there were reports that Republicans in Congress were thinking about letting the top tax rate revert to the level it was at before the 2017 Tax Cuts and Jobs Act (TCJA). This was touted as members of Congress breaking with their party’s orthodoxy and actually taxing the rich. On the contrary, the new top marginal tax rate now applies to joint filers at an even lower level than pre-TCJA rates.

As can be seen in Table 1, pushing the top marginal rate on ordinary income to pre-TCJA levels is one of the weakest tools we have for raising revenue from the rich. The reason is simple. A large majority of the income of the rich is not ordinary income; it is income derived from capital and wealth, and, hence, only changing the tax rate on ordinary income leaves this dominant income form of the rich untouched.

Corporate tax rate increases

In 2017 the TCJA lowered the top rate in the corporate income tax from 35% to 21%, and the 2025 Republican budget reconciliation bill extended that lower 21% rate. The 35% statutory rate that existed pre-TCJA was far higher than the effective rate actually paid by corporations. Significant loopholes in the corporate tax code allowed even highly profitable companies to pay far less than the 35% statutory rate.

But at the same time the TCJA lowered the statutory rate, it did little to reduce loopholes—the gap between effective and statutory rates after the TCJA’s passage remains very large.12 Clausing and Sarin (2023) have estimated that each 1 percentage point increase in the top statutory tax rate faced by corporations raises over $15 billion in the first years of the 10-year budget window. Raising today’s 21% top rate back to the 35% rate that prevailed before the TCJA would, hence, raise roughly $2.6 trillion over the next decade.

The immediate legal incidence of corporate taxes falls on corporations, the legal entities responsible for paying the taxes. However, the economic incidence is subject to more debate. The current majority opinion of tax policy experts and official scorekeepers like the Joint Tax Committee (JTC) is that owners of corporations (who skew toward the very wealthy) bear most of the burden of corporate tax changes.13 But some small share of the corporate tax rate’s incidence is often assigned to workers’ wages, as there are some (speculative) reasons to think a higher corporate tax rate leads in the long run to lower wage income. The economic reasoning is that if the higher corporate tax rates lead to less economywide investment in tangible structures, equipment, and intellectual property, then this could slow economywide productivity growth. This slower productivity growth could, in turn, reduce wage growth for workers.

However, newer research highlights that there are good reasons to think that corporate tax rate increases have zero—or even positive—effects on private investment in structures, equipment, and intellectual property. Brun, Gonzalez, and Montecino (2025, forthcoming) argue that once one accounts for market power (either in product or labor markets) of corporations, corporate taxes fall, in part, on nonreproducible monopoly rents. To provide an example, a large share of Amazon’s profits is not just due to the size of the firm’s capital stock but its considerable monopoly power in many business segments. This market power allows them to charge higher prices than they could in competitive markets, and these excess prices represent a pure zero-sum transfer from consumers, not a normal return to investment.

Increasing taxes on these monopoly rents can reduce stock market valuations of firms and actually lower the hurdle rate for potential competitors assessing whether to make investments in productivity-enhancing capital. This can actually boost investment and productivity economywide, and if investment and productivity rise (or just do not fall) in response to corporate tax increases, this implies that none of the economic incidence of a corporate tax increase falls on anybody but the owners of corporations.

In short, despite some mild controversy, it seems very safe to assume that increases in the corporate income tax rate both are and would be perceived by the public as extremely progressive.

Closing tax loopholes that the ultrarich and corporations use

As noted above, it’s not just falling tax rates that have led to revenue stagnation in recent decades. There has also been an erosion of tax bases. Growing loopholes and increasingly aggressive tax evasion strategies have put more and more income out of the reach of revenue collectors. It goes almost without saying that the vast majority of revenue escaping through these loopholes and aggressive tax evasion strategies constitutes the income of the very rich and corporations.

These types of loopholes are unavailable to typical working families because their incomes are reported to the Internal Revenue Service. Typical working families rely on wage income, which is reported to the penny to the IRS, and families pay their legally obligated tax amount. Income forms earned by the ultrarich, however, often have very spotty IRS reporting requirements, and this aids in the evasion and reclassification of income flows to ensure the ultrarich are taxed at the lowest rates.14 Shoring up tax bases by closing loopholes and engaging in more robust enforcement are key priorities for ensuring the very rich pay a fair and substantial contribution to the nation’s revenue needs.

Closing loopholes that allow wealth gains and transfers between generations to escape taxation

The wealthy use a number of strategies to escape taxation of the income they generate and to allow assets to be transferred to their heirs. Below we discuss three such strategies and provide a score for a consolidated package of reforms aimed at stopping this class of tax strategies—$340 billion over the next decade.

Ending the step-up in basis upon death or transfer of assets

This is best explained with an example. Say that somebody bought shares of a corporation’s stock in the early 1980s for $1 per share. They held onto it for decades until it reached $501 per share. Since they never realized this capital gain by selling the stock, they were never taxed on their growing wealth. Now, say that they transferred these stock holdings to their children decades later. Because it is no longer the original buyer’s property, it would not be assessed as part of an estate subject to the estate tax. If their children subsequently sold the stock, current law would allow a step-up in basis, which means the capital gain they earned from selling the stock would only be taxed on the gain over and above the $501 per share price that prevailed when they received the stock, not the original $1 per share price.

So, if children sold their stock gift for $501 per share, they would owe zero tax. And for the family as a whole, the entire (enormous) capital gain that occurred when the share appreciated from $1 to $501 is never taxed. This allows huge amounts of wealth to be passed down through families without the dynasty’s ever paying appropriate taxes, either capital gains taxes or estate taxes.

An obvious solution to this problem is simply to not grant the step-up in basis when the asset is transferred. That is, when the children receive the stock in the example above, any subsequent sale should be taxed on any capital gain calculated from the $1 originally paid for the stock. In the case above, the children would have had to pay a capital gains tax on the full value between $1 and $501 if they had sold the stock for $501.

Besides raising money directly through larger capital gains values, ending the step-up in basis can also cut down on many tax engineering strategies that wealthy families undertake to avoid taxation. Estimates for the revenue that could be raised by enacting this change are quite varied, but they tend to sit between $15 billion and $60 billion in 2025.15 We estimate this would raise $190 billion over the next decade.

An alternative solution getting at the same problem would be to make the death of a wealth holder a realizable event. Essentially, for the purposes of taxation, it would be assumed that all assets were sold by a wealth holder upon their death, and the appropriate rate of capital gains taxation would then be collected.

Making borrowing a realizable event

A related reform would make the pledging of any asset as collateral against a loan a realizable event. In the example above, as the original holder of the stock held the shares and did not sell them over a long period of time, this raises an obvious question of how this family is financing their current consumption without liquidating any wealth. They could, of course, be earning labor income. But the very wealthy often finance current consumption by taking out loans and using the value of their wealth as collateral. So long as the interest rates on the loans are lower than the rate of return on the wealth being pledged as collateral, they can enjoy high and rising consumption and still see considerable wealth appreciation. This is a particularly useful strategy during periods of low interest rates (like most of the past 25 years) and for owners of newer corporations that are growing rapidly (think Jeff Bezos and Amazon during the 2000s). This use of debt as a strategy of avoiding capital gains realization has often been called the “Buy, Borrow, Die” strategy.

An obvious reform to stop this would be to force wealth holders to treat pledging an asset as collateral as a realization event for this asset. When the wealth holder goes to financiers to get loans and pledges their shares as collateral, the wealth holder would pay a capital gains tax on the difference in the value of the stock between when they originally bought it and the value the day it is pledged for collateral. The amount of revenue this would raise would be small in the grand scheme of the federal budget, roughly $60 billion over the next decade. But it would provide one more block to a common tax evasion strategy for the ultrarich, and this could show up in more revenue collected through other taxes.

Closing loopholes that erode estate or inheritance tax bases

Hemel and Lord (2021) identify estate planning mechanisms that reduce the base of the current estates taxes, including the abuse of grantor retained annuity trusts (GRATs) and excessively preferential tax treatment of transfers within family-controlled entities. Under current law, wealthy individuals establishing a trust for their descendants may calculate the taxable gift amount of the trust by subtracting the value of any qualified interest. This qualified interest includes any term annuity retained by the grantor of the trust. The annuity is based on market interest rates prevailing when the trust was established. When interest rates are low, this becomes an extremely valuable deduction.

Hemel and Lord (2021) give the example of a grantor establishing a $100 billion trust but retaining a two-year annuity payment of $50.9 million based on the 1.2% interest rate prevailing in 2021. This taxpayer would be able to subtract this annuity from their taxable gift calculation, effectively paying no gift tax. If the assets in the trust grew faster than 1.2%, then the trust would have assets left over after two years, and these could be passed to the beneficiaries free of any transfer tax (as these assets came from the trust, not the original grantor). If assets in the trust grew more slowly than this amount, then the trust would be unable to make its full final annuity payment and would be declared a failed trust and would trigger no estate or gift tax consequences. In this case, the original grantor could simply try again to construct a short-term irrevocable trust that would succeed in transferring income to heirs without triggering a gift tax.

Hemel and Lord (2021) recommend repealing the law that allows for this deduction of qualified interest from gift or transfer taxes applying to GRATs. They also argue for reducing the preferential treatment of transfers within family-controlled entities. The full package of reforms to estate planning that they recommend would raise $90 billion over the next decade.

Closing the loophole from ambiguity between self-employment and net investment income

As part of the Affordable Care Act, a 3.8% tax was assessed on income above $200,000 (for single filers and $250,000 for joint filers). If this income is earned as wages or self-employment income, this tax is paid through the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA) taxes. If the income is received as a dividend or interest payment or royalty or other form of investment income, the tax is paid as a Net Investment Income Tax (NIIT). The clear intent is for income of all forms to be assessed this tax.

Somehow, however, some business owners (mostly those owning limited partnerships and S corporations—corporations with a limited number of shareholders who are required to pass through all profits immediately to owners) have managed to classify their income as not subject to FICA, SECA, or the NIIT.16 A number of policy options could close this unintended gap and raise nontrivial amounts of revenue—roughly $25 billion in 2025. Importantly, the revenue collected by this loophole closing would go directly to the Medicare trust fund.

International corporate tax reform

Before the TCJA, the biggest loophole by far in the corporate income tax code was U.S. corporations’ ability to defer taxes paid on profits earned outside the United States. In theory, once these profits were repatriated, taxes would be levied on them. However, financial engineering meant that there was little need to repatriate these profits for reasons of undertaking investment or stock buybacks or anything else corporations wanted to do.17 Further, corporations routinely lobbied for repatriation holidays, periods of time when they were allowed to repatriate profits at a reduced rate. One such holiday was passed by Congress and signed into law by George W. Bush in 2004.

Between 2004 and 2017, pressure for another such holiday ramped up as more and more firms deferred corporate taxes by holding profits offshore. The TCJA not only provided such a holiday for past profits kept offshore, it also made profits booked overseas mostly exempt from U.S. corporate taxes going forward. In essence, the TCJA turned deferral into an exemption.

This TCJA exemption of foreign-booked profits was subject to small bits of tax base protection. But they have been largely ineffective. The 2025 budget reconciliation bill would further exacerbate these problems, reducing taxes on foreign income even more.

Clausing and Sarin (2023) recommend a suite of corporate reforms that aims to level the playing field between firms booking profits in the United States versus overseas. Key among them would be to reform the Global Intangible Low-Taxed Income (GILTI) tax rate, a rate introduced in the TCJA, to ensure that financial engineering would not allow large amounts of corporate income earned by U.S.-based multinationals to appear as if they were earned in tax havens.18

The GILTI is essentially a global minimum tax rate for U.S. multinationals. But the rate (10.5% in 2024 and 12.6% in 2025) is far too low to effectively stop this kind of tax haven-shopping for corporations, much lower than the 15% minimum rate negotiated by the OECD and agreed to by the Biden administration in 2022.

In addition, multinationals are currently allowed to blend all their foreign tax obligations globally and take credits for foreign corporate income taxes paid. So, taxes paid on a company’s actual manufacturing plant in, say, Canada, can count toward the GILTI contribution of a multinational, even if they then used financial engineering to shift most of their paper profits to tax havens like the Cayman Islands.

Raising the GILTI rate and applying it on a country-by-country basis would go a long way to preserving the base of the U.S. corporate income tax in the face of tax havens. The Clausing and Sarin (2023) suite of reforms would raise $42 billion in 2025.

Building up IRS enforcement capabilities and mandates

In 2022, the IRS estimated that the tax gap (the dollar value of taxes legally owed but not paid in that year) exceeded $600 billion. The richest households account for the large majority of this gap. The IRS in recent decades has lacked both the resources and the political support to properly enforce the nation’s tax laws and collect the revenue the richest households owe the country.

Due to this lack of resources and mandates, the IRS instead often took the perverse approach of leveraging enforcement against easy cases—easy both in terms of not taking much capacity and of not generating intense congressional backlash.19 In practice, this meant intensively auditing recipients of refundable tax credits to look for improper payments. Tax credits are refundable when the amount of a credit (say, the Child Tax Credit) is larger than the taxpayer’s entire income tax liability. In this case, the credit does not just reduce income tax liability; it will also result in an outright payment (hence, refundable) to the taxpayer claiming it. Recipients of these refundable tax credits are, by definition, low-income taxpayers—those with low income tax liability. Besides making the lives of these low-income households more anxious, these audits also just failed to generate much revenue—again, because the group being audited was generally low income and didn’t owe significant taxes in the first place.

The Biden administration included significant new money to boost IRS enforcement capacity as part of the 2022 Inflation Reduction Act (IRA). This extra enforcement capacity was paired with new mandates to reduce the tax gap by increasing enforcement efforts on rich taxpayers.

However, the IRA additions to IRS resources were already being chiseled away before the 2024 presidential election. The Trump administration clearly has no interest in whether or not the IRS consistently enforces revenue collection from the rich. The budget reconciliation bill that Republicans passed through Congress in July rolled back the expanded funding for IRS enforcement. Trump’s proposed fiscal year 2026 budget for IRS funding would chip away at that even further. 

The IRS has also not been immune to the Trump administration’s attempt to make life miserable for federal employees. The agency has lost a quarter of its workforce since 2025 to layoffs, the deferred resignation offer pushed by Elon Musk’s so-called Department of Government Efficiency, early retirements, and other separations (TIGTA 2025).

The sharp turn away from the Biden administration’s support of the IRS represents a missed opportunity. While it would be near impossible to fully close the tax gap, Sarin and Summers (2019) estimate that some modest and doable steps could reliably collect significantly over $100 billion per year over the next decade from increased enforcement efforts.

How much could a campaign of confidence-building measures to tax the ultrarich raise?

These measures to enact a series of tax reforms laser-targeted at only the rich could raise significant revenue. One obvious benchmark suggests itself: the current fiscal gap. The fiscal gap is how much (as a share of GDP) taxes would need to be raised or spending would need to be cut to stabilize the ratio of public debt to GDP. Today this gap stands at roughly 2.2%.

Table 1 gives a rough score for each of the provisions mentioned above. It then conservatively estimates the combined revenue-raising potential of this package. It assumes that the whole policy package is equal to 70% of the sum of its parts. This would help account for some fiscal “externalities” (i.e., taxing wealth means wealth grows more slowly over time and, hence, reduces tax collections on income earned from wealth going forward). It also would help account for some potentially duplicative effects that could reduce some revenue collected by the combination of these reforms. For example, if the step-up in basis were eliminated, the incentive for rich households to finance consumption with loans would be reduced, so the revenue generated by treating the pledging of collateral as a realizable event would likely be reduced.

Table 1

This combination of confidence-building measures to tax the rich would unambiguously be able to close the nation’s current fiscal gap. The sum of the parts of this agenda would raise roughly 4% of GDP over the long run, and even if the sharp 30% discount on the sum of these parts was applied, it is still just under 3% of GDP. Telling the American public that this package of tax increases on the ultrarich had put the nation on a fully sustainable long-run trajectory while still leaving enough money to fund something as large as universal pre-K for 3- and 4-year-olds or a radical increase in more generous coverage in the nation’s unemployment insurance system could be seismic for changing the tax debate in the United States.

For those like us who advocate for even larger expansions of the U.S. system of income support, social insurance, and public investment, the future political debate over how to finance them would be on much more favorable ground with the public’s support. The conditions of the debate would change if the public could shake the (too often true) impression that the U.S. government is failing to ask the ultrarich and corporations to do their part to contribute to the nation’s fiscal needs.

Conclusion

Obviously, this program of laser-targeting tax increases on the ultrarich is not the policy of the current Trump administration or the Republican majority in Congress. They have already spent the first half of 2025 forcing through a monster of a reconciliation bill, which extended the expiring provisions of the TCJA, provisions that provide disproportionate benefits to the very rich. The reconciliation bill represents a shocking upward redistribution of income from the very poor to the very rich, paying for trillions of dollars in tax cuts that primarily benefit the wealthy by stripping health care and food assistance from millions of Americans. 

But as damaging as extending these expiring provisions will be to tax fairness and economic outcomes, they might be even more damaging to the public’s confidence that tax policy can ever be reoriented to ensure that the ultrarich and corporations pay their fair share. Instead, the debate over the expiring provisions will draw attention to two facts. First, the large majority of U.S. households will see a tax cut (relative to current law), but these cuts will be much larger for the rich. For example, the bottom 60% of households will see a tax cut of just over $1 per day, while the top 1% will see a cut of $165 per day, and the top 0.1% will see a whopping $860 per day. Second, these regressive tax cuts are bundled with spending cuts that will sharply reduce incomes for the people in the bottom half of the income distribution, leaving them net losers overall.

This combination of facts will continue to feed perceptions that the only way typical households can get something—anything—out of tax policy debates is if they settle for crumbs from the feast enjoyed by the richest. And even these crumbs will be taken back in the form of cuts elsewhere.

It’s time to reverse these perceptions. If policymakers engage in a confidence-building set of measures to raise significant revenue only from the ultrarich, the public’s stance toward tax policy can be changed from being anti-tax to being willing to have debates about the pros and cons of public sector expansions, content in the knowledge that the very rich will neither escape their obligations nor claim the lion’s share of benefits yet again.

Notes

1. Obviously not all of this downward ratchet is bad. The steep decline in tax rates for the poorest families, driven by expanding Earned Income and Child Tax credits, has been a very welcome policy development in recent decades.

2. The strong relationship between the level of gross domestic product (GDP) per capita and the share of the public sector in a nation’s economy is recognized enough to have been named: Wagner’s Law.

3. On the relative smallness of the U.S. fiscal state (both spending and taxation as shares of GDP), see EPI 2025.

4. Bivens and Mishel 2021 note the number of intentional policy changes outside the sphere of taxation that have driven much of the growth in pre-tax inequality.

5. For example, both the Affordable Care Act (ACA) and the Inflation Reduction Act (IRA) paid for the additional spending on public investments and income support programs they called for with new taxes. That said, because Republican-driven tax cuts were passed in the interim, the upshot has been mostly larger budget deficits over time.

6. See Kogan and Vela 2024 for an explanation and estimation of the U.S. fiscal gap in 2024.

7. The rate of return assumption matters a lot for how durable revenue increases from a wealth tax will be over time. A rate of 8.5% is on the high end of many projections for rates of return to wealth in coming decades.

8. Specifically, they note about wealth taxes: “Set the rates medium (2%–3%) and you get revenue for a long time and deconcentration eventually” (Saez and Zucman 2019b). When they estimate the potential revenue of Elizabeth Warren’s 2% wealth tax on estates over $50 million (with an additional tax of 1% on wealth over a billion), they find it raises roughly 1% of GDP per year (Saez and Zucman 2019a).

9. This estimate comes from the Penn Wharton Budget Model 2022.

10. For a description of that surtax and the competing revenue options debated at the time, see Bivens and Gould 2009.

11. This number has been inflated to 2024 dollars.

12. See Gardner et al. 2024 on the effective corporate income tax rate before and after the TCJA.

13. For example, the Distributional Financial Accounts of the Federal Reserve Board (2025) estimate that the wealthiest 1% of households own over 30% of corporate equities, while the wealthiest 10% own just under 90%.

14. See Sarin and Summers 2019 for how much of the tax gap is driven by poor reporting requirements on income flows disproportionately earned by the rich—mostly various forms of noncorporate business income.

15. This range of estimates comes from the Joint Committee on Taxation (JCT) 2023, and Lautz and Hernandez 2024. Part of this variation is about how much extra revenue is allocated to the strict step-up in basis termination versus the extra revenue that is collected through the normal capital gains tax as a result of closing this loophole.

16. The details of this gap can be found in Office of Tax Analysis 2016. The upshot is that some business owners have managed to deny being active managers of their firms and have, hence, avoided being taxed on labor earnings, but they have somehow also managed to deny being passive owners of their firms, hence avoiding the NIIT as well. It is bizarre that this not-active but not-passive category of owner has been allowed to be given legal status, but that does seem to be the state of the law currently, until Congress acts.

17. See Bivens 2016 on how profits held abroad by deferring taxation were not a constraint on any meaningful economic activity.

18. I say “appear” because the ability and even the specific strategies corporations have to make profits clearly earned by sales in the United States appear on paper to have been earned in tax havens are all extremely well documented by now, including in Zucman 2015.

19. See Elzayn et al. 2023 for evidence that the audit patterns of the IRS in the mid-2010s were driven by these considerations.

References

Batchelder, Lily. 2020. Leveling the Playing Field Between Inherited Income and Income from Work Through an Inheritance Tax. The Hamilton Project, The Brookings Institution, January 28, 2020.

Bivens, Josh. 2016. “Freeing Corporate Profits from Their Fair Share of Taxes Is Not the Deal America Needs.” Working Economics Blog (Economic Policy Institute), September 27, 2016.

Bivens, Josh, and Elise Gould. 2009. House Health Care Bill Is Right on the Money: Taxing High Incomes Is Better Than Taxing High Premiums. Economic Policy Institute, December 2009.

Bivens, Josh, and Lawrence Mishel. 2021. Identifying the Policy Levers Generating Wage Suppression and Wage Inequality. Economic Policy Institute, May 2021.

Brun, Lidía, Ignacio González, and Juan Antonio Montecino. 2025. “Corporate Taxation and Market Power Wealth.” Working Paper, Institute for Macroeconomic Policy Analysis (IMPA), February 12, 2025.

Clausing, Kimberly A., and Natasha Sarin. 2023. The Coming Fiscal Cliff: A Blueprint for Tax Reform in 2025. The Hamilton Project, The Brookings Institution, September 2023.

Economic Policy Institute (EPI). 2025. U.S. Tax and Spending Explorer.

Elazyn, Hadi, Evelyn Smith, Thomas Hertz, Arun Ramesh, Robin Fisher, Daniel E. Ho, and Jacob Goldin. 2023. “Measuring and Mitigating Racial Disparities in Tax Audits.” Stanford Institute for Economic Policy Research (SIEPR) Working Paper, January 2023.

Federal Reserve Board. 2025. Distributional Financial Accounts of the United States. Accessed April 2025.

Gardner, Matthew, Michael Ettlinger, Steve Wamhoff, and Spandan Marasini. 2024. Corporate Taxes Before and After the Trump Tax Law. Institute on Taxation and Economic Policy (ITEP), May 2, 2024.

Greenwald, Daniel L., Martin Lettau, and Sydney C. Ludvigson. 2025. “How the Wealth Was Won: Factor Shares as Market Fundamentals.” Journal of Political Economy 133, no. 4 (April): 1083–1132.

Hemel, Daniel, and Robert Lord. 2021. “Closing Gaps in the Estate and Gift Tax Base.” Working Paper, Coase-Sandor Working Paper Series in Law and Economics. University of Chicago Law School, August 13, 2021.

Joint Committee on Taxation (JCT). 2023. Estimates of Federal Tax Expenditures for Fiscal Years 2023–2027. JCX-59-23, December 7, 2023.

Kogan, Bobby, and Jessica Vela. 2024. What Would It Take to Stabilize the Debt-to-GDP Ratio? Center for American Progress, June 5, 2024.

Lautz, Andrew, and Fredrick Hernandez. 2024. Paying the 2025 Tax Bill: Step Up in Basis and Securities-Backed Lines of Credit. Bipartisan Policy Center, December 12, 2024.

Office of Tax Analysis. 2016. Gaps Between the Net Investment Income Tax Base and the Employment Tax Base, April 14, 2016.

Page, Benjamin I., Larry M. Bartels, and Jason Seawright. 2013. “Democracy and the Policy Preferences of Wealthy Americans.” Perspectives on Politics 11, no. 1 (March): 51–73.

Penn Wharton Budget Model. 2022. Decomposing the Decline in Estate Tax Liability Since 2000, University of Pennsylvania, July 28, 2022.

Rau, Eli G., and Susan Stokes. 2024. “Income Inequality and the Erosion of Democracy in the Twenty-First Century.” PNAS 122, no. 1, December 30, 2024.

Saez, Emmanuel, and Gabriel Zucman. 2019a. “Policy Memo on Wealth Taxes,” September 22, 2019.

Saez, Emmanuel, and Gabriel Zucman. 2019b. Progressive Wealth Taxation. Brookings Papers on Economic Activity, Fall 2019.

Sarin, Natasha, and Lawrence H. Summers. 2019. “Shrinking the Tax Gap: Approaches and Revenue Potential.” National Bureau of Economic Research (NBER) Working Paper no. 26475, November 2019.

Tax Policy Center (TPC). 2025. Revenue Estimate of Wealth Tax Proposal from Why Not Initiative.

Treasury Inspector General for Tax Administration (TIGTA). 2025. Snapshot Report: IRS Workforce Reductions as of May 2025. Report Number 2025-IE-R027. July 18, 2025.

Williamson, Vanessa S. 2017. Read My Lips: Why Americans Are Proud to Pay Taxes. Princeton, N.J.: Princeton Univ. Press, March 2017.

Zucman, Gabriel. 2015. The Hidden Wealth of Nations: The Scourge of Tax Havens. Translated by Teresa Lavender Fagan. Foreword by Thomas Piketty. Univ. of Chicago Press.

“Donald Trump and Republicans have made crystal clear where their priorities lie with their so-called ‘One Big Beautiful Bill’—not with working Americans, but with billionaires and big corporations. That bill amounts to a Great Betrayal. It raises costs for American workers, cuts vital programs for families, and explodes the national debt—all in service of making the rich richer.

“We need to chart a better path forward, one where the wealthiest pay a greater share, and where we build an economy that creates more shared prosperity so everyone can afford a decent quality of life. We need to have a robust discussion outlining alternatives to the current tax system, and the Economic Policy Institute has put forward just that—including outlining many proposals that I support and have championed in Congress. These proposals include legislation I have introduced that would start to unrig the tax code for the ultra-wealthy, such as my Millionaires Surtax Act, which would implement a 10% millionaires surtax. I’ve also authored the Sensible Taxation and Equity Promotion (STEP) Act to close the stepped-up basis loophole, and I’ve previously introduced the Strengthen Social Security by Taxing Dynastic Wealth Act to raise the estate, gift, and generation-skipping transfer taxes. I appreciate EPI’s inclusion of key elements of these bills within this report.

“I strongly support the core argument made in this paper that the wealthiest Americans must begin contributing more to our shared future, and we need to start by gathering a wide range of tax policy proposals aimed at doing so. This is about showing the American people where we stand and making sure our economy–and tax policy–reward hard work, not just accumulated wealth,” said Senator Chris Van Hollen.

Read the full EPI report here. 

The tax breaks for the rich are so huge—$100,000+ per year for the richest 0.1%—that even after gutting aid for the most vulnerable, this bill will still increase the national debt by nearly $4 trillion. To cover up how grotesque this is, Republicans have invented a new, completely bogus way to measure the bill’s costs.

The bill also turbocharges an authoritarian-style immigration regime—funding internment camps, mass surveillance, and waves of deportations that will kill millions of jobs.

And, surprise, the GOP structured the bill’s provisions along deeply cynical political timelines. The rich get their tax cuts before the midterms. Some of the most painful (and unpopular) cuts to families? Not until after. It is shameless. And that means that—by design—this bill will cause economic pain that will unfold slowly but steadily over many years. It’s engineered to dodge accountability.

But make no mistake—the pain will be devastating. Kids will lose food assistance. Families will lose health care. The economic shock will hit hardest in communities least equipped to withstand it.

It’s a perfect storm of long-term economic sabotage. This bill will weaken economic growth over the next decade, making this country poorer. All to give huge tax cuts to the richest.

The bill is designed to cause a shocking upward redistribution of income. It includes draconian spending cuts—mostly to health care and food assistance for children and families—in order to give massive tax cuts to the wealthiest households. Because these cuts to health care and food assistance are so broad and deep, and because the tax cuts for anybody who is not already rich are so paltry, the bill will cause the bottom 40% of households to actually lose income on average. This group includes roughly 125 million people, and for a family of three it will include households with incomes up to $85,000. Meanwhile, households in the top 0.1% (those making over $3.3 million per year) will gain over $100,000 annually under this bill.

The spending cuts will also help finance the administration’s dream of an authoritarian-style immigration enforcement regime, providing funding at staggering levels to expand internment camps and surveillance across the country. This enforcement, of course, won’t help workers or create more jobs—on the contrary, it will cause massive job losses for both immigrants and U.S.-born workers.

Because the bill structures its painful cuts on cynical political timelines in an effort to avoid accountability, the suffering will unfold steadily over the next decade. But just because the pain will be strategically doled out over a longer timeline does not make it any less real or urgent. People will die. Children will lose access to food, and families will lose access to health care. Hospitals will be forced to downsize and close, particularly in rural areas. This will cause huge disruptions to local economies as the spillover effects from the loss of health care jobs will trigger significant job losses outside of health care.

The bill’s Medicaid cuts will hit the hardest in precisely those areas that can weather it the least, given that the counties with the highest share of people on Medicaid are also the counties with the highest unemployment rates. But the GOP has decided that it doesn’t matter if kids go hungry, parents can’t afford the medicine they need, towns can’t properly fund public schools, or jobs are wiped out in struggling rural counties—as long as the wealthiest Americans get a big, beautiful tax break.

And, those tax breaks are such massive giveaways to the rich that they will increase the deficit by close to $4 trillion, even with the draconian cuts for the most vulnerable. It’s worth noting that the GOP is desperately trying to hide that fact. They have taken the extraordinary step of coming up with a new and utterly bogus baseline against which to measure the cost of the bill. Their gimmicky methodology “finds” that the bill will reduce deficits by about $500 billion. Through this sleight of hand, Republicans are shamelessly lying to the public about the cost of the bill in order to make it sound less grotesque and damaging than it actually is.

If this bill becomes law, there will be a protracted period of economic pain that takes years to play out. By sharply raising deficits at a time when inflation and interest rates are already too high, the bill will gradually suppress productivity-boosting private investment—including in clean energy and much-needed housing. This crowding out of investment will be on top of the expanded scope of deportations made possible in this bill, which will shrink the nation’s labor supply. It’s further compounded by the Trump administration’s historically broad and steep tariffs that will raise prices and disrupt supply chains, along with deep cuts to crucial federal workforces that are key complements to private-sector growth.

In short, this bill will be another key contributor to weaker economic growth over the next decade, making us and our children reliably poorer for no reason other than to write larger tax cut checks to the richest people in the country. This bill is one of the most destructive economic proposals we’ve seen in the U.S. in generations.

The legislation is mostly a stunning exercise in the upward redistribution of income, consisting of huge tax cuts mostly for the rich and steep spending cuts mostly for health care and nutrition assistance programs used by vulnerable families. But because the tax cuts boosting incomes for the rich are so large, even with the steep spending cuts, it is also an exercise in significantly increasing federal deficits and debt.

The Senate version of the bill would add nearly $4 trillion to the federal debt. This is a lot to be adding to the federal debt during a time when unemployment is low, inflation is above-target, and interest rates remain far higher than they’ve been for most of the last 15 years.

Further, if Republicans wanted to add $4 trillion to the national debt, they could write a check for $12,000 to every single adult and child in the United States. Yet, the bottom 40% of households in the U.S. won’t get any benefit at all from this bill, instead their incomes will outright fall. Why? Because all of that $4 trillion (and more) is needed to write enormous checks to the richest households. For example, the richest 130,000 households—who currently make more than $5 million per year—will receive almost $300,000 annually from the Republican budget bill.

So, what did the bill’s architects do with this inconvenient fact as they debated the measure in the Senate? They denied it. The method of denial is insisting on scoring the deficit effect of the bill on a “current policy” rather than a “current law” baseline. The mechanics of this (explained below) are a little wonky, but the result is that using a “current law” baseline—the standard in every previous federal budget throughout history—would correctly show that the budget bill would add $4 trillion to debt, whereas adopting a historically unprecedented “current policy” baseline would instead erroneously show that it added less than $500 billion.

The reason that there is a large difference between these two baselines stems from some gimmickry contained in the last big Trump tax cut—the Tax Cuts and Jobs Act (TCJA) of 2017. That bill’s main priority was a large and permanent tax cut for corporations. Today, corporations are paying hundreds of billions less in taxes because of it and will forever unless the law is changed. The TCJA also included tax cuts for individuals. Even these were tilted toward richer households, but there were some cuts up and down the income distribution.

However, the budget reconciliation rules dictate that only bills that do not increase the federal deficit in the last year of the 10-year budget window are allowed to pass with a 50-vote threshold. If the bill does increase deficits in that last year of the window, then a filibuster-proof 60 votes are needed. Because the TCJA’s individual tax cuts were secondary in importance to the tax cuts for corporations, the only way to have that bill not raise deficits in the last year of the budget window was to phase out the individual provisions in the last years of the budget window. These provisions sunset in 2025—absent congressional action, the current law says taxes will rise (mostly for the richest households).

But as of 2025, the TCJA’s individual provisions are in effect. So, if one assumed—law be damned—that the current policy of the TCJA was already going to be in place forever, then the cost of extending them relative to that current policy baseline is zero.

Using current policy as a baseline for assessing the effect of federal legislation on budget deficits is utterly irrational. One could use this reasoning to pass a bill instituting a universal basic income (UBI) of $12,000 per person in the United States, then pass another bill “extending” this UBI under a current policy baseline and declaring that there is no cost to it.

Lindsey Graham, Republican Chair of the Senate Budget Committee who was behind the push to use the current policy baseline, has gloated that “I’m the king of numbers as budget chairman—I’m Zeus.” But innumerate or dishonest politicians aren’t actually allowed to repeal the laws of math or economics. It is a fact that the Republican budget bill adds trillions to the national debt, period. And it does it for the simple purpose of making the rich richer and the poor poorer.

If the Trump administration and its allies in Congress genuinely wanted to help tipped and lower-paid workers, there are far better options they could pursue, like raising the federal minimum wage. To illustrate this, we compare the estimated impact of no tax on tips with the Raise the Wage Act of 2025, a bill that would raise the federal minimum wage from $7.25 to $17 an hour by 2030 and gradually phase out the tipped minimum wage. Here is an overview of how the two plans compare.

How many workers would be affected? How long would benefits last?

No tax on tips: Between 2.5 and 5.2 million tipped workers would receive an income tax deduction over the next four years, but benefits would end after 2028.1

The Raise the Wage Act: Nearly 23 million workers, including 2.8 million tipped workers, would earn higher wages with no end date—meaning affected workers would continue to benefit indefinitely.

How much would these workers benefit annually? How would benefits differ based on income?

No tax on tips: Eligible tipped workers would receive an average annual tax cut of $1,700 for the four years it would be in effect. However, the benefits would heavily skew toward higher-income tipped workers. Among all tipped workers, the top 20% would receive an average tax cut of $5,768 while those in the bottom 20% would only get $74 on average. The average for the bottom quintile is small in large part because two-thirds of those workers have incomes so low that they do not pay federal income taxes and thus will not see any tax benefit.2

The Raise the Wage Act: Affected workers who work year-round would receive an average wage increase of $3,200 per year. After taxes, the net pay increase would be marginally smaller but still significantly larger than what a worker would receive on average with a tax deduction on tips.3 In stark contrast to “no tax on tips,” which excludes workers with the lowest incomes, the largest benefits of the Raise the Wage Act would go to the lowest-paid workers.

Who pays for these benefits?

No tax on tips: The public writ large would pay. House Republican lawmakers are already proposing massive cuts to social programs, such as Medicaid and food stamps that benefit millions of people (including tipped workers), to offset foregone revenue from no tax on tips and large tax cuts for the rich. The Republican plan would also dramatically increase the federal debt, which could substantially raise borrowing costs for households and businesses in the future.

The Raise the Wage Act: Employers of low-wage workers would pay for these wage increases, absorbing the higher labor costs over time through a variety of channels. Importantly, the Raise the Wage Act not only increases the federal minimum wage but also phases out the tipped minimum wage, a system that has provided employers of tipped workers an enormous—and highly problematic—public subsidy for decades.

While no tax on tips would benefit only the small share of workers who receive tips as a portion of their compensation, the Raise the Wage Act would benefit all low-wage workers in the U.S., including 4.2 million people with incomes below the poverty line. Over the next 10 years, the Raise the Wage Act would have a total benefit to affected workers of $700 billion, compared with about $39 billion from “no tax on tips” in the House bill (see Figure A).

Figure A

As we at EPI and others have noted, no tax on tips is problematic for a variety of other reasons, aside from its paltry and poorly targeted benefits. The measure that passed in the House caps eligibility to workers in certain tipped occupations earning less than $160,000 in annual income. This will mitigate tax avoidance by the highest earners, but it does not fix other problems, including the fact that ending taxation of tips would likely expand employer use of tipped work—a system already rife with discrimination and worker abuse. No tax on tips would also undercut efforts to raise worker compensation while depleting tax revenue for public services. By subsidizing the use of tipping in the federal tax code, no tax on tips would further cement a system that lets employers off the hook from paying their workers a fair wage—in this case, forcing taxpayers to foot the bill. In contrast, the Raise the Wage Act gives workers a durable wage increase paid for by those who should be paying—their employers.

Beyond raising the minimum wage, there are several other effective and more equitable policies to support working families—including expanding the Earned Income Tax Credit and Child Tax Credit, providing workers with paid sick leave and paid family and medical leave, and supporting workers’ rights to form and join unions. But Trump and congressional Republicans, while claiming to support workers, have not pursued these policies. Instead, they have relentlessly attacked workers, and pushed an enormous tax cut for the wealthy—paid for by cutting essential social programs for low-income people and children and adding trillions to the public debt. As many as 16 million people would lose their health insurance under the House budget bill.

The Raise the Wage Act is by no means an outlier or a radical exercise in messaging—it’s cosponsored by majorities of House and Senate Democrats. If even a few Republicans were willing to support it, it could easily have the votes to pass. No tax on tips, on the other hand, remains a deceptive ploy that would provide few benefits to workers and fail to offset the harm the Republican budget bill would impose on millions of workers and families.

1. According to Yale Budget Lab’s estimates, about 6.3 million tax units claim tipped income, though only about 4 million workers work in tipped occupations. Since 37% of workers in tipped occupations earn so little that they do not pay federal income taxes and thus would not benefit from the plan, the lower bound of this estimate is 2,520,000 (0.63 times 4 million). The upper bound takes the average share of tax units with a tax cut by quintile (Yale Budget Lab Figure 5) and multiplies it by the total number of tax units with tipped income (83.3% of 6.3 million is 5.2 million).

2. See Yale Budget Lab “No Tax on Tips”: Budgetary, Distributional, and Tax Avoidance Considerations, Figures 5 and 6. 1^st quintile is 0.336*220=$74. 5^th quintile is 0.991*5820=$5,768.

3. For example, the marginal federal income tax rate on all taxable income between $11,600 and $47,150 is 12%. For the average tipped worker, assuming they use the standard deduction and have no other sources of income, their total taxable income likely falls in this range. Thus, a $3,200 increase in wages—without accounting for any tax credits— would net a roughly $2,800 increase in annual post-tax income, $1,100 more than the average net income increase under no tax on tips.

House Republicans wanted to find a way to defray the cost of the tax cuts they passed for the richest households in the country. They chose to slash programs helping some of the most vulnerable families—including Medicaid and subsidies that let people buy health insurance through the Affordable Care Act (ACA). This direct transfer of income from vulnerable families to the richest can be summarized in a striking symmetry: If the bill becomes law, the annual cuts to Medicaid would average over $70 billion in coming years—the same amount millionaires and billionaires would gain in tax cuts each year.

These health care spending cuts would lead directly to millions of people losing health insurance. A widely cited Congressional Budget Office (CBO) estimate of 13.7 million people losing coverage was preliminary, and the CBO noted that more-precise estimates to come would “somewhat further increase the estimated number of people without health insurance.” More recently, the Center on Budget and Policy Priorities estimated coverage losses of at least 15 million.

The cuts to Medicaid would also damage local economies and workers throughout the United States. Even during times when the national unemployment rate is low, tens of millions live in weaker local economies with higher county unemployment rates and far less ability to weather sharp spending shocks like a Medicaid cutback would provide. In fact, a disproportionate share of the House bill’s Medicaid cuts would almost surely fall exactly on these weaker local economies. We estimate that roughly 27 million workers are in these weaker local economies, and that Medicaid cuts could depress local spending enough to force the loss of 850,000 jobs.

Download the Unemployment rates and Medicaid coverage by US county spreadsheet

Republicans believe their strongest argument in favor of the health insurance cuts in this grotesquely unequal bill is that they’re simply demanding that able-bodied adults receiving Medicaid must work. Every part of this argument falls apart once the details of this bill’s cuts and their ripple effects are examined. Concretely:

• The bill’s cuts are broader and more expansive than just the work requirements for able-bodied adults.
• It is decisions made by employers and policymakers, not individual workers, that are most responsible for any particular worker being able to rack up enough work in a given month to satisfy the work requirements in the House bill.
• The more workers that are covered by public insurance programs like Medicaid, the better it is for workers’ wages—cutting Medicaid hence will harm wages going forward.
• Taking health insurance away from 15 million people will impose costs on other groups—insurance premiums for other workers could rise and state and local government contributions for uncompensated care will increase.
• Health care providers and hospitals will be forced to downsize and close, particularly in rural areas. This will not just reduce residents’ access to care—it will cause huge disruptions to local economies.

House budget cuts are not just work requirements

The House budget would cut roughly $715 billion from Medicaid over the next decade, according to preliminary estimates. The House bill also fails to extend premium tax credits that made insurance more affordable through the Affordable Care Act, constituting an additional $335 billion cut over the next decade. Adding these health insurance cuts together implies more than $1 trillion in cuts over the next 10 years. The work requirement provisions in the House bill are scored to yield $280 billion in savings. In short, the House bill’s cuts are far more expansive than just the work requirements.

Policymakers and employers, not workers, decide if work is available for all who want it

Work requirements are often defended as providing an incentive to work. But the U.S. provides essentially no cash welfare at all to non-workers—the incentive to work is that it is the only way for the non-wealthy to live free of grinding poverty. Policy failures and the whims of employers—not insufficient incentives—are what stop people from engaging in steady work.

Only policymakers—like the Federal Reserve, Congress, and the president—have the power to ensure that unemployment remains low and jobs remain plentiful in the U.S. economy. When they do this, hours of work in the poorest families rise sharply—proving that it is availability of jobs, not individual incentives, that determine how much work these families can secure.

But even when the national unemployment rate is low, the low-wage labor market—the one most relevant to those facing Medicaid’s work requirements—sees huge amounts of churn. About 20% of workers in the bottom quarter of the overall wage distribution will see a spell of joblessness in the next three months.

Another way to illustrate this churn: About 2 million workers are laid off in the U.S. economy every single month. If these workers do not near-miraculously find new jobs instantly, they will risk being ineligible for Medicaid while having no access to employer-based coverage either. Again, it is failures by policymakers and the decisions of employers that create an unstable and insecure low-wage labor market that are the real barriers to steady work, not individual incentives.

More public health insurance coverage—like Medicaid—is good for workers

U.S. workers would benefit greatly if health coverage was delinked from specific employers and instead provided by the public sector. A pro-worker policy would be expanding the coverage provided by public plans like Medicaid, not cutting it.

Most fundamentally, the labor market is unequal—employers clearly have power advantages relative to most workers. Aside from collective bargaining, the main way workers should in theory be able to wring better conditions and wages from employers is by threatening to quit and move to other jobs. But this threat is not credible if overall unemployment is high (which it is far too often in the U.S.), and it is often not credible due to all sorts of frictions in the job market keeping workers from seamlessly changing jobs.

These frictions can stem from all sorts of mundane sources like low information about other opportunities, too few employers in their field, or insufficient child care resources near employers. But because access to health insurance for non-elderly people in the U.S. runs mostly through employers, workers’ need to assess what any new employer’s health insurance policies might mean for their well-being is a huge friction. If more U.S. workers relied on public insurance like Medicaid, this reduced friction could lead to a better-functioning labor market and allow workers to wield greater power in securing wage increases from employers.

Further, public insurance programs like Medicaid and Medicare have historically done a much better job in containing costs than employer-based plans. Every $1 saved in health care costs is $1 that could instead go into workers’ paychecks. Getting more workers covered by public plans that are better at saving these dollars would be good for wage growth.

Finally, employer-based health insurance is not free—it is paid for in the long run by extraordinarily large subsidies from the federal government and workers foregoing wages in lieu of health insurance coverage. The public subsidies stem from workers not having to pay taxes on the compensation they receive in the form of employer contributions to health insurance premiums. The value of this public subsidy is more than half as large as federal Medicaid spending. This subsidy for employer-provided health insurance is greater for more highly paid workers, and given the higher cost of employer-based insurance, can easily be greater on a per-worker basis than the average cost of Medicaid.

The wages foregone in lieu of employer contributions to health insurance premiums are also large. In 2023, employers paid over $900 billion in insurance premiums, an amount that would likely have gone to wages if employers were not the main payers of health insurance in the United States. Further, because the cost of any individual health insurance policy is a fixed amount, employer-provided health insurance is essentially financed by a flat tax on workers, which means it takes a much higher share of wages from lower-paid workers. It has been estimated that this implicit flat tax system costs non-college workers roughly $1,700 per year relative to a system of public insurance (like Medicaid) financed by proportional taxes.

All in all, workers should want more people in the labor force able to be covered by public plans, not fewer. Unraveling the too-small public coverage we already have will just see increasing downward wage pressures from rising health care costs and frictions in the labor market.

Removing health insurance from 15 million people could raise health care costs for all

Taking health insurance coverage away from 15 million people will obviously impose the greatest harm on the newly uninsured group. They will face greater financial stress and likely forego needed health care. Their health and living standards will suffer.

But as much as House Republicans want to defect from the social contract regarding health coverage, it remains the case that there is widespread agreement among Americans—enshrined in law and policy—that simply withholding needed health care from sick and injured people who cannot pay for it should not be done. So, if somebody with diabetes is kicked off Medicaid and can no longer access their insulin and falls into an acute medical crisis, they will be cared for—too late to salvage their full health and at much greater expense—in emergency rooms. All of this will greatly exacerbate a significant problem with emergency department overcrowding, boarding, and wait times. And it should be obvious that this irrational deferral of care until more damage has been done is not helping this person become a more productive potential worker.

All of this means that the rise of uninsurance stemming from the House bill will cause a flood of uncompensated care—health care delivered in places like emergency rooms that the patient themselves cannot pay for because they’re uninsured. State and local governments will foot the bill for much of this uncompensated care. Some of it might be passed on to higher prices generally for health care, pushing up premium costs and out-of-pocket costs for even those who remain insured.

It is worth noting the main target of the House bill’s Medicaid cuts are the Medicaid expansions that were passed as part of the Affordable Care Act—and these Medicaid expansions made a huge dent in the problem of uncompensated care that was endemic before the ACA’s passage. Uncompensated care costs essentially fell by a third due to the ACA’s passage, almost entirely because of its Medicaid expansions.

Health care is a key engine of local economies that will be damaged by these cuts

The House bill would lead to health care providers losing $770 billion in payments over the next decade. Because the ACA’s Medicaid expansion was so crucial to keeping rural hospitals afloat in the past decade, a sharp rollback would inevitably force shutdowns and cutbacks at medical providers and hospitals, particularly in these rural regions.

This would be a disaster not only for access to health care but also for local economies. Health care is by far the largest employer of any sector in the United States, employing 18 million workers. It’s also a key source of good jobs—the unionization rate in the hospital sector is twice as high as the rest of the private sector.

In 2009, the Obama administration used increased federal payments to Medicaid as a key strategy in their American Recovery and Reinvestment Act, a plan to boost employment and end the Great Recession. This worked spectacularly well—the gold standard study examining this policy found that that each $1 billion in additional spending to Medicaid resulted in 38,000 jobs gained, with more than 75% of the jobs being gained outside of the health sector as Medicaid coverage boosted disposable incomes and hence consumption spending across all sectors. Adjusting for inflation, this would imply that each $1 billion spent on Medicaid in 2025 would see 25,000 jobs gained. This result means that Medicaid cuts will impose a sharp anti-stimulus to local economies. Jobs in health care will be cut, and three times as many jobs outside of health care will be cut.

It is true that overall macroeconomic conditions are different now than in 2009—a year that saw the steepest recession to that point since the Great Depression of the 1930s. It is possible that some local economies today might be strong enough to weather a Medicaid spending shock. But overall economic strength is not guaranteed to hold in coming years when these cuts will take effect. Several economic forecasters are predicting a high chance of recession over this time.

Further, even when the national economy is strong, there are still hundreds of counties with weaker economies. For example, the national unemployment rate was 3.6% in 2023. A rough rule of thumb holds that an unemployment rate that is 0.5% above the minimum rate it hit over the past year indicates a weak economy likely to enter recession. If we take this rule about unemployment rates over time and apply it to unemployment rates across space, we see that about a quarter of counties had unemployment rates 0.5% above the national average, with 27 million workers living in these counties. Medicaid cuts hitting these places—already economically weak and considerably more recession-prone than the nation as a whole—will absolutely trigger the strong anti-stimulus effects described above.

Worse, there is a strong positive relationship between higher-than-average unemployment rates and the share of a county’s population that is covered by Medicaid—as shown below in Figure A. In other words, the Medicaid cuts will destroy health care jobs and cause other spillover job loss in exactly those areas that can weather this the least.

Figure A

Let’s assume that the research showing 25,000 jobs are lost for every $1 billion cut in Medicaid spending held today only in those counties with unemployment rates at least 0.5 percentage points higher than the national average. Assume as well that Medicaid cuts will fall in proportion to a county’s share of adults ages 19–64 who are enrolled. This implies that roughly half of the spending cuts (48.5%) will fall on counties whose local economies are not strong enough to weather them without seeing job losses in response. Multiplying the size of these cuts in billions of dollars by 25,000 jobs implies that 850,000 jobs in weaker local economies could be lost—a number that would increase the number of unemployed in these counties by upwards of 40%.

Conclusion

The damage from the House bill’s cruel and logic-free cuts to Medicaid and other health services will fall mostly heavily on the 15 million who will lose health insurance. But the damage won’t be contained there—nearly everybody else in the U.S. will feel the harms of less efficient health care and labor markets, higher needs to pay for uncompensated care, closures and cutbacks in health care providers and hospitals, and even damage to entire local economies that are reliant on this health spending. For the very rich who will see enormous tax cuts from this bill, it all might end up being a good deal. For everybody else, it will not.