Research desk responds: How much could we make from taxing millionaires?

By Dylan Matthews

fakedude1 asks:

I'd like to see the total revenue raised by a so-called "millionaire's tax" bracket on annual incomes over $1M. This was first floated by Nate Silver over at fivethirtyeight.

Silver's specific proposal -- a 40.5 percent income tax bracket on incomes of more than $1 million -- does not have a revenue estimate, but if you'll recall, the House version of health-care reform included a provision not entirely dissimilar to this. Part of the Affordable Health Care for America Act was financed with an income tax surcharge (PDF) on high earners. Rather than setting up a new tax bracket, the surcharge was to be levied on top of existing income taxes, but on gross, not taxable, income so that usual deductions do not apply. The surcharge itself had three brackets, summarized here:

Note that the surcharge would affect only 1.22 percent of households.

When the Congressional Budget Office scored the House bill, it found that the surcharge would bring in $460 billion over 10 years. Here's how that's distributed by year:

The surcharge approach has the revenue advantage of applying to all income, not just that above a bracket, and it provides fewer opportunities for tax avoidance than traditional, itemized income tax returns. The latter point is important, as higher taxes on high earners tend to produce greater avoidance, which can dampen revenue growth. That said, without inflation adjustment it can start to affect middle-class taxpayers, as happened with the Alternative Minimum Tax, which was also originally intended to ensure that wealthy taxpayers paid their fair share.