Two Heritage Foundation economists would like you to spend your evening worrying about a tax that has never touched your bank account, while the tax code quietly takes more from your paycheck than from a billionaire who borrows against his stock without ever selling it. In a recent Fox News opinion piece, E.J. Antoni and Peter St. Onge argue that a wealth tax on billionaires is “the cheese in the mousetrap” — a progressive bait-and-switch that starts with the superrich and ends with the middle class, just like the income tax did a century ago. It’s a tidy scare story. It’s also exactly backwards.
I’ll concede the half that’s true, because I’m not here to pretend history didn’t happen. The income tax started in 1913 at 1% on incomes equivalent to roughly $15 million in today’s dollars. It now hits two-thirds of Americans, starting at $15,000. The top marginal rate climbed from 7% to 91% under Eisenhower. Today, the piece says, a middle-class Californian looking at federal income tax, payroll tax, and state income tax faces a combined marginal rate approaching 40% or more. Bracket creep is real. Politicians do expand the target. Antoni and St. Onge have that piece of history right.
Here’s the part they skip.
The income tax’s expansion didn’t just happen to coincide with the greatest broadly-shared prosperity in American history. It funded it. Social Security. Medicare. The 1956 Federal-Aid Highway Act — 41,000 miles of interstate, ninety percent federally funded, the road your delivery truck drives on, the network that made a national labor market possible. The GI Bill. Public universities that cost a semester’s part-time wages. Rural electrification — 900 cooperatives wiring 56% of the American landmass, built with public money, serving 42 million people who still own them today. The top rate under Eisenhower hit 91%, and the economy grew at around 3% a year for the decade. The taxes built something. Antoni and St. Onge want you to count what the taxes cost you. I want you to count what they bought. Because ordinary Americans got a lot more from the tax system during those high-rate decades than they paid in — the public university, the pension, the highway, the hospital that didn’t bankrupt you.
But the piece isn’t really about income tax history. It’s about preventing a wealth tax, and the argument’s load-bearing claim is that billionaires’ wealth is “invested in businesses” — Walmart, Chick-fil-A, Tesla — so taxing it destroys jobs. Let me walk through how that actually works.
A wealth tax doesn’t take a dollar out of a Chick-fil-A fryer or a Tesla assembly line. It takes a sliver of the net worth of the person who owns the stock. The factory still runs. The employee still gets paid. The question is whether someone sitting on billions in unrealized gains — paper appreciation he has never paid a cent of income tax on — should contribute something to the country that built the roads his delivery trucks drive on and the courts that enforce his contracts.
Here’s the trick the piece doesn’t want you to look at. A billionaire owns stock that has appreciated enormously over his lifetime. Instead of selling it and paying the capital gains tax — currently 23.8% for top earners — he borrows against it. Loans aren’t income, so there’s no income tax. He lives on the borrowed money — $5 million a year, $10 million, whatever he needs. When he dies, the tax basis resets to the market value at death. A lifetime of unrealized gains, gone from the tax ledger forever. His son inherits, starts the cycle again. The money isn’t taxed when it’s earned as stock appreciation, isn’t taxed when it’s borrowed against, and isn’t taxed when it’s passed on. The effective tax rate on this accumulation can approach zero across a whole lifetime.
Your paycheck, meanwhile, gets taxed the moment it lands.
So here’s the question the piece is designed to keep you from asking: who is already in a trap, and who set it? Antoni and St. Onge want you to worry about a hypothetical future where a wealth tax someday, somehow, lands on your $90,000 salary. The trap you’re already in is the one where your labor is taxed at a higher effective rate than a billionaire’s borrowing-and-dying strategy, where capital gains get a preferential 23.8% while your wages face 30-40% combined, and where the difference compounds every single year the code stays unchanged. That trap was sprung decades ago. You’re already inside it.
And I’ll note something the piece tips its own hand on, without quite meaning to. Antoni argues that a 5% annual wealth tax would “essentially cancel the investment returns.” If that’s true — if a 5% levy on wealth above $100 million would erase the return — then consider what that tells you about the return itself. It tells you the money isn’t creating jobs or circulating through your town’s economy. It’s appreciating on a balance sheet, generating borrowing capacity for a single family, transferring at death untaxed. The piece says this money is “invested in businesses.” Some of it is. But a lot of it is what happens when you park a billion dollars in an index fund and wait — something available to anyone with a brokerage account, and which would still work just fine if the owner paid a modest tax on it. Returns that only pencil out at a zero tax rate were never “creating jobs.” They were creating tax-free inheritance.
I should say plainly: I’m not anti-market. The corner restaurant is a miracle. Price signals coordinate things no planning committee could. I’m not here to nationalize Chick-fil-A. But a tax code that taxes the plumber harder than the billionaire is not a free market. It’s a market someone rigged in a room you weren’t invited to sit in, and the two men just telling you the wealth tax is the mousetrap were, presumably, sitting in it.
So what does a fair tax code actually look like? You don’t need a wealth tax for most of it. You need three specific changes.
Equalize capital gains and ordinary income rates. Currently your labor is taxed at 30%+ and a capital gain at 23.8% at the top. That 6+ percentage point gap is a gift to people who already have the advantage of owning the thing that produces the return. Make them the same rate. The same stock market worked just fine in decades when capital gains rates were higher.
End the step-up in basis at death. This is the hinge that makes the borrow-and-die strategy function. A lifetime of appreciation, wiped clean the moment the estate passes. Close it, and heirs inherit the original cost basis. Suddenly selling stock to pay a modest tax looks a lot better than borrowing against it into eternity.
And for extreme wealth — north of $100 million, say — apply a minimum tax that treats unrealized gains over that threshold as the income they economically are, with a deferral option that charges interest so no one is forced to sell — but the tax bill doesn’t vanish at death. Not confiscation. Recognition that the current code has chosen not to see this money, and that choice was made by the people who benefit from it remaining invisible.
The alternative Antoni and St. Onge are selling — cower from the wealth tax, defend the current code, trust that accumulated wealth above $100 million is out there creating jobs — has been the operating theory for forty years. In that time, productivity has roughly doubled. The typical paycheck has barely moved. Between 1979 and 2019, productivity grew nearly 60% while the typical worker’s compensation grew just 16%. The difference went somewhere. The current tax structure helped it get there. And a piece warning you that fixing this arrangement is the real danger is a piece written on behalf of the people whose trap you’re already in.
The economy is a set of choices, not the weather. Somebody picked this arrangement, and somebody benefits from your believing it can’t be changed. The question isn’t the slogan “tax billionaires.” The question is whether your labor should be taxed harder than their leverage. Right now, it is. That’s the trap. It’s been sprung for decades.