If further confirmation was needed that the gap between the super-rich and the rest is still growing, the Census Bureau provided it last month: Income inequality is at its highest level in the United States since the bureau began tracking it a half century ago.
In fact, about a fifth of the nation’s wealth is now controlled by the richest 0.1% of Americans, while the middle class, hollowed out by the Great Recession, has struggled for decades with stagnant wages and sharply rising costs for education, health care and other necessities.
Against this backdrop, it’s reasonable to expect a robust debate about how to address the issue during the upcoming presidential campaign.
The position of the Republican Party, led by President Donald Trump, is already clear, at least by inference: In 2017, they enacted a $1.5 trillion tax cut that lavished most of its benefits on those who least needed the help, the rich and big corporations. We have heard no talk of rolling back this giveaway should the president be re-elected, and Trump has been flirting with the idea of reducing the capital gains tax on investment income.
On the other side, Sen. Elizabeth Warren, of Massachusetts, and Sen. Bernie Sanders, of Vermont, are proposing a wealth tax in their campaigns for the Democratic presidential nomination. The idea is that taxes on the super-rich should encompass all their assets, such as stocks, real estate and art, rather than focus only on income derived from jobs and investments.
There are differences between the two. Warren’s plan would impose a 2% tax on net worth above $50 million and a 3% tax on net worth above $1 billion. Sanders’ plan begins with a 1% tax on net worth from $32 million to $50 million, and escalates to a top rate of 8% on net worth over $10 billion.
An analysis by two economists at the University of California, Berkeley, who helped develop the plans for the candidates estimates that the Warren proposal would affect about 70,000 households, generating $2.6 trillion in revenue over a decade. The Sanders initiative would apply to 180,000 households, producing $4.35 trillion over 10 years.
The revenue generated from the taxes would be devoted to initiatives such as tuition-free college, student debt relief and universal child care that would ease the burdens borne by middle- and low-income people.
Sanders has said he believes billionaires should not exist in America. There may be something to that, although billionaires beg to differ (which is the only thing they have to beg for), as do some academics. They claim that wealth taxes would curb economic growth and create disincentives to invest and innovate.
“Turning the tax code into a vehicle for confronting what some call ‘oligarchic drift’ would undermine business confidence, reduce investment, degrade economic efficiency and punish success in ways unlikely to be good for the country or even to be appealing to most Americans,” Lawrence Summers, Treasury secretary in the Clinton administration, and Natasha Sarin, a law professor at the University of Pennsylvania, wrote earlier this year.
Whatever the merits of their criticisms, we’re pretty sure they are wrong about the appeal of a wealth tax. A poll conducted this summer for The New York Times found that two-thirds of Americans, including a majority of Republicans, favored a 2% tax on households worth more than $50 million such as the one Warren proposes.
It’s hard to credit the notion that entrepreneurs would be deterred from investing and innovating by relatively modest taxes imposed on vast fortunes, especially if the fruits of those taxes were devoted to improving a society that allows them to flourish in the first place. Nor do we believe that innovation is driven solely by the desire to accumulate wealth, although it is certainly a big factor.
Moreover, there is danger inherent in allowing the vast concentration of wealth in relatively few hands. Wealth equals power, and those with the biggest fortunes have the ability and motivation to shape politics and society to their own ends. “There’s no question to my mind that the United States is moving toward an oligarchy,” Sanders has said. “This is an issue that has to be addressed, and this wealth tax begins to do that.”
There may be other, and for all we know, better, ways of addressing gross inequality than a tax on wealth. But it certainly seems the most direct approach and is easily understood, which is not something that can be said about many tax plans. And, we hope, it keeps the issue front and center during the 2020 campaign.