COMMENTARY | We need more funding for public programs; we also need to address the obscene concentration of wealth
The bank robber Willie Sutton, when asked by a reporter why he robbed banks, is reputed to have answered, “Because that’s where the money is.”
Which brings us to a wealth tax.
Transforming our economy is going to be expensive. And a tax on the wealth of the super wealthy is one way to capture a sizeable amount of money, which is why both Bernie Sanders and Elizabeth Warren include the tax in their respective programs. The economists Gabriel Zucman and Emmanuel Saez estimate that Sanders’ proposed wealth tax would raise $4.35 trillion over the next decade, while Warren’s would raise $2.75 trillion.
The concentration of wealth has steadily increased since the mid-1990s. Then, the top 10% of households held 55.5% of all household wealth. Now, it is 63.1%.
But it is at the very top where wealth has really been concentrated. The top 1% now own 29% of all household wealth, almost five times the wealth owned by the entire bottom 50% of households. The ownership of publicly traded equity shares and privately owned business assets is even more concentrated, with the top 1 % owning 50% of all corporate equity shares and 53% of all noncorporate business assets.
Recognizing this reality – and the fact that this concentration of wealth was aided by a steady decline in top individual, corporate and estate tax rates – both Sanders and Warren want to tax the super wealthy to generate funds to help pay for key programs like Medicare for All and to begin weakening the enormous political power of those top families.
Sanders would create an annual wealth tax that would apply to married couple households with a net worth above $32 million – about 180,000 households in total, or roughly the top 0.1%. The tax would start at 1% on net worth above $32 million, with increasing marginal tax rates – a 2% tax on net worth between $50 million and $250 million, a 3% tax between $250 million and $500 million, a 4% tax between $500 million and $1 billion, a 5% tax between $1 billion and $2.5 billion, a 6% tax between $2.5 billion and $5 billion, a 7% tax between $5 billion and $10 billion, and an 8% tax on wealth over $10 billion. For single filers, the brackets would be halved, with the tax starting at $16 million.
Warren’s wealth tax would apply to households with a net worth above $50 million — an estimated 70,000 households. The tax would start at 2% on net worth between $50 million and $1 billion, rising to 3% on net worth above $1 billion. Her proposed tax brackets would be the same for married and single filers.
Zucman and Saez have calculated how some of the richest Americans would have fared if these wealth taxes had been in place starting in 1982. According to a New York Times summary of their work, “the cumulative wealth of the top 15 richest Americans in 2018 – amounting to $943 billion, using estimates from Forbes – would have been $434 billion under the Warren plan and $196 billion under the Sanders plan.” Despite the fact that the super wealthy would still have unbelievable fortunes even if forced to pay a wealth tax, almost all of them are strongly opposed to the tax and determined to discredit it.
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Polling done early in 2019 found strong support for a wealth tax, with some surveys showing a 21% to 60% margin of approval, including majority support from Republicans. But of course, this was before the start of any serious media effort to raise doubts about its effectiveness.
Recently, a number of wealthy business people and conservative economists have begun to make the case that a wealth tax is a radical measure that will harm the economy. Some point to the fact that many countries that once used the tax have now abandoned it, including France, Germany and Sweden. Among those that apply the tax are Norway, Switzerland and Spain.
However, as Zucman and Saez explain, the European experience does not mean that a wealth tax would not work in the U.S. For example, in some countries, it was the election of conservative governments philosophically opposed to such taxes that led to their elimination. More substantively, they highlight four problem areas that tended to undermine the effectiveness of and support for national wealth taxes in Europe and why these should not be a major problem for the U.S.
First, European countries have their own separate tax laws, and member states do not tax their nationals living abroad. Thus, a wealthy person living in a country with a wealth tax could easily move to a nearby country without a wealth tax and escape paying it. And many have. But the situation is different in the U.S. U.S. citizens are required to pay taxes to the Internal Revenue Service no matter where they live. Even renouncing citizenship comes with significant cost; both Sanders’ and Warren’s plans include an exit tax of 40% on net worth.
Second, European governments tolerated a high level of tax evasion. Until last year, they did not require banks in tax havens to share information about deposits with national tax authorities. This made it easy for the wealthy to hide their assets. The U.S. is in a better situation to avoid this outcome. The Foreign Account Tax Compliance Act, signed in 2010, requires foreign financial institutions to send detailed information to the Internal Revenue Service about the accounts of U.S. citizens each year, or face sanctions. Almost all foreign banks have agreed to cooperate.
Third, European wealth taxes had many exemptions and deductions. In contrast, there are none in the proposed plans by Warren and Sanders. Zucman and Saez highlight the French program to illustrate the European problem:
Paintings? Exempt. Businesses owned by their managers? Exempt. Main homes? Wealthy French received a 30% deduction on those. Shares in small or medium-size enterprises got a 75% exemption. The list of tax breaks for the wealthy grew year after year.
Fourth, European wealth taxes fell on a considerably larger share of the population than would the Warren or Sanders plans. Most European wealth taxes started around $1 million, hitting about 2% of the population. The broad reach of these taxes helped to generate popular pressure to weaken them, leading to their eventual removal. In contrast, only the top 0.1% would be taxed under the Sanders plan and an even smaller percentage under the Warren plan.
We can certainly expect a fierce debate over the viability and effectiveness of a U.S. wealth tax as the campaign season continues, especially if Sanders or Warren becomes the Democratic Party nominee for president. We should be prepared to advocate for the tax as one important way to ensure adequate funding of needed programs. But we should also take advantage of the debate to shine the brightest light possible on the obscene concentration of wealth in the U.S. and even more importantly on the underlying and destructive economic logic that generates it.
Martin Hart-Landsberg is a professor emeritus of economics at Lewis & Clark College.
Street Smart Economics is a periodic series written for Street Roots by professors emeriti in economics.
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