It’s time for a (teeny) tax on wealth

Sen. Russell Long, the powerful finance committee chair between 1966 and 1981, liked to recite a little jingle highlighting the thorny political process of tax reform:

Don’t tax you, don’t tax me,
Tax that fellow behind the tree.

Yes, let’s do just that! Today, our nominee for “that fellow behind the tree” is the superrich–the 0.1%. Over the past 40 years or so, these plutocratic elites have used their political clout to create a radical level of wealth inequality that is tearing our country apart. The gap has become a chasm, separating the lavish fortunes of a privileged few from the well-being of the many. This wealth gap is antithetical to our people’s democratic ideals, fundamentally unjust, and socially destructive–in a word, un-American.

In large part, the fortunate few have amassed and expanded their vast fortunes by hiding in the forest of tax policies that let them avoid paying their fair share. Of course, tax-dodging is complicated, requiring sophisticated techniques and tricky maneuvers perpetrated by a large but secretive industry of pricey tax lawyers, lobbyists, wealth managers, and other fixers to exploit special exemptions, convoluted loopholes, and arcane breaks. This avoidance industry also provides uber-rich clients with a wide selection of underground channels ranging from exotic offshore tax shelters to the ultimate dodge: renouncing US citizenship.

The wealth monopoly

Sorry to sound like old Professor Boring, but I should start this homily on inequality by distinguishing income from wealth. Income is your annual wages or salary as well as earnings from a business, pension, government benefits such as Social Security, etc. As the average US worker’s real wages have stagnated for more than a decade, Income disparity has become enormous. The bottom 90% of us average $30,000/year while the top 0.01% and the 0.001% (about 1,400 taxpayers) rake in average annual incomes of $35.1 million and $152 million, respectively. Meanwhile, even mediocre CEOs pocket many millions a year, and the greediest Wall Street hucksters annually amass more than a billion in booty. Until relatively recently, the ethical standard was for workers to gain a proportionate share of the income growth we generate. But in the last dozen years with the rich gobbling increasingly more of the total income pie, the bottom half of Americans now get only 14%.

As gross as income inequality is, however, it’s dwarfed by the lesser known wealth disparity that has engulfed our land, mocking our egalitarian pretensions. Wealth is your net worth, the total financial value of every asset you own: your home(s), business, stocks, cash, real estate, autos, yachts, jewels, gold, art, toys, and … well, everything, minus debts.

• Startling statistic: One in five Americans has zero net worth. Or less. Many of us owe more than we own and, living paycheck to paycheck, can’t get ahead to build a nest egg.
• More startling statistic: US wealth disparity is the greatest of any advanced economy in the world, with the richest 1% holding more of our nation’s wealth than the bottom 90% of us!
• Even more startling: Just three Americans–Jeff Bezos (Amazon), Bill Gates (Microsoft), and Warren Buffett (Berkshire- Hathaway)– possess more personal wealth ($248 billion) than the entire bottom half. Yes, more than 165 million of us combined.

The cause

The rapidly widening divide between the rich and the rest of us is neither natural nor accidental. During the past half century, myriad corporate and governmental decisions–from labor law to campaign finance regulations–have methodically slanted America’s economic and political systems so that money and power flow from the many to the few. The plutocrats’ most effective and least reported-on tool is America’s tax structure.

For most of us–workers, professionals, farmers, small business folks, etc.– income taxes are generally straightforward. The rich are different. Multimillionaires and billionaires don’t usually draw the bulk of their fabulous incomes from paychecks, but from their enormous financial assets, i.e., their wealth. This inherited or accumulated wealth generates “capital income”–and further wealth–with little or no work by the asset holder.

As the Center for American Progress’s excellent June report details, the moral basis of US tax policy has been perverted since the 1980s by legislative and regulatory twists that tax work, but let these massive accretions of wealth skate by virtually untouched. As a result,

America’s tax code no longer adheres to the core principle of ability to pay–the idea that taxes should be based on a person’s capacity to pay taxes.

Thus, the ultrarich, who benefit the most from our country’s economy and public infrastructure, pay the smallest proportion of their incomes to sustain it.

Today’s tax laws offer a carnival of loop-the-loops, whirligigs, and other tax-free joyrides for those who’ve stockpiled capital income. For example, while you might pay the top tax rate of 37% on ordinary income, someone selling a capital asset like stock pays only a 20% tax on income from that sale. Nearly 70% of such capital gains are made by America’s richest 1%, who reap trillions of dollar a year in savings through such special tax treatments. This windfall allows them to amass and concentrate even more of America’s wealth in their sheltered accounts and to buy the political clout to push through laws that the great majority oppose–such as 2017’s Trump-McConnell trillion-dollar tax giveaway to the rich. (Facing overwhelming public opposition, the GOP wrote the bill behind closed doors, allowed no public hearings, and rammed it into law on a partisan vote.) And ’round and ’round it goes … unless and until we stop it.

America needs a “Lizzie”–a way to re-balance the tax burden fairly between wages and wealth. Sen. Elizabeth Warren has taken the lead on this fundamental democratic reform by proposing a return to America’s historic tax principle of “ability to pay.” Her idea is to shut down the elites’ shameful tax dodging with a straight-forward tax on extreme wealth.

Lest you think that the senator covets your little stash of savings/ investments, think again. Warren’s plan to apply a 2% per annum wealth tax only to net worth over $50 million would impact only about 75,000 really, really rich families. (Her “Billionaires’ Surtax” would add another 1% to households worth more than a billion bucks.) So, let’s say you’re sitting on a $500 million nugget; after paying the multimillionaire’s tax, you’d have to squeak by with only $491 million this year.

Meanwhile, the benefit of Warren’s plan to America would be phenomenal. Two preeminent experts on tax inequality, Emmanuel Saez and Gabriel Zucman, calculated that it would add $2.75 trillion into our public treasury over 10 years that could fund health care, social security, student debt, infrastructure, and more.

Chicken littles

Oh, Sweet Jesus, shriek the Koch brothers and other harpies of laissez- faire plutocratic rule. In a sweaty panic, they wail that Warren’s wealth tax would kill incentive for individuals to innovate, crush the free enterprise system, and destroy America itself. Confiscation! scream the elites from their taxpayer-subsidized corporate suites.

Their attitude is typified by Michael Dell, billionaire chieftain of his eponymous computer corporation. In January, at the annual gathering of global corporate royalty in posh Davos, Switzerland, Dell was asked about Rep. Alexandria Ocasio-Cortez’s proposal for a top tax rate of 70% on mega-fortunes. With the pompous self- assurance of a clueless CEO, Dell suggested that it would destroy an economy. “Name a country where that’s worked,” he scoffed.

Uh … how about the USA? The very wealthy’s tax rate averaged:

• 72% through the early years of the income tax, 1917-21
• 78% through the Depression years, 1932-45
• 91% through the prosperous Eisenhower years 1953-61
• 70% even through the corporate-friendly years of Nixon, Ford, and Carter, 1969-81.

So, Michael, for more than half the time we’ve had income tax, the assessment on extreme wealth has topped 70%. And those periods included many of the best-performing years of the US economy, while periods of skewed prosperity have mostly come in the years (Harding, Coolidge, Hoover, Reagan, Bush I, Clinton, Bush II, Obama, and Trump) when the ultra-rich hid behind the tax tree.

The privileged ones rationalize their special tax treatment because they believe they are, well, special: rugged, entrepreneurial individuals, self-made wunderkinds who built their own fortunes. Elizabeth Warren sets them straight:

There’s nobody in this country who got rich on their own–nobody. You built a factory out there? Good for you! But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You built a factory and it turned into something terrific … God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay it forward to the next kid who comes along.

There is no reason our society should be shortchanging the common good by coddling a few gilded families easily able to pay for the privilege of living in a country that has so lavishly enriched them. Indeed, putting that 2% to work expanding economic opportunity for all could enrich them further–but, more importantly, would help reverse the toxic spread of inequality devouring our social cohesion, economic potential, and democratic aspirations.

Getting it done

There’s nothing inevitable about inequality. It’s an injustice that the moneyed powers and their political hirelings have chosen. We The People can choose a brighter path, one that bends toward justice. Starting with a wealth tax.

But how can we best the billionaires and their brawny political blockers? Not by going around them, but by pushing right through them.

👉 First, years of rank avarice and arrogance have caught up with the superrich and their enablers, turning “billionaire” into a synonym for “thief,” and focusing rising public anger on the inequality they’ve fostered.

👉 Second, that anger has generated a stunning level of popular enthusiasm for the wealth tax. A New York Times survey found that 6 in every 10 Americans favor Sen. Warren’s plan:

• 75% of Democrats
• 57% of Independents
• Wow! 51% of Republicans

👉 Third, not all billionaires are jerks. Eli Broad, a former union auto worker who built two Fortune 500 corporations, is a leader among a small group of superrich Americans who:

[S]imply believe that those of us with great wealth must commit to reducing income inequality, starting with the demand to be taxed at a higher rate than everyone else. …The old ways aren’t working, and we can’t waste any more time tinkering around the edges. …I have watched my wealth grow hugely thanks to federal policies that have cut my tax rates, while wages of regular people have stagnated and poverty rates have increased. …A wealth tax can start to address the economic inequality eroding the soul of our country’s strength. I can afford to pay more, and I know others can too. What we can’t afford are more shortsighted policies that skirt big ideas, avoid tough issues, and do little to alleviate the poverty faced by millions of Americans. There’s no time to waste.

In June, 20 other extremely rich Americans sent an open letter to all 2020 presidential candidates, declaring

America has a moral, ethical, and economic responsibility to tax our wealth more. …We’re joining the majority of Americans already supporting a moderate wealth tax. We ask that you recognize its strong merit and popular support, and advance the idea to tax us a little more.

So far, most of the Democrats have promised just that if elected, with Sanders and Warren supporting game-changing tax plans that would shift significant wealth to benefit the poor and middle class. No word from Trump.

“Tax the Rich” is no longer just a political slogan, it’s a national necessity and a moral imperative. And, at long last, it’s actually within our reach. The bulk of billionaires and their right-wing political networks will fight furiously against even the idea that our society should strive for tax fairness. Indeed, their hubris is so extreme that they’re already clamoring for Trump and GOP senators to hand them some $200 billion more in tax cuts this year. But, as columnist Paul Krugman has observed, “they do so more or less in secret, presumably because they realize just how unpopular their position really is.”

More insidious are the out-of-touch establishment pundits and milquetoast Democrats who are aloof from the growing public anger at the raw unfairness of today’s system. They blandly propose small and slow baby steps, policies that would close a couple of tax loopholes without disturbing the basic structure of inequality. If the meek ever inherit the earth, these people will be land barons!

The stakes are enormous, for this is not finally about arcane tax matters, but a struggle for America’s essential egalitarian idea that we’re all in this together. The proposal for a bold, unabashedly progressive wealth tax is a rallying cry for grassroots rebels to join forces and work together to reassert America’s historic democratic promise.