Elizabeth Warren's wealth tax proposal is constitutional, experts say — and necessary
S E E D E D C O N T E N T
Elizabeth Warren's wealth tax proposal is constitutional, experts say — and necessary
MICHAEL HILTZIK JANUARY 25, 2019
Elizabeth Warren's wealth tax proposal is constitutional, experts say — and necessary
Sen. Elizabeth Warren (D-Mass.), a newly declared presidential candidate, has turbocharged the progressive attack on income inequality with a proposal for a “wealth tax” aimed at Americans with net worth of more than $50 million.
Warren herself hasn’t issued many details of her plan. But according to UC Berkeley economists Emmanuel Saez and Gabriel Zucman , who advised her on the proposal, the tax would be 2% on net worth above $50 million and another 1% on net worth above $1 billion. They say it would affect about 75,000 U.S. households, or less than 0.1% of the total, and raise $2.75 trillion over 10 years. That’s about 0.1% of gross domestic product per year.
Warren’s announcement , made Thursday via Twitter, is certain to be met with two big questions: Is a wealth tax constitutional, and is it necessary? Legal scholars say the answer to the first is yes, and economists (and the evidence of your own eyes) say the answer to the second also is yes.
The notion that a wealth tax is unconstitutional derives from a provision of the Constitution prohibiting “direct” taxation unless it’s “apportioned among the states.” That’s generally taken to mean that the amount raised from each state must be proportionate to its population.
That means a direct tax can raise the same amount from Connecticut as from Mississippi because they have roughly the same population (3 million), even though the first is the richest state in the union (with per capita income of more than $36,000) and the second is the poorest ($20,000).
But two legal scholars say this constitutional interpretation is wrong. They’re Dawn Johnson of Indiana University and Walter Dellinger, a former U.S. solicitor general, of Duke University. Their analysis appeared last year , and is regarded as the leading work on the issue, though their position isn’t unanimously held. (Thanks to Bruce Bartlett for bringing it to my attention.)
Johnson and Dellinger dismiss the constitutionality issue as “conventional wisdom” that is casually repeated but is the product of “faulty constitutional understanding.” It’s partially the result of a Supreme Court ruling in 1895 known as Pollock that was narrowly — and they say wrongly — decided, and that has been undermined by a string of subsequent Supreme Court decisions.
It’s also generally disdained by legal authorities. Among them is Bruce Ackerman of Yale Law School, who wrote in 1999 that before Pollock, the court used a very narrow definition of “direct tax,” and has returned to that narrow view since. As a unanimous court declared in 1983, he noted, “Congress' power to tax is virtually without limitation.”
The “direct tax” language in the Constitution, Johnson and Dellinger observe, was murky even to the drafters. The Constitution refers explicitly only to a “capitation” or head tax, which is levied on each individual and thus can be easily apportioned by population. The authors assert that the clause wasn’t the product of “any principled decision to limit Congress’s authority to tax income, property, or wealth.”
In any event, the court rejected Pollock only a few years later, by upholding an estate tax and a gift tax — that is, a tax on net worth. After the 16th Amendment, which declared an income tax constitutional, was ratified in 1913 as a response to Pollock, discussions of the constitutionality of taxes other than the head tax dropped off the Supreme Court docket.
Still, since debate over the constitutionality of a wealth tax might gum up the process of enacting one, it might make sense to avoid the issue by strengthening taxes that already have passed the court’s muster. That’s the argument of Miranda Perry Fleischer of the University of San Diego .
Fleischer proposes several second-best alternatives to short-circuit the debate. These include raising the tax rate on capital gains, which is lower than that on ordinary income, and to tax capital gains at death — rather than allowing heirs to avoid embedded capital gains tax by stepping up their cost basis upon the bequest.
Under current law, if a taxpayer bought, say, a stock at $100 and leaves it to heirs when it’s worth $1,000, that $900 gain never will be taxed. Fleischer proposes to levy the tax when the taxpayer dies. Since the Supreme Court hasn’t objected to estate taxes, problem solved.
That brings us to the question of whether a wealth tax is needed. The answer here is unmistakably yes. The concentration of wealth in America has reached levels that make the gilt of the 19th century Gilded Age look like dross. There’s sound economic and social sense in taxing the hell out of excessive incomes and excessive wealth.
As Saez and Zucman observe, the top 0.1% today control almost as much wealth as the bottom 90%. Wealth disparity on this scale has a distinctly corrosive effect on society and democracy. As political economist Benjamin Friedman wrote in 2009 , its “grave moral consequences” include "racial and religious discrimination, antipathy toward immigrants, [and] lack of generosity toward the poor" — all features of our current political landscape.
That’s not even to mention the economic consequences of placing so much wealth in the hands of people who can’t use it productively, while the majority of Americans struggle to make ends meet on working-class wages.
The Founding Fathers were unnerved by this very phenomenon. Thomas Jefferson wrote to James Madison in 1785, "whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right."
In his autobiography, Jefferson wrote of the bills he had advocated or passed to form "a system by which every fibre would be eradicated of antient or future aristocracy; and a foundation laid for a government truly republican." His goal was to "prevent the accumulation and perpetuation of wealth in select families.”
Perhaps fortunately, we don’t have to go far to see and hear these consequences spelled out. The Trump administration has done much of the work for us, especially in its response to the pain it’s imposed on government workers deprived of paychecks by the government shutdown. These are people who are never shy about nominating someone else for martyrdom.
Start with Commerce Secretary Wilbur Ross, whose fortune is estimated at $700 million. In an interview Thursday he advised furloughed workers to take out short-term loans. “People might have to pay a little bit of interest,” he said, “but the idea that it’s a paycheck or zero is not a really valid idea.” He said credit unions were stepping up with low-interest loans. What he didn’t say was that the credit union at his agency, the Commerce Department, was charging workers 8.99% interest per year on emergency loans of up to $5,000.
Larry Kudlow, Trump’s chief economist, told reporters that government employees working without pay during the shutdown were “volunteering” out of “their love for the country and the office of the presidency and presumably their allegiance to President Trump.” And Lara Trump, the President’s daughter-in-law, commiserated with unpaid workers by counseling that “ it is a little bit of pain , but it’s going to be for the future of our country.”
The super-rich haven’t been shy about speaking up for their prerogatives. Asked at the Davos economic conference this week about the suggestion by Rep. Alexandria Ocasio-Cortez (D-N.Y.) to raise the top marginal income tax rate to 70% on high incomes, computer tycoon Michael Dell dismissed it out of hand .
“Name a country where that’s worked. Ever,” Dell said. To which Erik Brinjolfsson of MIT, a member of Dell’s speaking panel, promptly replied: “The United States.” Brynjolfsson schooled Dell by informing him that from the 1940s through the 1960s the top rate on income ran as high as 94%. “Those were actually pretty good years for growth,” he said.
Dell also said he contributes to society via a family foundation, adding: “I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government.”
It’s proper to observe that Dell’s multibillion-dollar fortune is based on mail and online orders of computers — in other words, on infrastructure created and funded by the government he disdains.
The question boils down to whether you want society funded out of the whims of Michael Dell or the debated judgments of your elected representatives. Thomas Jefferson would vote for the latter, and the extinction of inherited wealth by taxation if necessary. Anti-tax crusaders who never tire of dragooning the Founding Fathers into their arguments should take that one to heart.
Article is LOCKED by author/seeder
Who is online
107 visitors
It absolutely is not Constitutional, unless you pass an Amendment.
The article rather clearly explains why tax on extreme wealth is a good idea. Do you have a good explanation why it is not?
Just how is taxing extreme wealth driving a wedge between people?
It's called ….. "Feelings" ?
No. It doesn't. It offers ridiculous rationalizations for wealth envy.
Several.
The wedge is already there. Leftists have hated rich people for a long time.
Yes. It's clearly unconstitutional. I think we can count on SCOTUS here.
It always amazes me to see the vehemence with which our conservatives defend other people's money.
Are they rich? No.
Do they expect to be rich some day? No.
Do they expect their children to rich some day? No.
So WTF?
"Are they rich? No."
Speak for yourself, expat.
These tax the wealth plans don't effect the first millions and millions an individual may have or make as income in a given year, they only change the current taxes after a threshold is met, in this case 50 million in wealth. It is intended to effect the superwealthy. For example, Wilbur Ross has 700 million dollars. The first 50 million is not taxed, so he would pay 2% tax on 650 million dollars , or 13 million dollars, per year.
This tax doesnt seem to really be meant for the "peanut" sums of 50 million in wealth, it is meant for the billionaires. Someone with 2 billion dollars in wealth would pay 30 million per year in tax on that wealth.
According to the article this process could collect 2 trillion dollars for the government (the people) after ten years.
Let's do it.
This is not an income tax, it is a tax on net worth.
And the rate of growth is what? 1.2 trillion in 2018? over a trillion a year?
So in ten years you will have collected 2 trillion in taxes against at least 12 trillion in debt increase over those same ten years....
And the rate of expansion is increasing.....
This smacks of doing something even if it is useless just to say they are doing something.... (makes them feel good)
The real nasty part, Democrats have never had a tax they are unwilling to expand.... THAT is the point of this, get it on the books now so they can expand it later....
Let's NOT do it.....
You've noticed that, have you?
I just don't begrudge other people their wealth. I don't feel like I'm getting screwed over because someone has more money than I do. Why should I? Does the world owe me wealth? I don't think so. So why should I look to steal money from others?
I don't think Wilbur Ross would hesitate to rob from you if he had the chance. He probably already has.
Prove it and we'll call the cops or I'll go take my money back from him. Sorry, but I don't demonize people because they happen to have more stuff than me. I don't worship money.
Do you think Elizabeth Warren or Alexandra Ocasio Cortez worship money ? What an odd thing to say.
Thats nice. Has very little (actually nothing) to do with the subject.
I think the political Left worships other people's money. Absolutely. They demonize the rich at every opportunity. And considering how rich some of them are, it's massively hypocritical. Meanwhile, once they get hold of our money, they are terribly wasteful with it and never pursue opportunities to spend less. It's never spend less or spend smarter, it's always tax more.
You should.
I'm not going to put a percentage on it and say "most" or anything. Trying to quantify it is pointless. However, the Left is the faction in our politics that is typically trying to raise people's taxes. It is the Left that typically paints wealthy people as evil or out of touch. It is the Left that complains about the distribution of wealth (as if wealth had been distributed evenly from on high instead of being created by individuals). It is the Left that insists the wealthy are not paying "their fair share."
They worship other people's money because they think squeezing the rich and throwing their money at a problem is the only way to solve society's problems. It's lazy.
Yes if Liz wasn't a hypocrite she would give away her unneeded portion and live in a smaller house
If that were to happen, there is no doubt in my mind that your reaction would be “omfg what a fucking idiot”. When it comes to Elizabeth Warren, nothing she does would ever please a conservative. She absolutely terrifies you guys.
Not exactly ..... everyone but them of course.
Nan needs her daily botox injections.
That shit ain't cheap ya know .....
Hundreds of billions.
It always amazes me at how Democrats think they are entitled to other peoples money.
Taxation is theft.
Property is theft.
- P J Proudhon
It has stopped amazing me to see the vehemence with which liberals seek to seize other people's money.
It amazes me that some republicans think they can keep cutting taxes while increasing government spending and still have a viable functioning government.
It's no more amazing than the Democrats who think they can pay for absolutely anything by "taxing the rich". It's like they don't realize rich people don't have unlimited money.
If one is poor a dollar a week is not going to make that much difference.
If one makes 100 mil a year, even that person losing half, would not make that much difference on lifestyle.
True, but beside the point.
It's not about lifestyle. It's about the rights of an individual to keep their own money or property.
In the past, the liberal mindset was generally "we feel bad about people being poor and giving those people money makes us feel better, but we don't have lots of money and you do, so we're taking yours."
It's important to note that absolutely zero government anti-poverty programs have actually done anything to eliminate poverty. They're not designed for that. They're designed to make middle class white liberals "feel better" about "doing something".
Now, we're seeing the new liberal mindset being "it pisses us off that these bastards have so much money, so let's just take it." There is no "we need to raise taxes to pay for infrastructure" or "we need to raise taxes to pay for education investment" or even "we need to raise taxes to pay for social programs". No, they want to raise taxes to address "inequality", which is their code word for their wealth envy.
In both cases, we're talking about setting tax policy because of "feelings". That's not how it's supposed to work.
We had marginal tax rates of 90+ to 70% from the late 40s through 1980. This money was used for huge social programs like the GI Bill, which pretty much created the vibrant, prosperous middle class conservatives like to point to. We used this money to build the interstate highway system, which we can’t even maintain now. During this time rich people were still rich, even in 1950 when the marginal tax rate was 90%, the top 1% only paid 42% of their income in taxes.
It’s actually our government that laid the ground work through social programs and infrastructure investments that made the rise of the middle class possible in the 40s, 50s, and 60. Even before this, it would be difficult to find a community that didn’t benefit from either the WPA or the TVA. And before that, it was the government that acquired and really got the western states populated.
Yes, but as you say, hardly anyone ever actually paid that much, so the revenue you might hope for wasn't really happening. The effective tax rate for the wealthiest people in the 1950s was about 42%. Today, it's about 36.4%, so: lower, to be sure, but not such a huge difference. Reasons for this include:
Taxes on the Rich Were Not That Much Higher in the 1950s
College and houses were a LOT cheaper in those days.
Hush now .... that sort of talk just blows their higher tax gambit for the rich right out of the water.
The seeded article is not about income tax.
Sorry John, your seed is about taxes, for which Income Tax is one.
One would think any cogent discussion about the fairness of a tax system, that is (in the scheme of this discussion) the addition of a "Wealth Tax," would include the single largest individual citizen revenue source for the Fed don't you think?
That would be Federal Income Tax.
Yet a 'wealth tax' is being assessed based on income, so what else would one call it.. but an additional income tax for the wealthier among us?
Give them the chance and they would tax the air that you breath and the sunlight you use.
I claim interest from my money market account every year on my income taxes, which in turn adjusts my annual income - granted the interest amount is only around a grand, but is it not already being taxed a wee bit?
No, there isn't.
There is loud emotional resonance among people who whine about how it "isn't fair" and want the teacher to make one kid share like we're all in kindergarten.
Focusing on "inequality" is stupid to begin with. The issue is poverty and/or opportunity, not inequality.
But if you are going to attempt to artificially correct "inequality", attempting to do so by taking money from the wealthy is even more idiotic. It's like "correcting" your flooding bathroom by dumping water all over the rest of the house so everything is "equal".
I suppose you can talk about whatever you want. The seed is about a net wealth tax.
Actually the issue is both opportunity and the inequality itself. If everything in the economy is fair, why do we have thousands of lobbyists constantly petitioning and bribing legislators to give (their corporate or industry clients) them an (sometimes unfair) advantage?
How does your tax scheme stop unethical lobbying?
Perhaps you misunderstood my meaning. Let me put it another way.
A net wealth tax should not be considered until other "income" taxes are levied more fairly on the entire citizenry.
Or through 1963.
If by "social programs", you mean "buying lots of tanks and airlplanes and destroying our primary manufacturing competitors", then yeah.... that's exactly what happened.
What i find most distasteful about this is the attitude that "higher taxes are okay, as long as they aren't on me."
With nearly 50% of Americans paying a net ZERO federal income tax, this proposed concept is very distasteful.
Every American tax payer should have some skin in the game when it comes to the single largest "individual citizen" tax revenue stream for the Fed.
And nearly half don't.
It is always fascinating to listen to people without money tell us how to collect money from people with money.
It won't affect 75,000 households and it certainly won't raise $2.75 trillion. It's all very nice in theory, but the reality is that tax attorneys make way more than economics professors for a reason.
Why do followers of Warren or Sanders refuse to acknowledge that massive taxation of something simply drives that something to another form or venue?
Everyone that has a greater AGI then I do should pay more in federal income tax.
Damn that was simple.
We could accomplish that with a flat tax.
I simply stated it would meet Kavika's criteria.
What we hear on this topic borders on nonsense. It is not about "hurting" the wealthy. The proposal would tax only after the first 50 million in net wealth. 2% per year . Let's say someone has 60 million, a tremendous amount of money . The tax they will pay on 10 million (the difference between 50 and 60 million). is 200,000. The person with 60 million would pay 200,000 dollars in "wealth tax".
How in hell is a loss of 200,000 from a fortune of 60,000,000 going to "hurt" that person or that family?
We should have been doing this all along.
I'm not a fan of the actual flat tax. I just think we need a tax system slightly flatter than we have now.
It's not theft, it's a tax.
The people are not going to suffer your dog eat dog mentality forever.
This tax does not confiscate individual's wealth. Someone with 60 million dollars will still have 59,800,000 after they pay the tax. Boo hoo.
This is a completely inaccurate comment. Is there a coc violation for misstating the article?
The topic is nonsense. So that's probably appropriate.
That's just a steaming great pile of bullshit. Absolutely zero people above the age of 7 believe that. There is no other reason to propose such a tax and then try to claim it addresses inequality. That's just stupid.
Oh.... OK. Fine. Which means it's not going to address inequality one iota, so we can forget about this and move on to something intelligent.
Why? You've just admitted that this won't impact inequality. You've also claimed that it's not about "hurting the wealthy". So why would we do it?
No it isn't.
It's the fundamental premise behind the "inequality" discussion.
It would produce close to three trillion dollars in revenue for the government over 10 years, that is one reason to do it. Another is to begin to minimize extreme , often inherited, wealth.
You are brainwashed into believing there is nothing strange about 1% of the population owning 38% of the nation's wealth.
I think it depends on the amount and type of tax. Some taxes are punitive, some are not.
This one is obviously intended to be.
My point was that it's strangely contradictory for liberals to whine about "inequality", support a "solution" that simply takes money from rich people, and then try to pretend there is some goal other than making rich people less rich.
This wealth tax proposal BEGINS at 50 million of wealth and taxes 2% of anything over that. The idea that such a tax would hurt or "punish" the wealthy borders on the bizarre.
The "right" wants no control of the nation's wealth and if 1% owned 99% of the money the right would say "thats the way the cookie crumbles".
So?
*stands and loudly sings "Glory Glory Man United", much to the confusion and dismay of other people in the office*
lol.
That's the theory. But it only works on spherical rich people in a vacuum. (meaning it's hyper-idealized and ignores reality) There is no way that's actually going to happen.
No. That's a rationalization for it. A "reason" has to have a reasonable chance of actually happening.
I thought you're trying to argue that it will barely take any money. You said they wouldn't even notice. How does it minimize their wealth without them noticing? How does that work, exactly?
After 94 million anti-Trump seeds, the irony of you calling somebody else "brainwashed" is enough to move the Earth's magnetic pole.
You are so deep in the ocean of liberal Kool-Aid you haven't even stopped to examine this ridiculous "inequality" red herring they've thrown you.
Do try to walk us all through how Oprah Winfrey being a billionaire has any impact on your life. Why do you care how much money Mark Zuckerberg has? Do tell.
Do not fail to plan for your own long term care needs. That will undo you faster than anything else.
I am anti-Trump and for a semblance of "equality". You are pro-Trump and pro-plutocracy.
I like where I am .
Well, under this tax proposal, if you have 60 million you could leave him 59.8 million. (minus 200k per year) .
There is the estate tax though.
If you don't have 50 million you don't have to worry about this tax.
Not in the first couple of years, but the amount will drop quickly as the Left finds that there aren't enough millionaires to extort to pay for everything they want.
If you have 60 million, turn it into hard, portable wealth and get it out of US jurisdiction as quickly and quietly as possible.
Yeah. We all get that.
OK, so we'll have everybody pay the same tax. That's equal.
Ah. We're to the point in the liberal game plan where the rhetoric is no longer able to conceal the fact that the logic was always flawed, so it's time to start attacking people.
No you don't. If you liked where you were, you wouldn't constantly feel the need to sieze more of other people's money.
You spotted that, did you?
John, it's taking someone's money by force or the threat of force (or did you think that the police and the IRS carry those guns just for decoration). If you did that, you would get 20 years for Extortion. If the government does it, they call it taxes. Check the criminal code in any State for the elements of the crime of Extortion. You will find that they exactly fit what all levels of government do every day.
So what? Who cares what others have unless you want to steal theirs so you can have money you didn’t earn
Under the proposed provisions of this tax , moving the wealth offshore would not protect you from the tax.
Are you actually under the delusion that the extremely wealthy "earn" their money?
And just how do you figure that the government will get its hands on it, or even trace it, once it's out of US jurisdiction? There is still gold hidden in Swiss banks that was put there by the Nazis over 70 years ago. Not recovered yet, probably not ever.
Once such people have their wealth removed and remove themselves, what will the US Government do about it, send in soldiers? How many other governments do you think will cooperate when their leaders see the size of the bribes they can get for not cooperating? Not many, I think.
Hmmm...... let's see......
Forbes list of US billionaires....
8 of 10 definitely earned their money. The other two certainly earned their money but had a very good head start.
Unless it’s from committing a crime, absolutely.
i used to get paid $200 per hour just to give businesses my recommendations. Athletes get paid 10s of millions per year. Someone earning $8 an hour might think that I or the athletes didn’t really earn it. But it’s about the market value of you which can labor, creativity, or whatever the market is willing to pay for. Investment is the leveraging of dollars to increase assets. It’s still earned money
of course communists don’t see it that way, right John
Lol, there it is ....
A Wealth Tax is both UnConstitutional and a mark of Communism
The Constitution bans taxation of wealth. This is not even debatable if we follow the Constitution
Article 1, Section 9 of the Constitution:
(No capitation, or other direct Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.)
The 16th Amendment (the most destructive Amendment to the Constitution) further expands but still limits Federal taxing power
“The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
A direct tax is a tax on real or personal property imposed solely by reason of its being owned by the taxpayer. In contrast, indirect taxes are levied upon the happening of an event, such as the transmission of property. Thus defined, the income tax is plainly a direct tax. So, for that matter, is a tax on any asset.
What then of the combined federal estate and gift tax? Isn't that a tax on an estate's assets? The answer, surprisingly, is “No”. Congress enacted the first federal estate tax in 1916. Its constitutionality was upheld by the United States Supreme Court in New York Trust Company v. Eisner, 1921, 256 U.S. 345. The opinion of the Court, delivered by Justice Holmes, was that the estate tax was not constitutionally infirm as a direct tax. Later cases made clear that the estate tax was not a tax on the property of the estate, but rather an excise tax on the privilege of transferring property at death. The triggering event, then, is the death of the testator. The current statute imposes a tax on the transfer of a decedent's taxable estate
A rather dubious claim of Constitutionality for a wealth tax is made by claim that the definition of a direct tax is “murky”. This laughable to anyone willing to read the Founders
Alexander Hamilton in Federalist 12
“Personal estate (as has been before remarked), from the difficulty in tracing it, cannot be subjected to large contributions, by any other means than by taxes on consumption. In populous cities, it may be enough the subject of conjecture, to occasion the oppression of individuals, without much aggregate benefit to the State; but beyond these circles, it must, in a great measure, escape the eye and the hand of the tax-gatherer.”
Opinion | Elizabeth Warren Does Teddy Roosevelt
Paul Krugman
Taxing the superrich is an idea whose time has come — again.
Elizabeth Warren at a campaign event in Iowa early this month.CreditGabriella Demczuk for The New York TimesAmerica invented progressive taxation. And there was a time when leading American politicians were proud to proclaim their willingness to tax the wealthy, not just to raise revenue, but to limit excessive concentration of economic power.
“It is important,” said Theodore Roosevelt in 1906, “to grapple with the problems connected with the amassing of enormous fortunes” — some of them, he declared, “swollen beyond all healthy limits.”
Today we are once again living in an era of extraordinary wealth concentrated in the hands of a few people, with the net worth of the wealthiest 0.1 percent of Americans almost equal to that of the bottom 90 percent combined. And this concentration of wealth is growing; as Thomas Piketty famously argued in his book “Capital in the 21st Century,” we seem to be heading toward a society dominated by vast, often inherited fortunes.So can today’s politicians rise to the challenge?
Well, Elizabeth Warren has released an impressive proposal for taxing extreme wealth. And whether or not she herself becomes the Democratic nominee for president, it says good things about her party that something this smart and daring is even part of the discussion.The Warren proposal would impose a 2 percent annual tax on an individual household’s net worth in excess of $50 million, and an additional 1 percent on wealth in excess of $1 billion. The proposal was released along with an analysis by Emmanuel Saez and Gabriel Zucman of Berkeley, two of the world’s leading experts on inequality.Saez and Zucman found that this tax would affect only a small number of very wealthy people — around 75,000 households. But because these households are so wealthy, it would raise a lot of revenue, around $2.75 trillion over the next decade.
Make no mistake: This is a pretty radical plan.I asked Saez how much it would raise the share of income (as opposed to wealth) that the economic elite pays in taxes. His estimate was that it would raise the average tax rate on the top 0.1 percent to 48 percent from 36 percent, and bring the average tax on the top 0.01 percent up to 57 percent. Those are high numbers, although they’re roughly comparable to average tax rates in the 1950s.Would such a plan be feasible? Wouldn’t the rich just find ways around it? Saez and Zucman argue, based on evidence from Denmark and Sweden, both of which used to have significant wealth taxes, that it wouldn’t lead to large-scale evasion if the tax applied to all assets and was adequately enforced.Wouldn’t it hurt incentives? Probably not much.
Think about it: How much would entrepreneurs be deterred by the prospect that, if their big ideas pan out, they’d have to pay additional taxes on their second $50 million?It’s true that the Warren plan would limit the ability of the already incredibly wealthy to make their fortunes even bigger, and pass them on to their heirs. But slowing or reversing our drift toward a society ruled by oligarchic dynasties is a feature, not a bug.And I’ve been struck by the reactions of tax experts like Lily Batchelder and David Kamin; while they don’t necessarily endorse the Warren plan, they clearly see it as serious and worthy of consideration. It is, writes Kamin, “addressed at a real problem” and “goes big as it should.” Warren, says The Times, has been “nerding out”; well, the nerds are impressed.But do ideas this bold stand a chance in 21st-century American politics?
The usual suspects are, of course, already comparing Warren to Nicolás Maduro or even Joseph Stalin, despite her actually being more like Teddy Roosevelt or, for that matter, Dwight Eisenhower. More important, my sense is that a lot of conventional political wisdom still assumes that proposals to sharply raise taxes on the wealthy are too left-wing for American voters.But public opinion surveys show overwhelming support for raising taxes on the rich. One recent poll even found that 45 percent of self-identified Republicans support Alexandria Ocasio-Cortez’s suggestion of a top rate of 70 percent.By the way, polls also show overwhelming public support for increasing, not cutting, spending on Medicare and Social Security.
Strange to say, however, we rarely hear politicians who demand “entitlement reform” dismissed as too right-wing to be taken seriously.And it’s not just polls suggesting that a bold assault on economic inequality might be politically viable. Political scientists studying the behavior of billionaires find that while many of them push for lower taxes, they do so more or less in secret, presumably because they realize just how unpopular their position really is. This “stealth politics” is, by the way, one reason billionaires can seem much more liberal than they actually are — only the handful of liberals among them speak out in public.The bottom line is that there may be far more scope for a bold progressive agenda than is dreamed of in most political punditry. And Elizabeth Warren has just taken an important step on that agenda, pushing her party to go big. Let’s hope her rivals — some of whom are also quite impressive — follow her lead.
Now someone will say that Teddy Roosevelt was a communist.
Alexandria Ocasio-Cortez's 70 Percent Tax on the Rich Isn't About Revenue, It's About Decreasing Inequality
Asked earlier in January by “60 Minutes,” how she might pay for a Green New Deal, Rep. Alexandria Ocasio-Cortez noted that top marginal tax rates in the mid-20th century were “as high as 60 percent or 70 percent.” A slew of articles have since debated whether higher tax rates would actually raise much revenue. But these articles miss the point. Taxes on the very wealthy are corrective taxes, like tobacco taxes, that should be judged by their societal impact, not simply their revenues . The purpose of high tax rates on the rich is the reduction of vast fortunes that give a handful of people a level of power incompatible with democracy.
Among progressive economists, Ocasio-Cortez’s comments have mostly been received with something akin to relief . Though top marginal income tax rates were, for decades, substantially higher than 70 percent, even Sen. Bernie Sanders’ 2016 plan to fund “Medicare for All” tapped out at a top rate of 52 percent . For liberals, high tax proposals have long remained taboo. Now, it seems, that barrier has finally been broken.
For liberals, high tax proposals have long remained taboo. Now, it seems, that barrier has finally been broken.
At the same time, Ocasio-Cortez’s suggestion is not that novel when compared to plans floated by Democratic presidential hopefuls. Sen. Elizabeth Warren , for instance, has just announced a new “ wealth tax ” and had previously put forward a plan to create three million new housing units, paid for with a lower exemption and new progressive rates for the estate tax. Sanders has suggested offsetting some of the cost of universal Medicare with more progressive income and estate taxes, plus a wealth tax on the richest 0.1 percent of households. Sen. Cory Booker has argued that “re-adjusting the estate tax to what it was in ’09” would cover the cost of “baby bonds,” nest eggs designed to help low-income kids cover the cost of college or a house down-payment. After decades of taxphobia, Democrats are increasingly willing to link costly public investments with tax increases for the rich.
Intuitive as it is to link progressive taxation to progressive spending, the tactic invites debate about how much revenue top marginal tax rates can raise.
My colleagues at the Tax Policy Center helped the Washington Post calculate how much money could be obtained from tax increases on the very wealthiest Americans; some plans would raise up to three trillion dollars over a decade. Others have asserted that Ocasio-Cortez’s plan could not raise much money at all.
Again, the revenue question is the wrong question. Not because talking about revenue plays into a Republican strategy of deeply hypocritical deficit fear mongering — though it does. Not because extracting money from rich people is easy; there are serious technical questions about how to implement taxes on the very wealthy . The problem with using revenue to justify progressive taxation is that over time, an effective progressive tax system should actually raise less and less money.
Progressive taxation should work as a corrective tax, like tobacco taxes or a carbon tax. Sure, tobacco taxes raise some revenue for the states. But their primary purpose is to curb smoking. While a carbon tax could produce a lot of government revenue, the real point is to limit global warming pollution . In essence, corrective taxes try to put themselves out of business; if tobacco tax revenues decline because people quit smoking, or if carbon taxes stop rolling in because the economy becomes fossil-free, that is victory, not defeat.
The problem with using revenue to justify progressive taxation is that over time, an effective progressive tax system should actually raise less and less money.
Taxes on the wealthy discourage a different societal ill: exploitative capitalism. Progressive tax policy is a powerful corrective to economic inequality and wealth concentration. As economists Thomas Piketty and Emmanuel Saez concluded in their seminal paper on U.S. income inequality, “steep progressive income and estate taxation” helped prevent the accumulation of immense fortunes in the middle of the 20th century. In cross-national data, moreover, there is a “ strong negative correlation between top tax rates and top 1% income share.” In other words, where top tax rates are higher, the income distribution is more egalitarian – not just post-tax, but even before taxes are taken out.
That’s because progressive taxes blunt the incentives for wealthy people to overpay one another and exploit the less privileged. For instance, contemporary CEOs are often financially rewarded for what is in essence good luck: changes in market conditions that have nothing to do with their individual performance. High tax rates discourage these CEO windfalls, leaving more money available for companies to invest productively. That means higher marginal tax rates make the economy fairer and more productive — and have no negative effect on growth, no matter what billionaires at the World Economic Forum prefer to believe .
A hypothetical example explains the mechanism. Imagine if you are a CEO, already making enough to be in the top income tax bracket. If the marginal tax rate in that bracket is 70 percent, any increase you get in pay is going to cost your company a little over three times what you’ll actually take home. The rest will go to Uncle Sam. No wonder company boards become more discerning in approving executive pay increases. High tax rates make it a lot more costly for wealthy people to fling money at one another for no reason.
This has an implication for public budgets; to the extent that individuals’ fortunes are reduced from the obscene to the merely very large, top marginal tax rates collect less revenue.
It would be an error, then, to use revenue as the sole justification for progressive taxation. This is not to say that Democrats are making a strategic mistake in pairing, rhetorically or even legislatively, big spending programs with progressive taxes. Both proposals are popular, after all.
Most Americans believe taxes should be progressive . Asked what bothers them about taxes, the top two answers are that corporations and the wealthy are not paying their fair share. Even as the Republican Congress was passing the Tax Cuts and Jobs Act that slashed corporate tax rates, barely over a third of Republican voters thought rich people’s taxes should go down.
Americans are also remarkably open to big social programs. For generations, scholars of public opinion have described Americans as “philosophical conservatives,” who like small government in principle, but “operational liberals,” who want their government to invest more in health care, education, infrastructure and support for the poor.
It would be absurd, then, to decry politicians for making proposals that provide two things Americans want: a stronger social safety net and higher taxes on the rich. But proponents of high taxes on the rich should recall how the case for these policies was made in the first place.
The democratic argument was once central to the case for progressive taxation . In 1910, Theodore Roosevelt called for progressive income and estate taxes because, “unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.” The goal of progressive taxation, for Roosevelt, was “to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise.”
Early proponents of progressive tax policy knew that it was not just a revenue source. In our contemporary Gilded Age, and as our political institutions feel pushed to the breaking point, we would do well to remember that progressive taxation is a democratic reform.
This is actually on topic, please bear with me.
I think what conservatives are missing is that the move to AI/Robotics is fundamentally different from the move from Agrarian to Industrial or Industrial to Information. The latter two created new, different jobs for people. The move to AI/Robotics mostly takes jobs from people. The expectation is that 50% of the jobs people do today will be gone in 20 years, probably less time than that. Replacement jobs will not be created on anywhere near the scale needed. Plus, new jobs are likely to require people with substantially more education than most have.
If someone/entity/group develops an AI+robotics that replaces all human manufacturing jobs, does it make sense for that entity to keep the wealth that formerly went to 12 million people in the US? What do we do with 25% unemployment? Does it really make sense for 1% of the world's population to control half its wealth? This gets worse every year. A some point we will be forced to redistribute wealth, perhaps it would be better to start making peoples lives better now rather than wait for the revolution. Invest in healthcare, proper nutrition, education, infrastructure,...
Due to automation, a Universal Basic Income is inevitable.
The former two took plenty of jobs from people, too. New, different jobs were created.
Yes. Just like the ice man or the hostler or lamplighter or the footman or the telephone operator. Seriously. This shit happens all the time.
Of course they will. Do you imagine "real estate drone photographer" was a job 15 years ago? How about "instagram model"? How about Roomba repair tech?
That's already happening. Our education system is 60 years behind our society. AI may actually help.
That's not going to happen. People find a way.
Also not going to happen.
Until you force people to make financially responsible decisions, it's an inevitable outcome.
Yes. Americans are less responsible with their money than ever.
No. Because those of us who DO behave responsibly are not interested in supporting those who do not.
Invest whose money?
You entire response is a fantasy where somehow there will be enough jobs for humans. This is not going to happen. The moves from Agrarian to Industrial and Industrial to Information required people to do the new jobs. This is not the case with AI/Robotics. These systems replace humans, not just jobs. There will be new jobs created, but many will be done by AIs.
These systems are already replacing humans at prodigious rates. A welder gets about $25/hour, a robot costs about $8/hr and works 24/7, in 10 years the robot is expected to cost $2/hr. A human cannot survive on $8/hr, let alone $2/hr. I had to build in China because of labor costs, not as true anymore, there are automated systems here that build electronics as cheaply as Chinese labor. They are cheaper because very few people are needed. Brokerage houses have advisors for their wealthy clients, but they wanted something for their less well off clients. They commissioned AIs and found that the AIs did a better job of making money for clients than their advisors. There is a customer service system that sits between your customers and your customer support people. It learns how to solve problems by watching/listening. It provides you with metrics so you know to fire your weakest customer support people. As it learns to solve problems, fewer and fewer calls make it to a human, so, you need only handle new problems and your huge customer support center shrinks. As AIs advance, even those won’t be needed.
AI/robotics takes the place of humans. Your example of a "real estate drone photographer" will be done by an AI. There will still be jobs where humans don’t want AI/robotics, but the number of jobs will be far smaller.
JohnRussel is correct, eventually Universal Basic Income will be inevitable.
As opposed to your entire post simply expressing fear of that which you cannot predict, despite centuries of evidence contrary to your fears.
It's kinda like being afraid of the sun going down because you've never seen it come up after a day this cold.
I'm in my 50's. I've seen this happen lots of times in my relatively short lifetime. I've heard this worry lots of times. There's nothing in it.
Of course it will. It always does. Do you really imagine AI to be the first technologic disruptor? Do you really imagine it somehow to be more revolutionary than any previous technology? It's not. It's just newer.
Of course it will. There will always be things that AI engines cannot be taught to replicate.
No, they will simply do things that we now need humans to do....just like thousands of other technological advancements before them. Humans will find new things to do. We're like that.
In 1819, it took 1500 sailors to move 120,000 tons of cargo on 30 ships. In 2019 it takes 20 sailors on one ship. Some of those guys who would have been sailors in 1819 are instead electricians or cable TV installers...jobs which nobody could imagine in 1819.
Sure. But there will also be new jobs created or industries expanded as people find their way.
Will it be disruptive? Sure. It's always disruptive. Will some people be put out of work? Sure. That always happens. But they'll find new work. They always do. Just because you personally can't imagine what those jobs will be does not mean they won't exist.
Scandinavian countries repealed their wealth taxes. Why it would magically work here?
Is it the socialism thing again? After 100 million corpses, it's bound to work this time?
It's never been fully implemented.
To FULLY implement it, you need 400 million corpses.