Time to Consider a Wealth Tax

Picture by Hilary Stone Ginsberg

A bipartisan group of senators has been discussing an infrastructure proposal to spend more than a trillion dollars to fix the nation’s bridges, highways, tunnels, and rail lines — without raising taxes. 

The possible deal has something for many Democrats and Republicans. It would spend a great deal to repair our crumbling infrastructure, and with the support of 11 Republicans, it would satisfy President Joe Biden’s (and West Virginia Democratic Senator Joe Manchin’s) quest for bipartisanship. The proposed agreement would not raise taxes, which appeals to Republicans who want to protect the 2017 tax cuts. Left out of the possible bipartisan plan would be other pieces of Biden’s original proposal on combatting climate change by emphasizing cleaner energy sources and funding for improving drinking water, retraining workers, and providing home care for older and disabled Americans.

Also left out is the wish of progressives to use funding for the more ambitious Biden infrastructure proposal as well as trillions more for tackling climate change and improving the social safety net as a way to recalibrate the nation’s tax system. A price tag of six trillion dollars or more has been placed on all of the ambitious Biden agenda. Democrats want to fund that spending by raising the corporate tax rate and raising income taxes on those making more than $400,000 a year. 

And, some progressive Democrats want to do more. The need to fix crumbling infrastructure coupled with improving the nation’s inadequate social services —  America trails the rest of the industrial world in providing universal healthcare, child care, college education, and family leave — offers an opportunity to address wealth inequality by introducing a wealth tax. The stock market has boomed in recent years, but until someone sells stock and has to pay capital gains, all that wealth is not taxed on an annual basis.  

During the 2020 Democratic primaries, Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont flirted with a wealth tax. Both offered ambitious proposals to improve the quality of life through federally financed programs and both saw a wealth tax as a tool to close the rapidly growing disparity between the richest and poorest Americans. 

The gap between rich and poor has been well documented in recent years. According to the Federal Reserve, the top one percent of Americans holds one-third of U.S. household wealth, while the bottom 50 percent less than two percent. Other sources show even greater disparities, as in Thomas Piketty’s comprehensive work, Capital in the Twenty-First Century. And, the gap is fated to increase because wealth generates wealth — people make money off their wealth — by increasing stock prices and making advantageous purchases and getting good returns on other investments. Moreover, the racial wealth divide is even worse, with the typical White family holding nearly ten times the wealth of a typical Black family. 

The federal government taxes income (among other things), and local governments tax property. Wealth is not taxed, but many on the left are coming to understand that the best way to raise trillions of dollars to fund a just society and close the gap in financial resources between the rich and poor is to tax wealth, that is, to tax an individual’s or family’s net wealth — their assets minus their debts. This would be a tax on all assets, not just stocks.

A wealth tax polls well. A 2019 poll showed more than six in ten Americans supported a wealth tax of two percent on households worth over $50 million dollars. Such a tax received the backing of 77 percent of Democrats and, interestingly, 57 percent of Republicans. 

How much money would a wealth tax raise? That depends on whose proposal is considered. Sanders would tax people with wealth over $32 million, Warren would begin hers at $50 million. Sanders’ tax would affect about 180,000 taxpayers, Warren’s about 70,000. Sanders has eight brackets in his proposal, beginning with a one percent tax on wealth over $32 million and growing to eight percent on wealth over $10 billion. Warren has two brackets, two percent for people with $50 million in assets, going up to six percent on wealth over one billion dollars. The economists Emmanuel Saez and Gabriel Zucman estimate that the Sanders wealth tax would bring in $4.35 trillion over a decade, while Warren’s tax would raise about $2.75 trillion in the same time frame.

Some critics say a wealth tax would be unconstitutional.  Warren says she has consulted tax experts who claim it would be constitutional. No one knows how the courts would rule on such a proposal. A constitutional amendment was required to impose the income tax over a century ago, and another amendment might be needed now. A bigger problem is knowing precisely how much wealth there is in the country. The data are not perfect on wealth accumulation, and the IRS might find it difficult to determine the assets of individuals. As John Koskinen, a former commissioner of the IRS, told NPR, “The thing to remember is the really wealthy people don’t hold all their assets in easy-to-value areas like stocks and bonds. A lot of them have artwork that’s worth a lot of money. A lot of them have investments in privately held corporations or in investment vehicles that do not give regular valuations.”

A wealth tax is uncharted territory. But, it is a proposal worth considering for it would go far in reducing the terrible and growing gap between the rich and the poor. And, no matter where the levels of taxation are set, a wealth tax would buy a lot of well-paved roads and well-constructed bridges while reining in the national debt.

Posted June 22, 2021