Opinion

Stop pretending it's impossible to tax wealth

Debunking the bad arguments in defense of oligarchs who pay almost nothing

It turns out many of the very richest Americans pay almost nothing in taxes. A staggering report from ProPublica shows that between 2014 and 2018, Warren Buffett, Jeff Bezos, Michael Bloomberg, and Elon Musk paid between 0.1 percent and 3.27 percent on the overall increase in value of their fortunes, largely because under current law capital gains are not taxed until they are sold or transferred.

In response, a lot of billionaire apologists have condescendingly explained that this is all no big deal and critics should shut up. This "was the worst thing I've ever read by ProPublica, and a real contender for the worst thing I've read so far in 2021 from a credible outlet," writes Jeremy Arnold in his Saving Journalism newsletter. At Reason, Andrew Moylan and Andrew Wilford accused ProPublica of deceiving the public in the "service of the grand progressive campaign for higher taxes."

Such critics argue that it is impossible or undesirable to tax wealth. In reality, not only is it easily possible and good to do so, the fact that billionaires have so much wealth in the first place is the result of policy decisions that structure the economy. Government choices created billionaire wealth, and different choices could get rid of it at any time.

The first oligarch defense strategy is to assert that taxing wealth would be a big administrative pain in the neck. "Our tax system rightly does not tax growth in one's wealth until it is realized as income," write Moylan and Wilford. "After all, the alternative is a monstrously complex and unfair system of wealth taxation that developed countries have avoided."

This is wrong on multiple levels. First of all, most middle-class Americans already have to pay a wealth tax in the form of property taxes, imposed at the state and local level. These account for about 12 percent of total American tax revenue (though rates vary widely between states) — which is actually about twice the average of OECD nations. Second, several countries have wealth taxes today, or have had them in the past. Today in the OECD, Colombia, France, Norway, Switzerland, and Spain have some kind of net wealth tax, and seven more countries had them previously.

The decline of wealth taxes in Europe ties into a second oligarch defense: that such taxes decrease growth by inhibiting investment. "Taxpayers with a high net worth would be encouraged to consume their wealth instead of using it productively, depriving the federal government of revenue and reducing economic growth," argue Erica York and Garrett Watson at the Tax Foundation. That is indeed what neoliberal economic theory says, but there is no good empirical evidence for this.

As economist Thomas Piketty points out, when wealth taxes (and taxes of all kinds) were higher and more common, growth rates were higher, not lower. As I have previously argued, there is an overwhelming case that the limiting factor on growth since 2008 at least has been insufficient demand, not insufficiently-generous incentives for investment. The economy has been stuck in a mild depression for well over a decade now because most people have had far too little disposable income. It follows that hiking taxes on the rich will tend to provide an economic boost by putting resources back in circulation.

As a matter of history, countries that have axed their wealth taxes did so because of beggar-thy-neighbor tax competition from other countries, and/or corruption. Conservatives or neoliberals came to power (like Fredrik Reinfeldt in Sweden, or Emanuel Macron in France) and cut wealth taxes to give the rich more money, growth be hanged. This is why very few of these growth worriers reconsidered their views when the 2010s saw the worst economic performance since the 1930s, despite very low taxes on corporations and wealth.

So a progressive wealth tax would be both fair and easy to set up. As economists Gabriel Zucman and Emmanuel Saez explain in their book The Triumph of Injustice, you just need a big wealth registry that is kept up to date. They calculate that about 80 percent of the financial assets owned by the top 0.1 percent are in the form of stocks, bonds, real estate, and other things that have a well-established market value. Most of the rest is in other assets that may not be easy to buy, but are still transacted occasionally, which establishes a price. Other methods of value estimation could be set up on the small remainder.

With that information, it would be straightforward to levy a progressive annual tax on wealth, net of debt. Piketty suggests a rate of 0.1 percent for those with half the amount of median wealth, escalating to 10 percent at 100 times the average wealth and 90 percent at 10,000 times. The point would be to raise revenue but also to break up the largest fortunes. Incidentally, this would be a large improvement on the badly outdated American-style property tax, which has barely been changed since the 18th century. In most U.S. states, property owners have to pay a tax on the whole value of the property no matter how much equity they have built up. When someone has just bought a home and hasn't paid off much of the debt, they can end up paying an effective wealth tax of 50 percent or more, while older, wealthier people who have already paid off their mortgage contribute much less relative to their ability to pay. A progressive tax on all wealth would be much fairer, cleaner, and more efficient.

The third oligarch defense strategy is to portray wealth ownership as something that is natural and somehow metaphysically distinct from income. Of course Bezos didn't pay much tax while his wealth hoard increased in value by tens of billions of dollars, the argument goes, because he didn't make any income.

This the worst argument of the lot. Income and wealth are political constructs that at bottom are similar — they entitle someone to command over material resources. And since they are constructs, the powerful can easily jigger them around. Oligarchs do this both indirectly, by pressuring the political system to lower taxes on the kinds of economic power they have (usually shares in particular firms), and directly, by restructuring companies away from wages to workers and towards share buybacks that inflate the value of their own assets. Then they can and do borrow against that wealth for their current consumption, like for example to purchase gigantic mansions with 25 bathrooms or mega-yachts.

But if oligarchs can rig the economy for their own benefit, in principle it could easily be un-rigged. For instance, if Amazon workers were unionized, and that union owned a big chunk of Amazon shares, and corporate law stipulated that workers got to elect half the seats on the Amazon board, Jeff Bezos would be worth a small fraction of what he is today. His Smaug-esque wealth mountain reflects political power: namely, dictatorial control over a huge company. Taxes on the ultra-rich would reduce that power, but so would other reforms to grant workers a share in the profits they help produce, and a say in the management decisions of the company. There is nothing inevitable about oligarchy.

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