Taming Capital? - Part 1
- Bill Barclay, CPEG and Ventura DSA
The midterms have not simply given the Democratic Party a majority in the House; they have visibly expanded the range of political discourse, the so called "Overton Window". This impact is particularly marked in terms of the issue of economic inequality. In the past few weeks, three major progressive - perhaps even socialist? - initiatives have been proposed. In chronological order, these are Elizabeth Warren's wealth tax, Bernie Sanders changes to the Estate Tax, and HR 1000, guaranteeing a job to all willing and able to work, a true "right-to-work." Each treads on what has been seen by the right as the prerogatives of capital. For those of us on the left, each raises the question of to what extent it is possible to intervene in the market allocation of wealth and income in a capitalist political economy, perhaps even altering the dynamics of capital accumulation and use the resulting revenues for social rather than private ends.
In this first post I'll look at Warren's for a wealth tax. The next two posts will analyze Sanders Estate Tax revisions and then HR 1000.
An Annual Tax on Wealth: Elizabeth Warren
Because it is unique in U.S. political discourse - and probably doomed whatever small chance she had of being the Democratic nominee for president - Warren's wealth tax proposal
could be considered the most radical of the three. The idea behind the proposal is conceptually simple: she calls for an annual tax on wealth with two rates: 2% on household wealth over $50 million and less than $1 billion and 3% on wealth over $1 billion. This is an unprecedented proposal for a nationally known political figure, because it places wealth, rather than income, at the center of the problem of extreme and growing inequality in the U.S.
There are several things to like about Warren's proposal.
(1) First, it includes all wealth; there are no loopholes, a frequent flaw in wealth taxes found in other countries. Households subject to the tax would pay their 2 or 3 percent on their invested capital such as stocks, bonds, and private business holdings and also on their non-productive capital such as yachts and $100 million penthouses in NYC. This would likely reduce the rate of private capital accumulation; however, since evidence suggests that the rate of return to high wealth holders exceeds that for most investors, large fortunes could continue to grow, although more slowly, and investments continue to be made. I'll return to the question of how to significantly reduce the largest aggregations of wealth once in lifetime in my discussion of Sanders Estate Tax proposals.
(2) One obvious and important benefit from Warren's wealth tax is the impact it would have on economic inequality. The wealth share of the top 0.1% has tripled since 1978, from about 7% to 22%. Increased concentration of wealth in turn drives the growth of income inequality. Seeking to address income inequality through progressive taxation alone is Sisyphean labor: we try to meliorate some of the worst aspects of gross inequality by setting higher tax rates but the underlying wealth dynamic recreates the extreme income inequality. This is especially marked at the top since, as Thomas Piketty argued, the returns to wealth, particularly large aggregations of wealth, have been higher than the overall growth of the economy.
(3) Warren's wealth tax is also interesting from the perspective of the racial economic inequality. While the median white/African-American family income gap is 1.4:1 and the white/Latinx is 1.7:1, the wealth gaps are 40: 1 and 22:1, respectively. The racial wealth gap is much more resistant to tax, minimum wage and other progressive economic policies than is the racial income gap.
(4) Estimates for the revenue raised are in the range of 1% of US GDP, or $200 - $250 billion - annually. About 75,000 households, less than 0.1% of the U.S. total, would be subject to the tax. These households would end up with a tax incidence of about 4.3% on their total wealth rather than the current 3.2%; this still leaves them under taxed in comparison with the 7.5% tax rate on total wealth for the population at large.
(5) Finally, Warren’s proposal, like the property tax, is an annual levy, unlike the Estate Tax spearheaded by TDR. An annual wealth tax would establish the idea that “private” capital can be taken for public purposes. It is this "invasion" of the prerogatives of capital that has provoked squeals of outrage from billionaires across the board, from the Koch brothers to Michael Bloomberg. It is also embodies Warren's argument that entrepreneurial success is not the result simply of individual talent and ability but is in large part the outcome of social institutions, from the educational system to the rules governing property. Thus all of us should share in that success - her wealth tax would be a significant step in that direction.
I'm not going to discuss the question of whether a more graduated set of rates would be preferable. This is an essay on the concepts rather than the specifics of the proposals.
In 2000, Donald Trump proposed a one-time tax on wealth holdings of over $10 million to pay down the federal debt. One could perhaps also point to Upton Sinclair's EPIC campaign (1934) since part of the program was to take over idle factories and land if the owner failed to pay taxes.
Whatever the theoretical merits of Piketty's argument that the relative rates of growth of wealth vs the economy is a long term economic law, it is an accurate empirical description of what has happened in recent decades in the U.S.
See http://gabriel-zucman.eu/files/saez-zucman-wealthtax-warren.pdf for the 1% of GDP estimate.