To Reduce Inequality, Tax Wealth, Not Income

Picture: Kriplozoik (CC)

Disinfonauts have known about this idea for quite some time.  And the idea was floated by the floundering Lib Dem Party leader in Britain earlier this year.  But only just now does it seem to be gaining traction in the mainstream American press.  By Daniel Altman in the New York Times:

 WHETHER you’re in the 99 percent, the 47 percent or the 1 percent, inequality in America may threaten your future. Often decried for moral or social reasons, inequality imperils the economy, too; the International Monetary Fund recently warned that high income inequality could damage a country’s long-term growth. But the real menace for our long-term prosperity is not income inequality — it’s wealth inequality, which distorts access to economic opportunities.

Wealth inequality has worsened for two decades and is now at an extreme level. Replacing the income, estate and gift taxes with a progressive wealth tax would do much more to reduce it than any other tax plan being considered in Washington.

When economists try to measure inequality, they typically focus on income, because the data are most readily accessible. But income is not always a good gauge of economic power. Consider a group of people who all have high incomes but differ widely in their wealth. Who’s going to get into the country club? Who’s going to have the money to finance a new venture? Moreover, income data may not reveal the true economic power of people who are retired, or who receive their pay in securities like stocks and options or use complex strategies to avoid taxes.

Trends in the distribution of wealth can look very different from trends in incomes, because wealth is a measure of accumulated assets, not a flow over time. High earners add much more to their wealth every year than low earners. Over time, wealth inequality rises even as income inequality stays the same, and wealth inequality eventually becomes much more severe.

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  • Liam_McGonagle

    I realize that this is currently not a very popular option for the American people, for the following reasons:

    1. The vast majority of individuals will never hit the minimum threshhold subject to this tax, and therefore incur $0 liability. It would be humiliating for them to admit they are no better than 99% of the people around them.

    2. Your typical Americans are so stupid that they probably do not realize that their paltry asset level wouldn’t even register on this tax’s scales, so they’d still be angry about their perceived yet nonexistant liability under it.

    3. A shrinking, yet still significant number of people still believe in supply-side economics, whereby it’s possible to have a viable company with a small number of wealthy investors but absolutely no customer base.

    Still, baby steps and all that. One day even the most algebraically challenged American is likely to hit upon the notion that you don’t cure a deficit by throwing away revenue.

    • asshurtmacfags

      How do you change that though? There’s a large percentage of the population who have been tricked and believe they’re among the “elite”. Seems like an ego issue that probably won’t go away until we’re all naked and homeless and by then it will be too late to take corrective measures.

      • Liam_McGonagle

        I don’t figure I can change it. I think it is just as you seem to imply a very gradual cultural shift that won’t occur until we’ve all suffered horribly. It isn’t accomplished with impeccable logic or dazzling charm or animal cunning–only by the slow, steady drip of society’s collective experience. Media exposure is but one necessary yet insufficient precondition.

  • asshurtmacfags

    I’m more of a fan of a maximum wage. I am not saying you can’t be rich, excellence needs to be rewarded, but no one is worth hundreds of millions/billions. That kind of hording of wealth is a threat to democracy. Maybe with that we can achieve balance, ceo still makes more than his workers, but he/she shares the wealth and everyone can lead a comfortable existence without living check to check.

    • jimbo jones

      That’s a very good idea which deserves much attention. It was widely popularized in the ’30s by the influential Louisiana Governor and Senator Huey Long, and the popular radio commentator Father Coughlin. Long was, naturally, shot by a “lone shooter.”
      http://www.ssa.gov/history/longsen.html

      You need a wealth cap on top of the wage cap in order to prevent ultra-successful entrepreneurs (who get profits not wages) from owning the universe. Bravo to the entrepreneurs, but they can’t be allowed to get into a position in which they can literally BUY governments… Or there is no “democracy,” just a new form of feudalism.

      Two other important ideas whose time has come (yet again, for the conundrum of our age has been faced before) are: 1) moratoria and repudiation of onerous/ gambling debts on a massive scale; and 2) the serious and responsible involvement of sovereign governments in crucial economic matters. For example, there’s nothing to stop governments – and particularly the mighty US government – from printing interest-free money to build housing to be sold through interest-free mortgages. I’m not hot on (say, Fabian) “socialism” or “communism,” but there is a distinction between those two and the responsibility of a republican government to its people. If the US government can take care of the people’s defense, then it can make sure Americans have easy access to such necessities of life as food, shelter, and fuel. Let the free market reign supreme when it comes to iPods and potato chips and whatever… But people have to eat and have shelter!

      Moreover, there’s nothing to prevent the US government from starting its own oil company and digging left and right and becoming the biggest oil company in the world in 5 years – except of course the vested private oil interests which have dominated the self-same government for the past century. If the US were to pocket the profits of its own oil company, it could heavily slash taxes, and it could pay the debt. How do we know? From the experience of, say, Libya.

      The current economic crisis is fundamentally not a physical but a political problem. Given enough political will and a modicum of economic sophistication, we can get out of this thing in 5 years… That’s what’s so grating about the entire affair.

    • Matt Staggs

      Maybe people should “Prestige” when they reach maximum wealth, kind of like “Call of Duty”: http://callofduty.wikia.com/wiki/Prestige_Mode

  • BuzzCoastin

    artificially created values creates inequity as a side-effect
    guaranteeing everyone the modern necessities for life
    would go a long way to balancing the consequences of abstracted values

  • Liam_McGonagle

    Ireland’s Sinn Fein Party jumps on board:

    “We propose a 1 per cent wealth tax on net wealth in excess of €1 million, excluding business assets, working farms, pension pots and 20 per cent of the family home.”

    http://www.irishtimes.com/newspaper/breaking/2012/1120/breaking34.html

  • vivian maloney

    yes!

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