Posts © 2011-2012 by Gerald G. Day







Sunday, February 17, 2019


February 17, 2019
    There are two strong, dangerous trends today, climate change and the concentration of wealth.   Let’s look at the latter issue.
    The usual way to limit the accumulation of large fortunes is through taxation.  An automatic reaction from the right is to claim that high taxes will stunt growth.  That complaint is based on the notion that those receiving high income will invest and drive the economy, to everyone’s benefit.  If that trickle-down theory needed further debunking, the recent tax cuts provided it: much of the additional net income went to dividends and stock repurchases, further enriching the wealthy.
    The other standard response on the right is that redistribution is ethically wrong, but redistribution upward somehow isn’t included in the ban.  That attitude is, unfortunately, an American tradition.  Cordell Hull, who advocated income and estate taxes in the early twentieth century, put it this way: "An irrepressible conflict has been waged for thousands of years between the strong and the weak, the former always striving to heap the chief tax burdens upon the latter."
    There is no plausible reason that the wealthy should not pay more: more than they have recently and more proportionately than those less well off.  That is not punitive.  As Hull put it, “I have no disposition to tax wealth unnecessarily or unjustly, but I do believe that the wealth of the country should bear its just share of the burden of taxation and that it should not be permitted to shirk that duty. . . .[T]he chief burdens of government have long been borne by those least able to bear them, while accumulated wealth has enjoyed the protection and other blessings of the Government and thus far escaped most of its accompanying burdens.''[19]  That lesson, from a century ago, has been forgotten.
    Economic inequality is not simply an offense against fairness, it is a negative force.  Democracy is in peril because, among other reasons, wide economic divisions destroy any sense of our being in it together; wildly uneven distribution of wealth creates separate societies and separate political priorities.  Instead of the divisive “nationalism” of MAGA, we need a true national bond. 
    Can anything be done?   Elizabeth Warren has proposed a wealth tax.  In her formulation, it would be a yearly tax of 2% on household net worth above $50 million,  3% on net worth above $1 billion. My first reaction was negative; we should tax income, not property. 
    There are legitimate arguments in favor of a wealth tax.  One is that it would discourage the growth of family dynasties, but that can be addressed by restoring the estate tax to reasonable levels.  A better argument is that inequality in wealth has grown, in part because income and estate taxes have been slashed, and only a wealth tax will address that problem.  That there is huge and growing inequality is undeniable, as is its negative effect.
     However, I think that a wealth tax would be unmanageable.  It would require valuing a myriad of assets — annually — many of which have no realistic market value, such as art works, and it would be easy to avoid by, for example, splitting family assets into units falling below the tax threshold, assigning those units to various family members or other nominees.  There also is some concern that a wealth tax would be unconstitutional.
    A better plan is to overhaul the income and estate tax codes, raising rates and eliminating the lower income tax rate for capital gains, which are a vehicle for the rich to get richer.

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19. Hull quotes are at http://www.taxhistory.org/thp/readings.nsf/ArtWeb/F6769F770B0FC 289852 5803700432EE1?Open Document   (53 Cong. Rec. 10652)  

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