Warren’s Tax on Wealth [Greed] Would Correct Big Deficiency in Tax System
Sen. Elizabeth Warren’s recently proposed tax on “ultra-millionaires” gets at the real cause of our nation’s destabilizing economic inequality: the wealth gap. She would correct a blaring deficiency in our current tax system with a wealth tax on the super-rich, placing an annual 2% tax on fortunes over $50 million, and 3% on wealth above a billion dollars.
Warren’s wealth tax, we call it a greed tax, would raise almost $3 trillion over 10 years, a lot of money we could use to create opportunities — in education, improved health, repaired infrastructure — for all those hard-working Americans who’ll never be rich. At the same time, it would narrow the yawning canyon between the economic aristocracy and everyone else, a broad rupture in society that threatens our political democracy.
Most people know income (what you make each year) is distributed unevenly across the population. But many don’t realize that wealth (what you own, minus what you owe) is even more highly concentrated among the lucky few. The top 1% get one-fifth of the income, but they own over two-fifths of the wealth.
Look farther up the money ladder, and the imbalance gets dizzying. America’s 400 richest families own as much as the lower two-thirds. Just three men — Jeff Bezos, Warren Buffett and Bill Gates — are worth as much as the whole bottom half of society.
Taxes are supposed to smooth out gross distortions like that, in addition to raising public revenue. The problem is that while our country’s bigger inequality crisis centers on wealth, most revenue is raised by taxing income. And because the super wealthy often have taxable incomes that are modest compared to their wealth, the income tax is the wrong tool for restoring any semblance of economic balance.
Buffett, for example, is estimated to be worth some $87 billion. But in 2015 he had “just” $11.5 million in income, on which he paid $1.8 million in income taxes. Crazy big numbers, to be sure, but the upshot is that he paid only about 0.02% of his net worth in taxes that year.
Middle-class families pay a much higher share of their wealth each year. Median household net worth is about $82,000. The average American federal tax bill is about $8,400. That works out to about 10% of net worth — 500 times more than Buffett pays.
The trick is that compared to those who work for a living — even highly paid professionals — the independently wealthy have much more control over how much taxable income they receive each year, and thus how much they pay in income taxes. They can expand or shrink their taxable income at will, depending largely on what assets they sell or keep.
There’s nothing revolutionary about taxing wealth. Every homeowner pays a tax on part of her wealth — usually the biggest part — every year through local real estate taxes. Moreover, the successful tax assessment process that estimates home values for the purpose of property taxes refutes one of the phony arguments raised against a wealth tax: that unlike income, it’s hard to count wealth. Besides, the rich hold a much larger share of their wealth in publicly traded stock and bonds whose price is determined every day.
On reflection, you can identify at least one upside to our country’s hyper concentration of wealth: all that money Warren’s wealth tax raises would come from just 75,000 households. And they’ll never miss it.