Vive la Révolution: The Case for Reformed Taxes on America’s Elite
The period between 1787 and 1799 in France saw the violent overthrow of the Ancien Regime, the existing monarchy and political structure. Though not the whole reason, the ridiculously grotesque distribution of wealth was a pivotal cause for revolt and should have been cause for concern among the French aristocracy. The Third Estate, which consisted of peasants and townspeople, a whopping ninety-eight percent of the population, was subjected to a direct tax called the taille. On the other hand, the nobility and the clergy who comprised the remaining two percent paid zero tailles. The inevitable outcome was an unthinkably bloody and horrific revolution that even the U.S. couldn’t justify supporting. Although no sensible person will dare assert that a revolution could and would unfold in present times on the basis of unjust wealth distribution alone, it’s worth noting that the wealth distribution of pre-revolutionary France is eerily similar to that of the U.S. today, as evidenced in the picture above. No surprise there. After all, more billionaires walk the earth right now than at any other given point in human history.
The distribution of wealth that the U.S. stands witness to is a grave concern behind which there is no shortage of bone-chilling statistics. For instance, the latest DFA (Distributional Financial Account) reveals that the top 1% of Americans are worth about $36.18 trillion, roughly a third of all U.S. household wealth, whereas the bottom half lays claim to a mere $2.36 trillion, about 2 percent of all wealth. Even more distressing is the fact that when many of our institutions and businesses have been ground to a halt by the dreaded COVID-19 pandemic, the billionaires of the world have added a colossal sum of $1 trillion to their combined net worth. This is a dark time during which millions of Americans are struggling to pay their rent and feed their families, oppressed through no fault of their own by an unemployment crisis. April of last year saw the national unemployment rate reach 14.7%, the highest it’s been since the Great Depression, when it was over 25%. The morbid unemployment rates also mean that as many as 12 million Americans have had their health insurance taken away since February of last year, according to the Economic Policy Institute.
Although the ever-expanding gulf between the rich and poor has always been part of the political dialogue, during a pandemic that has seen men like Elon Musk and Jeff Bezos accumulate their wealth to record-breaking heights while Americans suffer, there is a growing call to raise taxes on the rich as well as reform the tax code broadly. It’s worth examining the facts and figures behind that desperate plea for and by the working class.
Pertaining to the answer to that plea is the question of whether the elite are in actuality paying their fair share of taxes or if the rest of us are forced to pick up the tab. The answer tends to the latter. Let’s start with the federal income tax, which is meant to be progressive. This in essence just means higher rates for higher income brackets. This nature of the marginal tax rates has for decades kept the income divide under control and public services on which the American people are reliant widely accessible. But the frightening and outrageous reality today is that average American families are frequently paying more taxes than billionaires and multi-millionaires. For instance, the numerous taxes based on wage and salary paid by Americans are higher than the federal taxes on investment income. At the moment, the maximum rate for income from work is 37% whereas the top statutory tax rate on investment income is at 20%. This is incredibly problematic because a vast portion of the income of billionaires like Warren Buffet come from their investments. As a matter of fact, a study from the nonpartisan Tax Policy Center found that the higher up one navigates the income ladder, the more of those shares come from capital gains; this is one form of investment income alongside interest payments, dividends, and so forth. Many then propose that capital gains tax rates as well as dividends should equal rates on wages and salaries, noting that the aforementioned loophole loses trillions of dollars over decades. However, doing this might be problematic since capital gains are also voluntary. The rich could simply choose to sell their businesses or assets and take the gain prior to the implemented tax rate if the government decided to raise the capital gains tax. The expected but unwanted result is lower revenue from the capital gains tax.
Still, there are even more ways the rich avoid their fair share, like loopholes around inheritance taxes through which they pay almost nothing. A loophole known as the “stepped-up basis” tax break motivates the elite to convert most of their income into capital gains and cling to their assets until they die. This means that their heirs would receive these assets tax-free. If the value of the estate is higher than a certain range, these beneficiaries could be forced to pay the estates tax. But that threshold has been increased significantly by the Tax Cuts and Jobs Act of 2017 (TCJA) to $11.18 million for singles and $22.36 million for couples for 2018 through 2025, at which point Congress could restore it to its original amount. Closing this loophole would gain Uncle Sam about $650 billion in a decade.
Another loophole is the infamous Wall Street carried interest loop, which allows for the miscategorization of the compensation received by hedge fund and private equity managers for managing other people’s finances. They pay the 20% capital gains tax rate in place of the greater income tax rate by classifying what is really their salaries as investment income. This is nothing short of an economic travesty since they’re paying at a lower rate than many of our firefighters, teachers, and nurses. This loophole remains untouched thanks to relentless Wall Street lobbying amid Congressional negotiations three years ago.
These are just a couple of the myriad of ways the rich cleverly manipulate the tax code to their self-interest and to the detriment of the government’s ability to maintain essential public services like hospitals, roads, police, and schools. Who knows how many of these loopholes are responsible for outgoing President Trump’s paid federal income taxes? The self-proclaimed billionaire president, the New York Times found, paid only $750 the year he was elected to office and the same amount in his first year in the White House.
Putting aside the fact that the ultra-rich are clearly not paying their fair share, others still point out what they believe are dangers in targeting these wealthy individuals and families. Aside from the usual paranoid and delusional fears about how taxing the rich is nascent socialism, the case against taxing the rich more comes from a place of misguided admiration. In the realm of pop-culture and media, we have an evident penchant for worshipping accomplished individuals like Warren Buffett and Elon Musk. Think Tony Stark, our favorite genius, billionaire, playboy, philanthropist. Think Jeff Bezos who in the span of a little more than my age transformed Amazon from a small portion of his garage into a billion-dollar behemoth employing roughly 600,000 people. Besides creating jobs and donating magnanimously to humanitarian causes, billionaires and their stories become inspiring tales of the American Dream, an informal proof that sacrifice gets us somewhere better in life. We lose our breath celebrating their innovative products and endlessly lionized company decisions but they, through no individual fault, embody one of the economic conditions we ought to actively oppose and minimize: inequality. Our surging rates of income inequality, which have been on the rise for the last 40 years, will likely remain or even increase long after the pandemic is merely a distant, unwanted memory. But others don’t find inequality too troubling, clinging to their old and rusty arguments about the importance of rewarding innovation.
How could anyone, including I, argue against that importance when the apps, cars, appliances, devices, and so forth around us are made possible by the towering ingenuity and hard work of tech billionaires past and present? It’s indisputable that much of our standard of living, particularly technology, is forged by the fire of great thinkers and visionaries. How could we turn around and try to go after their fortune? What message does that send to those who are trying to get to those upper echelons, to those working at it every single day to make it?
Through tax increases and significant reform, we’d be ensuring that billionaires’ fair share is being paid. More importantly, we’d be combating a scale of inequality so extreme it warrants being called iniquitous. Let’s turn back to the argument about disincentivizing innovation. What is the value of innovation? According to Quartz, a full time worker in 2018 earned an average of $46,800. Spending no money on anything, including food, shelter and whatever else essential, this individual would need to work for 21,000 years to reach $1 billion and approximately 4.3 million years to achieve the current net worth of Tesla founder and the world’s richest person, Elon Musk. Needless to say, no one’s ideas, work ethic, or vision can possibly be worth millions of years of someone else’s labor.
There is also much to be investigated and concluded regarding whether or not billionaires engage in unscrupulous business practices like underpaying or overworking staff, exporting jobs, stifling competition, etc. in order to maximize profits and attain their jaw-dropping wealth. Sometimes we’re tempted to assume with a morbid fascination that these highly motivated individuals embody a “dog eat dog” mentality akin to the adage: “the ends justify the means.” After all, according to those in support of inequality as a byproduct of competitive industries, it’s that drive that sets someone apart from the others. Whether or not this is true and drives them to engage in morally compromised business practices fundamentally affects the question of them deserving their mountains of affluence. For example, the world’s second richest person, Jeff Bezos, has continuously been under fire for workplace safety issues and poor pay. In 2018 and 2019, the Bezos behemoth supply company earned a spot on the National Council for Occupational Safety and Health’s “Dirty Dozen”, a list of the nation’s most dangerous employers. This handful of companies gained infamy for their records of safety violations, worker deaths, health complications, and even sexual harassment. Amazon specifically is reportedly plagued by, among other disturbing aspects, overworked employees peeing in bottles to avoid punishment and gross maltreatment of contract and temporary workers.
Another standpoint through which we can justify the redistribution of wealth from the rich to the poor is a systematic, easily understood and accepted philosophy of justice called utilitarianism. The 18th century school of thought identifies happiness as the greatest ‘good’ and accordingly, the moral action as that which generates the greatest happiness for the largest number of people. Look at the fact that societies in general have better social outcomes when we reduce income inequality. Epidemiologists Richard Wilkinson and Kate Pickett published a book called The Inner Level that has garnered praise across the political spectrum. According to the latter, it addresses “how inequality affects our intimate lives, our inner lives; our mental wellbeing, our relationships with friends and family.” Obviously, inequality is hardest on the poor but the research these professors published strongly emphasizes that unequal societies are plagued with problems concerning mental illness, drug use, and obesity while egalitarian societies enjoy more trust, better education, etc. Moreover, recall that money becomes worthless to individuals in terms of happiness as they get more. A thousand dollars to a struggling student buys a lot more happiness than a thousand dollars does for a billionaire. Reforming the tax code to ensure that we all live economically equitable lives is a mission well worth tackling on the way to utilitarian justice.
Perhaps nearly moved by all this, others might still reach for a “last line of defense,” a wild card in their pocket, a final attempt to cling to their corner in the form of an argument they believe slices through all this talk of lofty ideals with the keen sense of pragmatism this country desperately needs. This being that income inequality is a necessary evil, the unavoidable friction to which the gears and cogs of the economic machine owe their natural inefficiency. A built-in feature of vibrant capitalism. They fiercely assert that billionaires create thousands of jobs and stimulate economic growth so targeting them through taxes would be a surefire way to bring us all down. In truth, economic inequality imperils economic growth, according to the Organisation for Economic Co-operation and Development (OECD). The general means through which this occurs is that inequality undermines educational opportunities for poor children, which in turn means they grow up to be less productive workers with lower wages. They then fail to participate in the economy, invariably hurting the pockets of the rich who largely own retail or manufacturing companies and therefore depend on the masses to afford the goods and services they’re selling. On the fifth of January 1914, Henry Ford, founder of the Ford Motor Company, instituted a $5-a-day wage. It may not seem it but this made front page national news at the time, as it was double the typical pay within the industry. Despite hopeful thinking, Henry Ford didn’t do this out of generosity but rather his motivation for more of his employees to be able to afford the Model T and drive up sales.
Given all these arguments from various directions, the most compelling argument for me remains a moral one. Are we comfortable with a society wherein someone can own an entire island, a land mass so large that it would be historically in possession by a country, something a nation typically colonized? At the same time, we have people sleeping in cars, others forced into homeless shelters and the streets. What kind of society do we want to live in, our children to grow up in? When human beings just like us are dying because they can’t afford to pay insulin and losing teeth because they can’t afford a visit to the doctor’s office, how could we not seethe in discontent every time our screens are populated with headlines of billionaires amassing outlandish wealth? How could we look our own teenagers in the eyes and tell them they live in a fair and just world when they may very well be saddled with crippling college debt in a decade’s time while the elite are mindlessly purchasing million dollar paintings and luxury cruise ships? How could we tell them of the miraculous effects of the free market or the indelible promise of the American Dream when most of America’s wealth is being hoarded by an affluent minority whose finances conveniently come with unimaginable political influence? If the government fails to perform its duties in the tax interests of the people, then these are contradictions that will beset our conscience as Americans, as human beings whose capacity for compassion for others supposedly supersedes self-interest and ignorance.
Though violent in its execution and merciless against the shocked and thereafter headless French aristocrats, the French Revolution led to a limited but significant range of positive results. The clergy (Second Estate) lost their distinct consideration, corporate standing, and privileges while the nobility lost their formal identity and their fiscal and juridical privileges in 1789. The National Assembly even destroyed their titles the subsequent year. The magnificent properties of those fortunate enough to flee in time either fell to the hands of the common people or became national properties — biens nationaux “placed at the disposal of the state.” Though bound up in overwhelming unnecessary and unconscionable violence, the revolution dealt a blow to the dominating cake-eating plutocracy, a decisive symbolic and material victory for the starving Third Estate who yearned for a more equal distribution of wealth and power. Today, the victory of the working class American people over similarly crushing inequality lies simply in getting their voices heard, pushing for comprehensive and moralistic tax legislation that works for everyone, including the rich. No guillotine or rolling heads necessary for distributive justice to prevail. Instead, the passage of reform that will eradicate the loopholes the rich exploit to nefariously avoid their fiscal responsibilities as citizens. Sensible changes that will preserve innovation while averting a foreseeable societal division on the basis of dynastic, hoarded wealth untouched and uncultivated by the talents and sacrifices of hopeful underdogs who haven’t quite made it yet. Resources that could be used to maintain public services and interests on which everyone depends, such as social security, national defense, etc. Not to mention, greater tax revenue will be of utmost necessity in strengthening major health programs like Medicaid, especially as the population ages and the number of retirees burgeons.
With the House and Senate under Democratic majorities and the swiftly approaching inauguration of president-elect Joe Biden on the 20th of this month, the winter skies are looking hopeful for the working class of America, especially during these trialling times. Biden’s proposed tax plan marks a significant departure from the tax cuts and policies imposed by the Trump administration. Among other provisions, the federal income tax rate would be raised slightly from 37% to 39.6% pre-Trump, the corporate tax rate would increase by 7% to 28%, and the estate tax exemption would be cut in half. These are some ambitious but urgently needed solutions to many of the problems and loopholes outlined above. Not all social revolutions are grounded in terror; some are driven by the sacred wheels of democracy and a profound understanding of the economics underneath the crisis facing the American people.
Sources:
https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:0;series:Net%20
worth;demographic:networth;population:1,3,5,7;units:levels;range:2005.3,2020.3
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https://cbo.gov/sites/default/files/cbofiles/attachments/43768_DistributionTaxExpenditures.pdf
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