Most Americans pay an annual wealth tax on their largest asset. This is called the property tax. Each year they pay an amount equal to a small percentage of their home’s estimated value, and a home is by far the most valuable item most families own.
The very rich are different. Although they also pay property taxes, their homes tend to represent a tiny fraction of their equity. Most of their assets are not taxed.
In recent decades, other taxes – such as corporate income tax (the burden of which falls on shareholders) and inheritance tax – have served almost de facto as wealth taxes. But these other taxes have come down, bringing down the total federal tax rate on the rich:
Over the same period, wealth inequalities have increased:
Today, the rich both own a much larger share of the country’s assets than they once did and pay less tax on every dollar of assets. This combination creates problems for everyone. Many Americans have only modest assets, and the federal government struggles to raise enough tax revenue to cover societal needs, such as education, health care, transportation, scientific research, and the military.
This week, Democratic Senate leaders came up with a solution, in the form of a new type of wealth tax. People with a net worth of at least $ 1 billion or an annual income of $ 100 million would be taxed each year on increasing the value of many of their assets.
The fate of this specific tax is uncertain, after Senator Joe Manchin expressed his skepticism about it yesterday. But wealth taxes – which also featured in the 2020 Democratic presidential campaign – will likely be part of the political debate for years to come, given the country’s level of inequality.
Today I want to assess the most common objections to wealth tax. Some are stronger than others.
1. They will destroy the economy
This is probably the weakest empirical argument against a wealth tax. It’s a version of the same case that opponents of tax hikes on the rich always do. And he has a very poor historical record.
When taxes on the rich were much higher than they are today, in the decades following World War II, the economy exploded. Since the 1980s, premium taxes have fallen and the US economy has struggled: economic growth, most people’s incomes, and other measures of well-being (such as life expectancy) have stagnated since the 1980s. An exception was the 1990s – after Bill Clinton raised income taxes for the rich as well as corporate taxes.
It is difficult to determine the causes and effects of these problems. But there is no strong evidence that low taxes on the rich help the economy as a whole.
2. They are doomed to failure
Part of this argument also has little supporting evidence, while another is more questionable.
The weaker party claims that the rich will find a way to avoid all the effects of a tax increase. This too is historically inaccurate. When the federal government raised tax rates for the rich, tax payments by the rich increased.
“A lot of people think that nothing can be done,” Gabriel Zucman, an economist at the University of California at Berkeley, told me. “That’s wrong. Look at the story.
Here’s another way to think about it: If the very rich could actually avoid the effects of tax hikes, they probably wouldn’t spend as much money and effort trying to defeat the proposed tax hikes.
The more serious argument is that creating a new wealth tax would be logistically more difficult than increasing existing taxes, such as inheritance tax, corporate tax or income tax. (Arizona Senator Kyrsten Sinema and nearly all Republicans are clearly opposed to many of these other increases, making them unviable and prompting some Democrats to shift their attention to the fortune.)
A new wealth tax would force federal officials to do something new: estimate the value of assets each year. They should also decide which ones are subject to tax. Many experts consider these challenges to be surmountable, but other countries have sometimes struggled with the details.
3. They are unconstitutional
The federal government has the power to tax revenues, thanks to the 16th Amendment. It is less clear how much wealth the federal government can tax.
The tax code already includes some provisions similar to a wealth tax, such as a tax on mutual funds based on their current value. Yet the power to decide constitutional limits rests with the Supreme Court. Under Chief Justice John Roberts, the court was favorable to the interests of the wealthy. The Roberts court has also been aggressive at times to quash Congress.
Even if the court overturns the wealth tax, other parts of the Democrats’ bill – the expansion of health care, education and clean energy – could survive, said Jonathan Chait of the New York magazine.
The bottom line
A wealth tax is legally and logistically riskier than an increase in existing taxes. But it also has advantages that these other taxes do not have. It directly addresses the huge increase in wealth inequalities over the past decades.
Unless the federal government takes action to reverse this increase – through existing taxes or new taxes – economic inequality in the United States will almost certainly remain close to its current levels, similar to those of the age of d ‘gold.
More from the Congress:
Democrats are likely to remove a national paid family leave program from President Biden’s spending bill after Manchin opposed it. The United States is one of six countries without such a program.
Lawmakers attempt to rewrite the tax code in days, a process that typically takes months or years.
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ARTS AND IDEAS
Atlanta, heartbreaking city
Atlanta sports fans have arguably endured a more frustrating 21st century than fans of any other American city.
Yes, his Major League Soccer team won a championship, in 2018. But neither the Atlanta NBA team, nor his WNBA team nor his NFL team have won a title, in a century. Baseball’s Atlanta Braves haven’t won a World Series in 26 years, and top varsity teams have struggled as well. The NHL hockey team left town in 2011.
“The inferiority of Atlanta’s sports teams is nothing short of astonishing,” Atlanta native Ben Bussard wrote 13 years ago – and there are many losses – in Bleacher Report. Bussard noted that the rap song “Welcome to Atlanta”, by Jermaine Dupri and Ludacris, managed to celebrate the city without mentioning its sports teams.
But now Atlanta has a chance to change history. The Braves made the World Series, with an underdog team that overcame injuries. They lost to the Houston Astros last night, and the best-of-seven series is now tied at one game apiece. Atlanta is three wins away from a very rare celebration.
PLAY, WATCH, EAT
What to cook
This party-sized vegetarian “sausage roll” is inspired by potato and pea-filled samosas.
What to read
Molly Young gives a rave review of Gary Shteyngart’s “Our Country Friends”, calling it “the only pandemic-era textual artifact I would place in a time capsule.”
What to watch
“Baby Driver” director Edgar Wright talks about his new thriller, “Last Night in Soho”, which explores the darker side of 1960s London.
Late at night
The hosts talked about taxing the richest from the rich.