America Is OK With a Wealth Tax

The Daily Escape:

Navajo Trail, Bryce Canyon NP, UT – November 2019 photo by biochemistry_unicorn

Over the past year, progressives have made a wealth tax a central part of the policy discussions in the Democratic primary. Both Sens. Bernie Sanders and Elizabeth Warren have proposals to tax the wealth of billionaires to help pay for improvements to the social safety net and infrastructure.

Currently, the US mostly taxes individuals on the income earned from their jobs and investments. The wealth tax is different since it would tax assets like stocks, yachts, artworks, and vacation homes.

Critics of the wealth tax have made a variety of arguments against them. The most prominent that the US government couldn’t enforce them effectively. Consider this from Business Insider:

“Usually, progressives cast Europe as a model for the cradle-to-grave social benefits that nations like Norway provide because of steeper tax rates on richer citizens. But most…countries have ditched them [wealth taxes] over the last few decades.”

Twelve European countries had a wealth tax in 1990, but the number now stands at four: Spain, Switzerland, Norway, and Belgium, which just introduced a limited wealth tax of its own.

Emmanuel Saez, economist at the University of California, Berkeley, who has analyzed the Warren and Sanders wealth tax proposals, says the European wealth taxes failed because governments created many exemptions that undercut their ability to draw revenue:

“The wealth taxes in Europe have failed by and large….they didn’t raise that much revenue because of big exemptions for asset classes….”

Others argue that the super-rich already donate big amounts to charity. One of Saez’s co-authors, Gabriel Zucman, says that the annual giving of Bill Gates and Warren Buffett equates to ~3%–4% of their wealth, while the other top 20 billionaires’ giving equals ~0.3% of their wealth. Like a really tiny wealth tax. Here’s his chart:

Annual charitable giving of the top 20 richest Americans: $8.7 billion, equaling just three tenths of one percent of their wealth. For the top 400 richest Americans, their taxes paid = 1.5% of their wealth, while their charitable giving = 0.4% of their wealth.

But, the average American paid taxes equal to 5.5% of their wealth, while their charitable giving = 0.3% of their wealth. Joe Six-pack gave the same amount of his assets to charity as did the top 20 billionaires.

If Warren’s 6% wealth tax was enforced on the top 20 richest Americans above, they would pay $60 billion to support the social safety net.

Moreover, despite the nay-saying by the rich, surveys show that Warren’s 2% tax is broadly popular:

(This was an online survey of 2,672 adults conducted by the polling firm SurveyMonkey from Nov. 4 to Nov. 11)

The survey by the NYT and Survey Monkey shows that 75% of Democrats and more than half of Republicans say they approve of the idea of a 2% tax on wealth above $50 million. The proposal receives majority support among every major racial, educational and income group.

The majority of college-educated Republican men disapproved, with only 41.5% approving of it.

The NYT reports that the proposed wealth tax is even more popular than the Trump tax-cut enacted in 2017. Only 45% of Americans said the tax cut was a good move:

“The movement against the Trump tax cuts since then has been powered, oddly enough, by Republicans. They largely still back the law — by 76% over all, compared with 20% of Democrats — but that support has dropped six percentage points since April.”

The shift on the tax cut is highest among high-earning Republicans: Americans earning more than $150,000 a year are far more likely to favor a tax increase on the very wealthy than the Trump tax cuts.

America’s tax code is designed to allow massive fortunes to grow ever larger. Wealth is concentrating in a tiny segment of the population, as the middle class shrinks.

We see that even the most high-minded billionaires can’t even give money away faster than their piles of dough are growing. And when Democrats like Warren and Sanders suggest a way towards tax reform, the GOP and the conservative think-tanks condemn them as socialists who want to punish success.

Most Americans are fed up with a government and an economy that overwhelmingly benefit corporations and the rich at the expense of everyone else. A wealth tax can work if Congress doesn’t get rolled by lobbyists that demand loopholes for their clients.

Wrongo will have no trouble backing a candidate who supports a wealth tax. But, increasing the taxes on corporations and a financial transactions tax should come first.

Facebooklinkedinrss

Monday Wake Up Call – March 18, 2019

The Daily Escape:

View from Angel’s Landing, Zion NP – 2019 photo by ducc517

Sen. Elizabeth Warren (D-MA) says that she favors “capitalism with serious rules.” David Leonhardt wrote in Sunday’s NYT:

Her platform aims to reform American capitalism so that it once again works well for most American families. The recent tradition in Democratic politics has been different. It has been largely to accept that big companies are going to get bigger and do everything they can to hold down workers’ pay. The government will then try to improve things through income taxes and benefit programs.

Warren is trying to treat not just the symptoms of inequality, but the underlying disease. Warren also called for an annual wealth tax, for people with assets greater than $50 million. She has proposed a universal child-care and pre-K program. She favors tougher guidelines on future mergers, and also a breakup of the giant tech companies (Google, Facebook) that resemble monopolies.

Of the current crop of Democrats, she’s the reform capitalism candidate. But one idea that Warren hasn’t espoused is the Financial Transactions Tax, (FTT). Wrongo first wrote about a FTT in March 2013.

Sen. Brian Schatz, (D-HI) and Rep. Peter DeFazio (D-OR) introduced a tax of one-tenth-of-one-percent, or 10 basis points (100 basis points equals 1 percentage point), on securities trades, including stocks, bonds, and derivatives. The CBO estimates that the FTT would raise $777 billion over 10 years. Sens. Chris Van Hollen (D-MD), Jeff Merkley (D-OR), and Kirsten Gillibrand (D-NY) are co-sponsors of the bill.

For the math-challenged, 10 basis points on a $1,000 trade equals one dollar. Jared Bernstein says:

FTTs exist in various countries, including the UK and France, with Germany considering the tax (also, Brazil, India, South Korea, and Argentina). The UK is a particularly germane example, where an FTT has long co-existed with London’s vibrant, global financial market.

More from Bernstein: (brackets by Wrongo)

Because the value of the stock holdings is highly skewed toward the wealthy, the FTT is highly progressive: The TPC [Tax Policy Center] estimates that 40% of the cost of the tax falls on the top 1% (which makes sense as they hold about 40% of the value of the stock market and 40% of national wealth).

Vox also reports that an FTT would mostly affect wealthy Americans, because an estimated 84% of the value of stocks is owned by the wealthiest 10% of households. Schatz isn’t the first Democrat to suggest an FTT, Bernie Sanders ran on a similar idea in the 2016 Democratic primary. He pitched it as a way to pay for free college.

Globally, there is plenty of experience with FTTs. In the UK, a 0.5% “stamp tax” is charged when someone buys shares on the stock market, and the UK market is fine. France in 2012 introduced a tax on financial transactions, and a study from the European Commission found that trading volumes declined slightly, but share prices and volatility weren’t meaningfully changed. France and Germany have pushed for a European Union-wide FTT.

Opponents include the high-frequency traders, who note that even a small FTT could upend their extremely low margin business model. Although a dollar on a $1,000 trade doesn’t sound like much, if the industry is making 4 billion trades a day, it can add up.

Time to wake up and support an FTT, America. Sens Warren and Sanders support this idea, and you should too. Those who think that the government should use the tax code to ensure that everyone has an equal opportunity to get ahead, and that we should do more to ensure the well-being of our citizens aren’t socialists.

If that makes us socialists, then Eisenhower, who presided over a 90% top tax bracket, was also a socialist.

To help you wake up, here’s Steely Dan with “Any World That I’m Welcome To” from their 1975 album “Kay Lied”. This tune gives you the benefit of hearing the late, great, Hal Blaine on drums. Blaine may have been the most recorded drummer in pop music history. From the late 50s through the mid-70s, Blaine did sessions with Sam Cooke, Ray Charles, The Righteous Brothers, Henry Mancini, Ike & Tina Turner, The Monkees, Nancy Sinatra, The Fifth Dimension, The Byrds, Sonny & Cher, Mamas and the Papas, and The Grass Roots.

The famously picky Steely Dan only used Blaine for this one tune:

Those who read the Wrongologist in email can view the video here.

Facebooklinkedinrss