Tag: Wealth Tax

Can We Make Billionaires Pay More Taxes?

The Daily Escape:

Sunrise, Cundy’s Harbor, ME – May 2024 photo by Eric Storm Photo

Economist Gabriel Zucman is a proponent of a global wealth tax. His column in the NYT explains what that is and how it would work:

“Until recently, it was hard to know just how good the superrich are at avoiding taxes. Public statistics are…quiet about their contributions to government coffers….Over the past few years…scholars have published studies…attempting to fix that problem. While we still have data for only a handful of countries, we’ve found that the ultrawealthy consistently avoid paying their fair share in taxes.”

The problem of billionaires paying very little in taxes is international. In the US, the problem is that billionaires rarely have any salaries to speak of:

”Why do the world’s most fortunate people pay among the least in taxes, relative to the amount of money they make? The simple answer is that while most of us live off our salaries, tycoons like Jeff Bezos live off their wealth. In 2019, when…Bezos was still Amazon’s chief executive, he took home an annual salary of just $81,840. But he owns roughly 10% of the company, which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which are subject to income tax, Mr. Bezos would face a hefty tax bill. But Amazon does not pay dividends to its shareholders. Neither does Berkshire Hathaway or Tesla. Instead, the companies keep their profits and reinvest them, making their shareholders even wealthier.

Unless…Bezos, Warren Buffett or Elon Musk sell their stock, their taxable income is relatively minuscule. But they can still make eye-popping purchases by borrowing against their assets. Mr. Musk, for example, used his shares in Tesla as collateral to borrow $13 billion to put toward his acquisition of Twitter.”

Slashing the corporate tax rate and getting rid of the estate tax have also had dire effects in terms of wealth distribution:

“Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades.”

In 2018, under the Trump administration, the US cut its maximum corporate tax rate to 21% from 35%. And the estate tax has almost disappeared. Relative to the wealth of US households, it generates only a quarter of the tax revenues it raised in the 1970s.

The effective tax rate (the percentage of someone’s total income that they paid in taxes in all forms) is now lower for the 400 richest American billionaires than it is for the bottom 50% of income earners. Here’s the effective tax rate in 1960 and 2018 for these two groups respectively:

Source: NYT

The US national debt is $35 trillion, almost all of which we acquired during the same period as the reduction of taxes on the rich. That isn’t a coincidence. And since capital and people are both completely mobile, the problem of taxation of wealth doesn’t end at our borders. More from Zucman:

“There is a way to make tax dodging less attractive: a global minimum tax. In 2021, more than 130 countries agreed to apply a minimum tax rate of 15% on the profits of large multinational companies. So no matter where a company parks its profits, it still has to pay at least a baseline amount of tax under the agreement.”

Zucman is proposing we apply a similar minimum tax to billionaires:

“Critics might say…this is a wealth tax, the constitutionality of which is debated in the US. In reality, the proposal stays firmly in the realm of income taxation. Billionaires who already pay the baseline amount of income tax would have no extra tax to pay. The goal is that only those who dial down their income to dodge the income tax would be affected.”

Critics of a minimum tax say it would be hard to apply because wealth is difficult to value. But according to Zucman’s research, about 60% of US billionaires’ wealth is in stocks of publicly traded companies. The rest is mostly ownership stakes in private businesses, which can be assigned a value by comparing them to the value of similar firms.

But the big issue is how to get broad international participation in this billionaire’s minimum tax. In the current multinational company minimum tax agreement, participating countries are allowed to overtax companies from nations that haven’t signed on. This incentivizes every country to join the agreement or lose tax revenue.

The same mechanism could be used for billionaires. For example, if Switzerland refuses to tax the superrich who live there, other countries could tax them on its behalf. Countries such as Brazil, have shown leadership on the issue, and France, Germany, South Africa and Spain have recently expressed support for a minimum tax on billionaires.

This is far from a done deal, although Biden has proposed a billionaire tax with similar objectives. And Zucman’s proposed tax wouldn’t impact the ordinary rich. He says there are about 3,000 people who would be required to give a relatively small bit of their profits back to governments.

Zucman’s closing words:

“The idea that billionaires should pay a minimum amount of income tax is not a radical idea. What is radical is continuing to allow the wealthiest people in the world to pay a smaller percentage in income tax than nearly everybody else.”

Great idea, one that almost everyone agrees with, EXCEPT those who have the power to do something about it. We’re looking at you, Republicans! Also, when a significant percentage of the (relatively) poor in this country support Trump who is dedicated to cutting taxes for the rich, is there any hope that taxes will be raised on the wealthy?

That’s more than enough thinking for this week. It’s time for our Saturday Soother, where we attempt to ignore the latest about the campus protests, or whatever else Gov. Kristi Noem is training her gun at, and gear up for another week in the political and cultural wars.

Here on the Fields of Wrong, the crab apple trees are in full bloom along with our weeping cherries. There is still plenty to do if we are to finish our spring cleanup before summer.

But, before we start down that backbreaking path, let’s grab a mug of coffee and a seat outside. Now watch and listen to Luigi Boccherini’s “Guitar Quintet No. 4 in D major “Fandango”, G.448”, recorded in the Unser Lieben Frauen Church, in Bremen Germany in 2019. Boccherini was an Italian composer and cellist. He wrote a large amount of chamber music, including over one hundred string quintets for two violins, viola and two cellos:

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Two Writers Who Speak To What America Needs

The Daily Escape:

Wukoki, Wupatli National Monument, AZ – September 2023 photo by David Erickson

September is underway, and we’re about to have a negotiation about government spending. But that doesn’t mean that the news this month will be any less stupid than last month’s. Also, as the Republican presidential candidates demonstrate every day, we don’t actually know whether the GOP is a dying Party or, the rising single Party of an authoritarian state.

Unless and until the traditional press presents these as the stakes, it is very unclear which it’ll end up being. With this as an introduction, Wrongo wants to introduce two writers who are attempting to break through our chain of bad policies and the bad ideology that threatens our democracy.

First, from Wesley Lowery in the Columbia Journalism Review:

“We find ourselves in a perilous moment. Democracy is under withering assault. Technological advances have empowered propagandists to profit through discontent and disinformation. A coordinated, fifty-year campaign waged by one of our major political parties to denigrate the media and call objective reality into question has reached its logical conclusion: we occupy a nation in which a sizable portion of the public cannot reliably tell fact from fiction. The rise of a powerful nativist movement has provided a test not only of American multiracial democracy, but also of the institutions sworn to protect it.”

Lowery is a Pulitzer Prize-winning reporter. He goes on to say:

“In 2020, I argued that the press had often failed this test by engaging in performative neutrality, paint-by-the-numbers balance, and thoughtless deference to government officials. Too many news organizations were as concerned with projecting impartiality as they were with actually achieving it, prioritizing the perception of their virtue in the minds of a hopelessly polarized audience…”

Lowery also says that news organizations often rely on euphemisms instead of clarity in clear cases of racism (“racially charged,” “racially tinged”) and acts of government violence (“officer-involved shooting”). He says that these editorial decisions are not only journalistic failings, but also moral ones:

“…when the weight of the evidence is clear, it is wrong to conceal the truth. Justified as “objectivity,” they are in fact its distortion.”

Lowery concludes by saying:

“It’s time to set aside silly word games and to rise to the urgent test presented by this moment.”

Second, Bob Lord is a tax attorney and associate fellow at the Institute for Policy Studies. He also serves a senior advisor on tax policy for Patriotic Millionaires. At Inequality.org, he proposes a graduated wealth tax on the rich:

“The United States is experiencing a level of wealth inequality not seen since the original Gilded Age. This yawning gap between rich and poor has unfolded right out in the open, in full public view and with the support of both political parties.

A malignant class of modern robber barons has amassed unthinkably large fortunes. These wealthy have catastrophically impacted our politics. They have weaponized their wealth to co-opt, corrupt, and choke off representative democracy. They have purchased members of Congress and justices of the Supreme Court. They have manipulated their newfound political power to amass ever-larger fortunes.”

More from Lord:

“In well-functioning democracies, tax systems serve as a firewall against undue wealth accumulation. By that yardstick, our contemporary US tax system has failed spectacularly….Our nation’s current tax practices allow and even encourage obscene fortunes to metastasize while saddling working people with all the costs of that metastasizing.”

Lord along with the Patriotic Millionaires propose new legislation, called the Oligarch Act (Oppose Limitless Inequality Growth and Reverse Community Harms). It is being brought forward by Rep. Barbara Lee (D-CA) and Summer Lee (D-PA). The Lees have developed a graduated wealth tax tied directly to the highest wealth in America. The Oligarch Act propose a set of tax rates that escalate as a taxpayer’s wealth escalates:

  • A 2% annual tax on wealth between 1,000 and 10,000 times the median household wealth.
  • A 4% tax on wealth between 10,000 and 100,000 times the median household wealth.
  • A 6% tax on wealth between 100,000 and 1,000,000 times the median household wealth.
  • An 8% tax on wealth exceeding 1,000,000 times the median household wealth.

Per the US Census Bureau, the median household wealth in 2021 was $166,900. So the first tier 2% wealth tax would kick in at $166,900,000, and so on.

This would affect only very high levels of household wealth. To put that in perspective, according to the Federal Reserve, the wealth level that puts you into the top 0.1% of households in 2019 Q3 was $38,233,372. So if enacted, this Act would touch a really small number of outrageously wealthy households. Also, their taxable amount would be peanuts by their own standards.

The legislation would also require at least a 30% IRS audit rate on households affected by the new wealth tax. One recent estimate indicated that the richest Americans dodge taxes on more than 20% of their earnings, costing the federal government around $175 billion in revenue each year.

The immediate argument is that this tax will never pass as long as the filibuster is intact. And here’s how the work of both authors comes together. We see the “it will never pass” objection from journalists and pundits who try to appear savvy in the ways of DC. On any cable news show, someone is sure to jump up to say it.

The paradox is that if you look at the Congressional Record and flip to the special orders section and extensions of remarks, you’ll notice they’re filled with speeches and statements on behalf of recently introduced bills which the sponsors know will never pass as written. So why do they do it?

Because the point of introducing a bill is not just to pass it in the current session of Congress. It never has been. There is a tradition going back to the earliest days of Congress of introducing bills to make arguments and advance debate. Many famous members of Congress (think Ted Kennedy, Thaddeus Stevens, John Quincy Adams) sponsored or backed multiple bills they knew were not going to become laws.

They did it because they knew that debates over bills that will become laws don’t occur in a vacuum. They happen in the greater context of the debate in Congress over issues which are influenced by every other bill under consideration. And of course, you’ve gotta start somewhere.

Jumping to the conclusion “it will never pass” isn’t being savvy, it’s a sign you’ve missed the point. And it’s a sign of the vapidity of so many journalists and pundits that it’s the first thing out if their mouths. It’s never a good idea to take cues from the stuffed shirts on Fox, CNN and Meet The Press.

This graduated wealth tax is a good start and sets a precedent: There is an amount of wealth that is ruinous to democracy. Taxing it is a necessary condition for preserving democratic governance.

It is true that Congress, as it is presently constructed, will not pass this, or other badly needed legislation. A genuine revolution in thinking will be required. Both Wesley Lowery and Bob Love point us toward fresh thinking about how we start dealing with what we consider to be intractable problems.

Wrongo still has hope for the younger generations who are suffering the consequences of all this government sanctioned selfishness.

Change is coming.

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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.

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Warren’s Mistake on Single Payer

The Daily Escape:

Mount Shasta, CA – November 2019 photo by pkeller001

Wrongo wonders if Elizabeth Warren has made a big mistake in her policy for Medicare for All. She started out running to reform capitalism, but through the debate process, she’s evolved towards single payer health insurance as a main policy. Months ago, she was an increasingly skilled campaigner whose laundry list of policy proposals made her stand out from the pack. Now she’s for nationalizing health insurance, which doesn’t seem to be on brand.

Two of her main rivals, Biden and Buttigieg, essentially want to extend Obamacare while leaving the 170 million Americans covered by private insurance with their current plans. While on her left, her other main opponent, Bernie Sanders, also wants to nationalize health insurance.

The latest New York Times/Siena College poll of Iowa Democrats shows Warren, Sanders, Buttigieg, and Biden bunched within a 5-point range. And while Warren leads, the poll found more sentiment among primary voters for improving the private health insurance system than for scrapping it in favor of single-payer.

Worse for Warren, she and Sanders are both sufficiently well-funded and popular that neither can easily emerge from Iowa or beyond as the candidate on the left. It’s similar on the moderate side: Neither Biden nor Buttigieg are going away after Iowa either.

Buttigieg is a gifted politician. He’s correctly discerned that the path to marginalizing Biden lies not in attacking him, but in confronting Warren on single payer, which he did in the last debate. He would rather that Sanders was the front-running lefty heading into Super Tuesday, than have to confront Warren.

A few more debates, and Mayor Pete may be the last standing moderate alternative to Warren and Sanders, assuming Bloomberg doesn’t get traction along the way.

Sanders is a much better candidate than he was in 2016. He’s making inroads among African-Americans and Hispanics. AOC, a very popular symbol of youth and progressivism, supports him. Sanders is doing well enough with young progressives to keep Warren from now moving closer to the center on single payer.

She went from cautious on single payer to all-in. First, she allowed that there were multiple paths to universal coverage. In an attempt to simplify during one of the debates, she said: “I’m with Bernie”, without having a firm plan.

When pressed by Biden and Buttigieg to specify how she would pay for her vague plan without raising taxes on the middle class, she dodged the question, saying that overall health insurance costs to the middle class would go down. She finally produced a white paper that described a 10-year $20.5 trillion plan to fund Medicare for All without raising taxes on the middle class.

Her opponents are using her proposal to define Warren to their own advantage: Biden and Buttigieg say it’s too radical and too expensive; Sanders says it’s inferior to his plan. While single-payer is popular among Democratic primary voters, several polls of swing state voters suggest that the majority favor a more moderate health insurance plan.

That would seem to be an invitation to embrace positions most Democrats actually prefer.

Warren’s problem is that she seems married to a health insurance program which leaks votes and positions her in a fight for the left of the primary electorate. However, we’re in a time when a coalition of minorities, suburban swing voters, and persuadable blue-collar whites are what’s needed to win states like Pennsylvania, Michigan, and Wisconsin.

Warren should return to her roots of tax and capitalism reform. These are popular policies with Democrats, even with those who are against mandatory single payer health insurance. The continuing rise in inequality requires us to do something to narrow it.

And Warren’s wealth tax could do just that, and finance more robust social programs and spending on infrastructure. The US mostly taxes individuals on the income earned from their jobs and investments, while a wealth tax would levy taxes on assets like stocks, yachts, artworks and vacation homes.

Both Sanders and Warren have an asset tax plan. In Warren’s plan, all net worth under $50 million is exempted, compared to $32 million for the Sanders plan. Business Insider says the Sanders plan would bring in $4 trillion in government tax dollars over a decade. And, Warren’s version would total $500 billion less in the same period.

During this primary season, moderates and progressives will have to understand clearly why they are Democrats, and how they will bridge their differences by November 2020 and deliver massive turnout.

Both wings need to remember that it isn’t enough to win the White House. Legislative gridlock must end.

It wouldn’t hurt if Warren did some thinking about her single payer plan, too.

 

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