Wealth and Income Inequality
A friend of mine suggests raising taxes on the super-rich and investing the proceeds into programs designed to lift people out of poverty. Of course, this is not a novel idea; in fact, Warren Buffett wrote an op-ed in the NY Times a few years ago that essentially said, “Congress: If you can’t figure out a way to tax my $65.4 billion, you’re pathetic.”
Some of these plans, however, look only at income, where, if asked, I would prioritize a tax on wealth (net worth) over a tax on income. When something financially good happens to a rich person, we don’t say he’s making X times more than he was previously; we say that his net worth increased by Y%. I.e., to a large degree, what makes rich people rich isn’t income. Consider a tax on all wealth over, say, $10 million, on a graduated scale up to 20% per year for billionaires. Note that, at 20%, it would take 31 years for $65.4 billion to become $65.4 million, assuming no additional income.
Taxing the Forbes 400 (combined net worth = 2 trillion) at 20% per annum would generate $400 billion annually. That alone represents one hell of a lot of improved public education and investment in other key social services targeted to create a rising level of sustainable affluence for the poor.
I would also:
• keep the income tax in place, weighting it further in favor of the poor and middle class.
• remove the preferential treatment for capital gains. (Buffett points out that in his 60 years in business, he’s never seen anyone pass on a good investment because the tax rate was too high.)
• take the other obvious steps, e.g., closing the loopholes on US-based transnational corporations’ hiding their money in various offshore accounts.
There you go, an answer to a question no one asked.
Craig,
The desire to spend other peoples money is a constant theme with left wing politicians.
The idea that the rich sit around like Scrooge McDuck in a swimming pool of cash, is absurd. Great wealth is accumulated by individuals in modern society by the growth of population and expanding technology.
Taxing the rich as a panacea for social ills doesn’t work. ( or an attempt at social engineering) In fact it produces the opposite effect.
Consider the implications in a little more detail and you will discover it’s more complicated than you believe.
1) “closing the loopholes on US-based transnational corporations’ hiding their money in various offshore accounts” .
This requires the US to bully other nations to have tax laws compatible with the US. It’s also ineffective since those corporations simply cease to be US corporations for tax purposes.
2) The idea of graduated tax brackets is inefficient and economically undesirable. I provide the following example:
You own a bar (happy thought). The law says you should charge customers depending on their level of income.
At 6 pm the first customers arrive. complying with the law, you ask the first how much he earns. He admits $250, 000 p.a. You take out your calculator and after working out his deductions, charge $30 dollars for his drink, the next customer informs you he only earns $50 K, and after checking, you charge him $7.50, the next customer is unemployed so you give him a free drink and $5 dollars.
While all this is going on, you need to employ a lot more bar staff and accountants, a lot bigger office and you sell less drinks.
Because you have all this new overhead, (Bureaucracy) people decide to drink in Canada, ( or cheat) so your revenue goes down, the local brewery lays off staff, employment declines, since you are now paying out more than you take in, you start borrowing to keep people drinking…while employing more investigators, police, prosecutors, courts, prisons, lawyers, even more officials,….
Meanwhile, your debt continues to grow. (sound familiar?)
What’s the solution ? Well, you can raise the price for the rich even higher, but then they only employ better accountants, invest in a bar in Canada, and soon there are no more rich customers.
Now everyone’s poor ! I suppose to make everyone equally poor is a measure of success if absolute equality is your only goal !
Decreasing tax revenues are going to be an increasing problem for national governments. The internet, globalization, rapidly changing commerce and fluid capital are all problems that move much faster than the ponderous tax regimes of the nineteenth and twentieth centuries.
Americans haven’t lived through the terrible effects of socialistic economic policies. The US needs more investment and economic activity, not more bureaucracy. Encouraging the rich to spend, and invest in the nations economic activity is the answer.
Stop worrying about how to fairly cut up an ever diminishing cake! Instead, concentrate on making the cake larger. Yes, some will always get more cake than others, but as the cake gets bigger, everyone gets more cake.
As for Warren Buffet, there’s nothing to stop him donating his surplus wealth to the nation, is there ?
(donating to Obama/Clinton to protect his investments in rail road rolling stock etc , isn’t quite the same thing !).