Now this is the kind of pissing contest I like. Hard on the heels of Alexandria Ocasio-Cortez’s 70% marginal Income Tax on Incomes over $1 Million, Professor Senator Elizabeth Warren is proposing a Wealth Tax on Net Worth over $50 Million.
The difference between Income and Wealth is that Income is what you get in new revenue and Wealth is your stuff.
Wait ek! You can’t possibly be proposing taking away people’s stuff!
Indeed I am. What’s more is it’s completely Constitutional.
Elizabeth Warren’s wealth tax proposal is constitutional, experts say — and necessary
By Michael Hiltzik, Los Angeles Times
Jan 25, 2019
Sen. Elizabeth Warren (D-Mass.), a newly declared presidential candidate, has turbocharged the progressive attack on income inequality with a proposal for a “wealth tax” aimed at Americans with net worth of more than $50 million.
Warren herself hasn’t issued many details of her plan. But according to UC Berkeley economists Emmanuel Saez and Gabriel Zucman, who advised her on the proposal, the tax would be 2% on net worth above $50 million and another 1% on net worth above $1 billion. They say it would affect about 75,000 U.S. households, or less than 0.1% of the total, and raise $2.75 trillion over 10 years. That’s about 0.1% of gross domestic product per year.
Warren’s announcement, made Thursday via Twitter, is certain to be met with two big questions: Is a wealth tax constitutional, and is it necessary? Legal scholars say the answer to the first is yes, and economists (and the evidence of your own eyes) say the answer to the second also is yes.
The notion that a wealth tax is unconstitutional derives from a provision of the Constitution prohibiting “direct” taxation unless it’s “apportioned among the states.” That’s generally taken to mean that the amount raised from each state must be proportionate to its population.
That means a direct tax can raise the same amount from Connecticut as from Mississippi because they have roughly the same population (3 million), even though the first is the richest state in the union (with per capita income of more than $36,000) and the second is the poorest ($20,000).
But two legal scholars say this constitutional interpretation is wrong. They’re Dawn Johnson of Indiana University and Walter Dellinger, a former U.S. solicitor general, of Duke University. Their analysis appeared last year, and is regarded as the leading work on the issue, though their position isn’t unanimously held.
Johnson and Dellinger dismiss the constitutionality issue as “conventional wisdom” that is casually repeated but is the product of “faulty constitutional understanding.” It’s partially the result of a Supreme Court ruling in 1895 known as Pollock that was narrowly — and they say wrongly — decided, and that has been undermined by a string of subsequent Supreme Court decisions.
It’s also generally disdained by legal authorities. Among them is Bruce Ackerman of Yale Law School, who wrote in 1999 that before Pollock, the court used a very narrow definition of “direct tax,” and has returned to that narrow view since. As a unanimous court declared in 1983, he noted, “Congress’ power to tax is virtually without limitation.”
The “direct tax” language in the Constitution, Johnson and Dellinger observe, was murky even to the drafters. The Constitution refers explicitly only to a “capitation” or head tax, which is levied on each individual and thus can be easily apportioned by population. The authors assert that the clause wasn’t the product of “any principled decision to limit Congress’s authority to tax income, property, or wealth.”
In any event, the court rejected Pollock only a few years later, by upholding an estate tax and a gift tax — that is, a tax on net worth. After the 16th Amendment, which declared an income tax constitutional, was ratified in 1913 as a response to Pollock, discussions of the constitutionality of taxes other than the head tax dropped off the Supreme Court docket.
That brings us to the question of whether a wealth tax is needed. The answer here is unmistakably yes. The concentration of wealth in America has reached levels that make the gilt of the 19th century Gilded Age look like dross. There’s sound economic and social sense in taxing the hell out of excessive incomes and excessive wealth.
As Saez and Zucman observe, the top 0.1% today control almost as much wealth as the bottom 90%. Wealth disparity on this scale has a distinctly corrosive effect on society and democracy. As political economist Benjamin Friedman wrote in 2009, its “grave moral consequences” include “racial and religious discrimination, antipathy toward immigrants, [and] lack of generosity toward the poor” — all features of our current political landscape.
That’s not even to mention the economic consequences of placing so much wealth in the hands of people who can’t use it productively, while the majority of Americans struggle to make ends meet on working-class wages.
The Founding Fathers were unnerved by this very phenomenon. Thomas Jefferson wrote to James Madison in 1785, “whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right.”
In his autobiography, Jefferson wrote of the bills he had advocated or passed to form “a system by which every fibre would be eradicated of antient or future aristocracy; and a foundation laid for a government truly republican.” His goal was to “prevent the accumulation and perpetuation of wealth in select families.”
The super-rich haven’t been shy about speaking up for their prerogatives. Asked at the Davos economic conference this week about the suggestion by Rep. Alexandria Ocasio-Cortez (D-N.Y.) to raise the top marginal income tax rate to 70% on high incomes, computer tycoon Michael Dell dismissed it out of hand.
“Name a country where that’s worked. Ever,” Dell said. To which Erik Brinjolfsson of MIT, a member of Dell’s speaking panel, promptly replied: “The United States.” Brynjolfsson schooled Dell by informing him that from the 1940s through the 1960s the top rate on income ran as high as 94%. “Those were actually pretty good years for growth,” he said.
Dell also said he contributes to society via a family foundation, adding: “I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government.”
It’s proper to observe that Dell’s multibillion-dollar fortune is based on mail and online orders of computers — in other words, on infrastructure created and funded by the government he disdains.
The question boils down to whether you want society funded out of the whims of Michael Dell or the debated judgments of your elected representatives. Thomas Jefferson would vote for the latter, and the extinction of inherited wealth by taxation if necessary. Anti-tax crusaders who never tire of dragooning the Founding Fathers into their arguments should take that one to heart.
Even Herr Doktor Professor (who has a Nobel by the way) thinks it’s a good idea.
Elizabeth Warren Does Teddy Roosevelt
By Paul Krugman, The New York Times
Jan. 28, 2019
(T)here was a time when leading American politicians were proud to proclaim their willingness to tax the wealthy, not just to raise revenue, but to limit excessive concentration of economic power.
“It is important,” said Theodore Roosevelt in 1906, “to grapple with the problems connected with the amassing of enormous fortunes” — some of them, he declared, “swollen beyond all healthy limits.”
Today we are once again living in an era of extraordinary wealth concentrated in the hands of a few people, with the net worth of the wealthiest 0.1 percent of Americans almost equal to that of the bottom 90 percent combined. And this concentration of wealth is growing; as Thomas Piketty famously argued in his book “Capital in the 21st Century,” we seem to be heading toward a society dominated by vast, often inherited fortunes.
So can today’s politicians rise to the challenge? Well, Elizabeth Warren has released an impressive proposal for taxing extreme wealth. And whether or not she herself becomes the Democratic nominee for president, it says good things about her party that something this smart and daring is even part of the discussion.
The Warren proposal would impose a 2 percent annual tax on an individual household’s net worth in excess of $50 million, and an additional 1 percent on wealth in excess of $1 billion. The proposal was released along with an analysis by Emmanuel Saez and Gabriel Zucman of Berkeley, two of the world’s leading experts on inequality.
Saez and Zucman found that this tax would affect only a small number of very wealthy people — around 75,000 households. But because these households are so wealthy, it would raise a lot of revenue, around $2.75 trillion over the next decade.
Make no mistake: This is a pretty radical plan.
I asked Saez how much it would raise the share of income (as opposed to wealth) that the economic elite pays in taxes. His estimate was that it would raise the average tax rate on the top 0.1 percent to 48 percent from 36 percent, and bring the average tax on the top 0.01 percent up to 57 percent. Those are high numbers, although they’re roughly comparable to average tax rates in the 1950s.
Would such a plan be feasible? Wouldn’t the rich just find ways around it? Saez and Zucman argue, based on evidence from Denmark and Sweden, both of which used to have significant wealth taxes, that it wouldn’t lead to large-scale evasion if the tax applied to all assets and was adequately enforced.
Wouldn’t it hurt incentives? Probably not much. Think about it: How much would entrepreneurs be deterred by the prospect that, if their big ideas pan out, they’d have to pay additional taxes on their second $50 million?
It’s true that the Warren plan would limit the ability of the already incredibly wealthy to make their fortunes even bigger, and pass them on to their heirs. But slowing or reversing our drift toward a society ruled by oligarchic dynasties is a feature, not a bug.
And I’ve been struck by the reactions of tax experts like Lily Batchelder and David Kamin; while they don’t necessarily endorse the Warren plan, they clearly see it as serious and worthy of consideration. It is, writes Kamin, “addressed at a real problem” and “goes big as it should.” Warren, says The Times, has been “nerding out”; well, the nerds are impressed.
But do ideas this bold stand a chance in 21st-century American politics? The usual suspects are, of course, already comparing Warren to Nicolás Maduro or even Joseph Stalin, despite her actually being more like Teddy Roosevelt or, for that matter, Dwight Eisenhower. More important, my sense is that a lot of conventional political wisdom still assumes that proposals to sharply raise taxes on the wealthy are too left-wing for American voters.
But public opinion surveys show overwhelming support for raising taxes on the rich. One recent poll even found that 45 percent of self-identified Republicans support Alexandria Ocasio-Cortez’s suggestion of a top rate of 70 percent.
By the way, polls also show overwhelming public support for increasing, not cutting, spending on Medicare and Social Security. Strange to say, however, we rarely hear politicians who demand “entitlement reform” dismissed as too right-wing to be taken seriously.
And it’s not just polls suggesting that a bold assault on economic inequality might be politically viable. Political scientists studying the behavior of billionaires find that while many of them push for lower taxes, they do so more or less in secret, presumably because they realize just how unpopular their position really is. This “stealth politics” is, by the way, one reason billionaires can seem much more liberal than they actually are — only the handful of liberals among them speak out in public.
The bottom line is that there may be far more scope for a bold progressive agenda than is dreamed of in most political punditry. And Elizabeth Warren has just taken an important step on that agenda, pushing her party to go big. Let’s hope her rivals — some of whom are also quite impressive — follow her lead.
Make no mistake, this is an outright rejection of the NeoLib New Dem DLC Blue Dog policy the Republicans with a ‘(D)’ have adopted in the last 40 years.
Ronald Reagan is dead dudes.