We Need a Wealth Tax

Should You Carry a Heavier Tax Burden Than the Extremely Wealthy? 

Why should you pay a substantial tax on a big part of your wealth while the very wealthy do not? A wealth tax would make our system fairer.

Sen. Elizabeth Warren has proposed a “wealth tax” of 2% that would be paid only by families with wealth of more than $50 million. The idea is that such a tax would raise a substantial amount of revenue and would help to limit our country’s large and growing inequality. The tax would be on all types of assets including stocks, bonds, and luxury goods like yachts or jewelry as well as real estate.

The inclusion of real estate shows that in reality, we already have a type of wealth tax, and it is the property tax that homeowners pay on their houses. This tax hits the middle class very heavily because a middle-class person’s home is usually a very large share of his/her wealth. Most middle-class people own relatively small amounts in stock, bonds or other financial assets. The very wealthy, in contrast, hold most of their wealth in forms like stocks and bonds. Such forms of wealth escape taxation today, and therefore, the wealthy pay a much smaller percentage of their wealth in taxes than middle class people do. Even the income from such assets is often taxed at the low rate applied to “long term capital gains.” Thus, the wealthy do not pay anything like their fair share.

A Wealth Tax Would Provide Needed Revenue

A wealth tax would provide a substantial amount of revenue that would allow us to reduce our dependence of government borrowing to pay for the government services that we need. Today, our government’s indebtedness increases regularly because the people who hold the bulk of our national wealth do not pay their fair share of the taxes. Our ever-increasing dependence on government debt endangers the stability of our government. In the 18th century, the French monarchy fell because the aristocrats, who held almost all of the country's wealth, refused to pay taxes. Do we want our democratic government to go the same way?

A Wealth Tax Would Limit the Concentration of Wealth and Power

As Robert Reich explains, we suffer from an ever-increasing concentration of wealth and income in the top 10% or even the top 1% of the population. Today, the top 1% of the population is estimated to own about 42% of our nation's wealth, and that share is increasing. Providing a counter to the increasing concentration of wealth is important because if wealth becomes too concentrated, the economic system fails to provide an acceptable standard of living to the bulk of the population, and as a result people feel that the “system” is rigged against them. In that case,they become susceptible to the appeals of demagogues, and democracy becomes unstable. If we allow the concentration of wealth to continue to grow, our democracy may well not survive.

Moreover, it has been recognized since the founding of our country that democracy is incompatible with the excessive concentration of wealth. With wealth comes political power, and a democracy with an excessive concentration of wealth is likely to become an oligarchy. Our Constitution gives to the federal government the responsibility to prevent this from happening.  Article 4, Section 4 of the Constitution says that the federal government shall "guarantee to every State in this Union a Republican Form of Government," which means that the Constitution requires the federal government to prevent the emergence of an oligarchy that would subvert our democracy. Thus, a wealth tax or some similar means of preventing the emergence of an oligarchy is not merely permitted. It is actually required by our Constitution. This way of understanding our Constitution is not new. It has been used throughout our history to support efforts to maintain and extend our democracy.

We Should Not Be Deterred by the Problems That Will Occur

Of course, there will inevitably be problems with a wealth tax. Estimating the full extent of the wealth of a very wealthy person is difficult, and wealth may be hidden in offshore places and in trusts. These, however, are not new problems. Similar problems exist in the estimation of the incomes of the very wealthy. In addition, some wealth may flee the United States to avoid the tax, but this, too, is not a new problem. The fact that it will be difficult to design a perfect wealth tax should not deter us. We have never designed a perfect tax, and we should not expect a wealth tax to be different.

So, we should have a wealth tax that taxes all forms of wealth and not just real estate because when we tax only real estate, the middle class pays an unfair share of the total. A wealth tax would also reduce our dependence on borrowed money to provide the government services that we need. Finally, a wealth tax would help to prevent the erosion of our democracy through excessive concentration of wealth and power in a small oligarchy.