A Wealth Tax Could Help to Preserve Our Democracy

 Concentration of Wealth Endangers Our Democrcy

Last week’s post said that we needed to replace the property tax with a broad-based wealth tax because the property tax is outdated. It causes an unfairly large share of the cost of local government to fall on ordinary, working Americans while allowing most of the wealth of the rich of remain untaxed. That is true, but it is not the whole story.

There is another reason why we need a wealth tax: it offers a way to preserve our democracy by limiting the increasing concentration of wealth in the hands of the owners of capital. In his book, Capital in the Twenty-First Century, Thomas Picketty argues that in a capitalist economy, the share of national income going to capital will increase and the share going to labor will decrease as long as the rate of return on capital is greater than the growth rate of the economy. In addition, Picketty presents historical data showing that in fact the rate of return on capital has exceeded the growth rate of the economy in most periods with the major exception being the thirty years following the Second World War.

The "Glorious Thirty" Post-War Years

Many Americans remember the post-war period fondly as a period when a working family could afford to buy a house and a car and could live comfortably on one income. Fewer Americans remember that the period was exceptional in that respect. Most Americans were not so prosperous before the Second World War or before the Great Depression. The decline in the share of national income going to working Americans after 1975 was in fact a return to the normal situation that had existed throughout most of the history of modern capitalism.

A Way to Preserve Our Democracy

We should expect that the share of income going to capital will continue to increase and the share going to labor will continue to decrease in the future, and that presents a problem for our democracy. The American combination of market capitalism with democratic government depends on most people’s believing that the system is fair and not rigged against them.

They must feel that the system gives them a decent standard of living, which includes not only economic prosperity but also things like economic security, economic opportunity and personal dignity. Our system produces a high level of national prosperity, but it falls short on the other three elements of a decent standard of living for millions of our people because of the increasing concentration of wealth in a few very wealthy hands. Consequently, millions of people have lost faith in democracy and have become followers of authoritarian leaders who promise to Make America Great Again – that is to restore their security, opportunity and dignity.   

Our democracy has become unstable, and it will become still more unstable unless we can find a way to limit the ever-increasing concentration of wealth, which brings insecurity and lack of opportunity and dignity to millions of people. A wealth tax could give us a means of limiting the concentration of wealth, and the revenue it would provide would offer ways to provide more security, opportunity and dignity to millions of people.