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Keys to reading this article: Leave your partisanship behind. This article is not for someone thinking like a politician, it is for the people that could be affected by their potential policies. That being said, let's begin.
If you've trolled the top newspapers in the wake of Senator Sanders and Warren's tax plans as I have, you'll quickly notice one thing; The media think that these two plans are somehow impossible to pass, but they don't necessarily call them out as bad ideas. Obamacare, the Emancipation Act and Roe v. Wade. These are just examples of laws that seemed impossible to pass in their era. Note that these did not become law without significant changes - so no one is saying, the initial idea is the final law. The critics thought, "why try if it can't be done"? But it was done. So rather than worry about how hard a bill is to pass, I want to consider what their plans are trying to fix and the merits and potential drawbacks of the two plans.
What plan?
Let's consider Jim B living in the year 2022 as an example:
Net worth: 100 million (given to him as pocket-change from his dad who owns an online retail giant)
Job: Philanthropist (his words) and explorer.
In 2022, the first year of Senator Warren's plan, Jim's first $50m will be subject to regular taxes. The second $50m is where things get interesting - it would be taxed at 2 percent in a similar way to property taxes. If in 2023 Jim's dad passes away, he would get a windfall of over $100 billion. In that year, in addition to the 2 percent tax on assets over 50m, there is an additional 1 percent on every $1 over 1 billion! Over 75,000 of the richest families would be affected by this plan with revenue of $2.6 trillion over ten years.
That's when Bernie called a staffer and said, "hold my tea"…. Bernie's tiered plan would tax Jim at 1 percent between $32m to $250m, 2 percent between $250m and $500m and culminating in a 3 percent tax between 500m and $1 billion for Jim. But his plan at its steepest is an 8 percent tax on the richest 400 families earning over $10 billion. And if Jim takes over his dad's business, CEOs making more than 200 times the average employees' salary will have a surcharge of 2 percent levied. Interestingly enough, as Schwartz and Gates put it, we've implemented this before: "The top income tax rate stood at 70 percent as recently as 1980, and was even higher before then, topping 90 percent in the late 1950s and early 1960s." But take the time to notice that unless your wealth is over $50m, you would not be affected in this version of the law, that has a narrower focus than previously implemented.
But Why?
Warren and Sanders's tax plan could target the top 75 to 180,000 American households respectively. They have both made wealth-tax the main focus of their campaign…but why? The critical answer is to combat inequality. There are many cases in history where inequality leads to the downfall of society. The higher the inequality rates, the larger the social unrest. Left unchecked, it can cause major societal upheaval. In the industrial age, the top 1 percent held 38 percent of the wealth (see image) but after the taxes of the 1950s to the 1980s, it dropped to approximately 22 percent. When the income tax went away for the super-rich, the inequality returned. As of 2016, the top 1 percent hold 37 percent of assets while the top 0.1 percent hold 19 percent of the country's wealth. The fact that the top 0.1 percent (400 families) own as much wealth as the bottom 90 percent (128 million families) is unprecedented.
Recently Bloomberg came up with a novel idea for representing inequality based on scientific notation, or powers of 10. So if you're a millionaire, you'd be ranked a 6 (six zeros). See what your number is below.
Who's to blame? Well - pure capitalism is to blame. Capitalism, an economic and political system in which a country's trade and industry are privately owned for profit. This free movement of money and resources can cause wealth inequality if there are no checks and balances. That's what I call pure capitalism. Capitalism has always worked best with a little sprinkling of Socialism on top. Don't believe me? Dial-up the Martin Shkreli EpiPen saga, followed by the Sackler family and Purdue Pharma using loopholes, bribes, and lobbyists to make money hand over fist - one family responsible for the OxyContin opioid crisis because pure capitalism abhors oversight.
The problem continues into the broken healthcare system. America spends more on healthcare than any other country in the world, and yet most of that money from consumers end up in company and individuals pockets as profit. Whether you are Republican, Democrat or Independent, we should all be able to logically agree, that if the top 1 percent own 37 percent of the wealth and the top 10 percent own 90 percent of America's wealth, then at some point, someone, should try to address that problem.
For the Republicans reading this, no, the trickle-down effect is not a good comparison. It partially works in increasing jobs, but does not enforce quality of jobs, and does not affect the way we treat the weakest among us. The trickle-down effect has a fundamental flaw. People like Mark Zuckerberg and Jeff Bezos have assets in the billions separate from company assets - how many people are they individually hiring? So if the premise is to give millionaires and billionaires and companies individual tax breaks without rules about how they use that break, then they are free to do whatever they want with the money. If the purpose is increased investment in the economy and hiring of more workers, then the tax breaks should only be for businesses, and there should be regulations to ensure that companies cannot use the corresponding profits to execute stock buybacks or other self-serving investments. Consequently, there is no regulation for the recipients of these tax breaks under the current administration's tax plan. So although I applaud the historically low unemployment numbers, we must also question the quality of jobs and salaries of those employees. Can a floor worker at Amazon, working 50 hour weeks earn enough to purchase a home - that is the critical question.
The rich and privileged will read this and cite those low unemployment numbers, they will ignore healthcare since their health plans are airtight. The conservative Democrats will think America is the land of opportunity, that these plans would stifle growth. The lawyers would say it's unconstitutional and the Republicans feel like it's an attack on the great American experiment. But you the people (individual people) outnumber them all. Think carefully, what do you want in life for you and your family? I challenge you to think candidate and policy over party. Malignant problems tend to be the ones we ignore before it's too late, and America has one. Hubert Humphrey, U.S. Vice President from 1965 to 1969 once said,
"the moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life; the sick, the needy and the handicapped."
If you get nothing else, the sentiment of creating such plans is to fund the cost of assisting those who need our help the most.
Europe failed - can it work in the U.S.?
Is there a better way to fix inequality?
Not if you listen to many leading economists including Thomas Piketty, a leading French economist who specializes in the study of wealth and income inequality. In his book Capital in the Twenty-First Century, he surmised that the rate of return on capital for the wealthy will always be faster than the rate of country-wide economic growth. In other words, the rich will always have their wealth increase faster than the rest. Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, also played a role in advising Warren's plan. The consensus is that if most of the country's assets are owned by the top 10 percent, no plan to attack inequality can be done without addressing the super-rich.
Criticisms
Enforcement could be complicated if you tax assets instead of income. The U.S. stock market could be affected every year as assets are sold to pay the wealth tax. At least initially, until millionaires and billionaires adjust to planning (allocating liquid funds during the year) for the new tax, there can be some negative feedback from the market. Saez and Zucman address this.
"They argue that increased savings from the rest of the population (as the result of decreased inequality) and government measures could potentially offset any reduction in the capital stock."
Mass Exodus. The biggest argument against these plans is that the rich will leave the country, find ways to hide their money or renounce their citizenship. Six countries currently have some type of wealth tax but because they fall mostly on income or as part of yearly income, it affects the upper-middle class as well as rich and the super-rich, affecting a large section of the population and thus, harder to regulate. According to Saez and Zucman, that's where Europe failed and Warren will succeed. Her plan has an exit tax of 40 percent for renouncing citizenship, will leverage the existing FATCA and CRS act (every other country uses a localized taxation system) to ensure compliance with paying these taxes wherever a U.S. super-rich may be. This act warrants detailed reports from banks worldwide (already in place), and other financial institutions about US citizens. Warren's plan additionally calls for a significant increase in the IRS enforcement budget and infrastructure, and recognition that this small targeted group will have a much harder time using loopholes. Lastly, the American billionaires say "tax us."
Is the American dream dead? Many critics think it attacks the idea that if you work hard you can become a success and make it. America, the land of opportunity. They think Warren and Bernie's plan attacks the idea of Capitalism and the American dream. But take a look at the numbers. Let's be honest here, even if the plan was in place from 1982, all billionaires on this list would still be billionaires, with more money than they could ever spend. The American dream is frankly about the opportunity to make it, and with the expenses of healthcare, educational debt, and low paying jobs, the 99 percent are having a hard time achieving that goal.
It would be expensive. Critics bring up how expensive it would be to administer, that it was tough on those with lots of assets and little cash, and it pushed the rich out of the taxing countries. Because of how small the affected families are, Bernie's plan mandates an IRS audit of 30 percent of wealth tax returns for the 1 percent and 100 percent for all billionaires along with a 40 percent exit tax on wealth below $1 billion and 60 percent over $1 billion. If the U.S. could freeze the assets of Iran then I'm sure they can freeze the assets of an errant billionaire. Hey, the proceeds can even go toward funding the IRS.
Is a wealth tax even legal? Some argue if the wealth tax is constitutional. For Warren's part, she has published over a dozen letters from legal experts saying it is. But even if it was not, if this is the best way to fix the inequality problem, then amend away. If the law does not allow it, then the law should change. Please remember that the law did not allow women to vote not that long ago.
Reality
The reality is that this will be a very difficult law to pursue or pass. These candidates will have a lot of enemies if either one of them makes through the primaries or become President. A billion dollars can buy a lot of lobbyists and senatorial support. Also, the billion-dollar question is whether the government can transparently allocate the money taxed, back to the social programs mentioned without corruption and misuse. Ultimately, is it worth the fight to end inequality and fix the American standard of living for the 99 percent? You decide....
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