Elizabeth Warren Wants a Wealth Tax. How Would That Even Work?

There are other tools that don’t involve quite the risks and challenges of targeting the richest families.

When the United States government wants to raise money from individuals, its mode of choice, for more than a century, has been to tax what people earn — the income they receive from work or investments.

But what if instead the government taxed the wealth you had accumulated?

That is the idea behind a policy Senator Elizabeth Warren has embraced in her presidential campaign. It represents a more substantial rethinking of the federal government’s approach to taxation than anything a major presidential candidate has proposed in recent memory — a new wealth tax that would have enormous implications for inequality.

It would shift more of the burden of paying for government toward the families that have accumulated fortunes in the hundreds of millions or billions of dollars. And over time, such a tax would make it less likely that such fortunes develop.

It would create big new challenges for the I.R.S. in ensuring compliance. There is a reason many European countries that once had a wealth tax have abandoned it in the last couple of decades.

And that’s before you get to the legal and political challenges. There is an open debate around whether a wealth tax is constitutional. And some of the most powerful families in the country would certainly deploy their vast resources against a wealth tax, and against any candidate who embraces it.

The comedian Chris Rock had a routine in the early 2000s in which he expounded on the distinction between those who are rich and those who are wealthy.

Shaquille O’Neal, the star basketball player, was rich, Mr. Rock said. The team owner who signed his paycheck was wealthy. And that, in a nutshell, gets at the conceptual difference between trying to tax people’s income, as the tax code does today, versus their wealth.

The C.E.O. of Walmart makes about $22 million a year. He is rich by any definition. But the Walton family, descendants of the company’s founder, are mind-bogglingly wealthy. The Bloomberg Billionaires index estimates that Sam Walton’s three living children are worth around $45 billion each, putting them each among the 20 wealthiest people in the world.

A family that has accumulated enormous wealth can escape with surprisingly low income levels, and therefore tax burdens.

In an extreme example, Warren Buffett owns enough stock in Berkshire Hathaway to put his estimated net worth at $84 billion, but he pays himself $100,000 a year to be its chief executive. Even in years when his wealth rises by billions, he must pay tax only on his comparatively modest income and on the gains from shares that he chooses to sell.

Ms. Warren and other advocates of a wealth tax argue that this accumulation of untaxed or lightly taxed wealth is a bad thing. They say that it enables the creation of democracy-distorting dynasties who accumulate political power, and that tax policy should be used to rein them in more than the current tax code does.

The ‘Rotten Equilibrium’ of Republican Politics

the 20 most prosperous districts are now held by Democrats, while Republicans represent 16 of the 20 least prosperous, measured by share of G.D.P. The accompanying chart illustrates their analysis.

.. The authors’ calculation of the contribution to the G.D.P. of every congressional district showed that Democratic districts produce $10.2 trillion of the nation’s goods and services and Republican districts $6.2 trillion.

This trend creates a significant dilemma for Trump and the Republican Party. Candidates on the right do best during hard times and in recent elections, they have gained the most politically in regions experiencing the sharpest downturn. Electorally speaking, in other words, Republicans profit from economic stagnation and decline.

Let’s return to John Austin of the Michigan Economic Center. In an email he describes this unusual situation succinctly: “A rising economic tide tends to sink the Trump tugboat,” adding

“Certainly more people and communities that are feeling abandoned, not part of a vibrant economy means more fertile ground for the resentment politics and ‘blaming others’ for people’s woes (like immigrants and people of color) that fuel Trump’s supporters.”

The small- and medium-sized factory towns that dot the highways and byways of Michigan, Indiana, Ohio and Wisconsin have lost their anchor employers and are struggling to fill the void. Many of these communities, including once solidly Democratic-voting, union-heavy, blue collar strongholds, flipped to Trump in 2016.

This pattern is not limited to the United States. There are numerous studies demonstrating that European and British voters who are falling behind in the global economy, and who were hurt by the 2008 recession and the subsequent cuts to the welfare state, drove Brexit as well as the rise of right-wing populist parties.

..In a July 2018 paper, “Did Austerity Cause Brexit?” Thiemo Fetzer, an economist at the University of Warwick in Coventry, England, argues that austerity policies adopted in the wake of the 2008 financial collapse were crucial both to voter support for the right-wing populist party UKIP in Britain and to voter approval of Brexit.

the EU referendum (Brexit) could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances. Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onward as austerity started to bite

.. The results here and in England reinforce the conclusion that the worse things get, the better the right does.

As a rule, as economic conditions improve and voters begin to feel more secure, they become more generous and more liberal. In the United States, this means that voters move to the left; in Britain, it means voters are stronger in their support for staying in the European Union.

Davos: A Family Reunion for the People who Broke the Modern World

For the past several decades, world leaders, CEOs, tech titans, billionaires, philanthropists, and celebrities have descended upon Davos, Switzerland with the goal of “improving the state of the world.” Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, says they are part of the problem.

Trade wasn’t working for everyone.

Dynamic scheduling, underpaid, contractors, fight minimum wage, more flexible labor, tax cults for the wealthy anti-inheritance taxes, evade existing taxes, rewards offshoring, expresses no loyalty to communities. (5 min)

I don’t think arsonist need to attend at a firefighter’s convention.

Poor people are very accessible. They want someone to bear witness. They don’t have publicists.

You can’t understand inequality without understanding rich people and the systems they use to justify themselves (10 min)

Today’s elites are among the most socially away, yet also predatory

I don’t think we have free markets, we have a capitalism of monopoly, and rent seeking

Jane Meyer’s Dark Money: how we got here.

Business didn’t have power (Nixon started the EPA) and worked to understand it. They used an alliance with evangelicals and philanthropy to build power.

History is life a mob boss: we can do this the easy way or we can do this the hard way.  It can go down like the civil war or women’s suffrage.

82% of new money was in the 1 percent’s hands.

It’s going to require many to become traitor’s to their class.  If Gates devoted as much to pushing an estate tax, he could have a bigger impact.

I think things are changing.  There aren’t going to be as many Goldman Sachs and McKinsey people in the next administration.

‘The aristocrats are out of touch’: Davos elites believe the answer to inequality is ‘upskilling’

At the same time, they panned the idea of higher tax rates for society’s wealthiest

Leaders of the world’s largest and most powerful companies are on edge. A decade after the financial crisis, their businesses are thriving and their pocketbooks are overflowing, but they worry about populism and the threat it poses to the global order they helped build.

Many executives gathered at the exclusive World Economic Forum this week acknowledged that inequality is a major problem fueling populist backlash, and that some middle-class jobs in the West are being lost to trade and automation (even though more jobs overall are being created around the world).

A few business leaders in Davos went so far as compare today’s situation to the late 19th century, an era when tycoons like Andrew Carnegie, Andrew W. Mellon, and John D. Rockefeller amassed huge fortunes while most in the working class toiled under harsh conditions.

“We’re living in a Gilded Age,” said Scott Minerd, chief investment officer of Guggenheim Partners, which manages more than $265 billion in assets. “I think, in America, the aristocrats are out of touch. They don’t understand the issues around the common man.”

The solution to inequality, many in Davos said, is “upskilling” people so that they can obtain better jobs in the digital economy.

“The lack of education in those areas in digital is absolutely shocking. That has to be changed,” Stephen A. Schwarzman, chief executive of Blackstone, told a panel. “That will very much lessen the inequalities that people have in terms of job opportunities.”

Schwarzman, whose net worth is estimated at $13 billion, said it is “up to the grown-ups” to make digital upskilling happen in K-12 schools.

.. His calls were echoed by others, including Ruth Porat, chief financial officer at Alphabet, Google’s parent company; Keith Block, co-chief executive of Salesforce; C Vijayakumar, chief executive of HCL Technologies; and Michael Dell, founder of Dell Technologies.

“All of us collectively can do quite a lot to create opportunities so that everybody is included in this growth,” said Dell, who is worth an estimated $28 billion. “It’s going to require lots of new skills, capabilities.”

Dell said the issue goes beyond K-12 education and that companies need to train workers continuously. His own company struggles with finding enough skilled workers, and poaching them from other companies doesn’t work, Dell added. “You need to hire and train and grow them from within.”

.. In a report released earlier this month, the forum estimated it would cost the United States $34 billion to reskill the 1.37 million workers expected to lose their jobs to automation in the next decade. The forum said 86 percent of the cost “would likely fall on the government.”

“Upskilling is not going to alter the insecurities and inequalities,” said Guy Standing, author of “The Precariat: The New Dangerous Class,” who spoke on four panels at Davos this year. He said most executives still don’t understand what is needed.

Standing said calls for more education and training were a “cop-out,” and that the result would undoubtedly help only a small number of people, which in turn could bring down wages and status in whatever new jobs they went on to obtain.

study in 2015 by economists Brad J. Hershbein, Melissa S. Kearney and Lawrence H. Summers postulated what would happen if 10 percent of American men, ages 25 to 64, who did not have a bachelor’s degree suddenly obtained one. They found that it would improve pay and job prospects for the men who earned the degrees, but would do little to reduce the inequality gap because the richest Americans have so much more income and wealth.

But millionaires and billionaires in Davos panned the idea of higher taxes, arguing that the private sector does a better job than the government of spending money wisely.

“No, I am not supportive of that, and I don’t think it would help the growth of the U.S. economy,” Dell responded when asked about his views of Ocasio-Cortez’s proposal for a 70 percent marginal income tax on earnings above $10 million.

Dell noted that he and his wife contribute most of their wealth to a foundation. “I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government.

Others argued that their tax rate is already high and that raising tax rates could push people to move abroad or not invest.

“If I look at my tax rate now, it’s probably well into the 60s,” said AECOM chief executive Michael S. Burke, adding that he pays federal taxes, California income taxes, sales tax and a significant property tax. “I think we ought to have a competitive tax rate.”

.. When asked whether corporations should pay higher taxes, executives again criticized the idea. In 2017, President Trump and the Republicans in Congress passed a sweeping tax bill with the largest corporate tax cut in U.S. history.

“It’s an easy fix, I think, for many people to say, ‘Well, let’s just tax,’” Block said during a panel.

By contrast, leaders from academia and the nonprofit world were quick to call for higher taxes and a redistribution of income.

.. An Oxfam report this week found that the share of wealth held by billionaires was increasing by $2.5 billion a day, while the share of wealth among the 3.8 billion of the world’s poorest was decreasing by $500 million dollars a day. While some quibble with the methodology of the Oxfam report, there’s widespread consensus that inequality is getting worse in many parts of the world.

.. “Davos is always in favor of reducing inequality and poverty: locally, nationally and globally — but not if they have to pay for it,” tweeted economist Branko Milanovic who studies inequality at the City University of New York (CUNY).

However, others said it was not practical to look for solutions to the problems of the common man from the top echelons of society.

“There’s an uncomfortable awareness that things are not right, the ecological crisis, the angst out there, the Brexit vote, the Trump vote, but then they come up with these bromide platitudes,” said Standing. “But in a sense, we can’t expect them to provide the answers. They are part of the problem.”