Trump's Wealth Tax Plan Is A Billion Times More Radical Than Ocasio's Marginal Tax Rate Proposal

As I've been explaining, Alexandria Ocasio-Cortez's 60-70% marginal tax rate on all annual income over $10,000,000 would struggle be be called moderate. It's actually quite conservative. How many people have annual incomes of over $10,000,000? And those very few people who do, would only have to pay the 60-70% rate on the income over $10,000,000. That threshold is absurd and should be down around $800,000 (with perhaps a 40% rate) then rise to a million dollars with a 50% rate and climb gradually (rates increasing) towards $5 million will the top rate-- 80% kicks in. That's a progressive tax plan. But there's something far more radical than the Howie Klein Tax Plan-- a Federal Wealth Tax, which I haven't seen any member of Congress propose... yet. This week the Institute on Taxation and Economic Policy made the case for one-- making the point that "a federal wealth tax on the richest 0.1 percent of Americans is a viable approach for Congress to raise revenue and is one of the few approaches that could truly address rising inequality." The banksters would be carrying AOC around on their shoulder showering her with rose petals if her plan protected them from this one.

This plan would only impact taxpayers with networths of about $32.2 million. There would be an annual 1% tax on these peoples' wealth over the $32.2 million mark and it would raise around $1.3 trillion over a decade. In other words, if Joe Blow sold enough blow to have accumulated a net worth of $30 million, he would pay zero. If he had accumulated $33 million, he would pay $8,000.

Why the United States Needs a Federal Wealth Tax

The goals of raising revenue and addressing inequality will be difficult to achieve if federal tax policy continues to focus on taxing income almost exclusively.

One reason is that wealth inequality is much greater than income inequality. The 1 percent of Americans with the highest incomes receive about a fifth of the total income in the United States. In contrast, the top 1 percent of wealth holders in the nation own 42 percent of the nation’s wealth...

Likewise, the racial wealth gap is far greater than the racial income gap in the United States. According to Census data, median income in 2017 was about $68,000 for white households compared to $50,000 for Latinx households and about $40,000 for black households. The racial wealth gap is far more dramatic because it is a result of generations of compounded inequality. A recent report from Prosperity Now finds that in 2016 median wealth in the nation was $140,500 for white households but just $3,400 for black households and $6,300 for Latinx households.

Wealth inequality has grown dramatically in the past several decades... The share of wealth held by the very wealthiest 0.1 percent-- a group of just 160,700 families who all had net worth exceeding $20 million in 2012-- tripled from 7 percent in 1978 to 22 percent in 2012. By 2012, the wealthiest 0.1 percent held nearly as much wealth as the bottom 90 percent, who owned 22.8 percent of the total.

...Much of the economic income flowing to the very wealthy each year is entirely exempt from the personal income tax [unrealized capital gains]. The very thing that is driving inequality-- the rapid appreciation of assets held by the wealthy-- is itself nearly untouched by federal taxes.

One solution is for the federal government to tax that wealth directly. The following explains how a mere 1 percent annual federal tax on the wealth of the top 0.1 percent of households would work assuming it takes effect in 2020.

...It is unlikely that the wealth tax would change the behavior of wealthy people in any consequential way. In theory, a tax on wealth could influence a taxpayer’s decisions about how much income to save or consume. Such a tax might reduce the benefit of saving and therefore increase consumption, or it might increase saving if the taxpayer needs to save more to achieve a set target for savings. However, this particular proposal is unlikely to have any significant effects either way because most of the taxpayers affected have so much wealth that there are few practical ways to consume it to avoid paying the tax.

Even assuming that the wealth tax does not change taxpayer behavior, it could affect the revenue collected by other types of taxes. But this analysis does not speculate on such effects because they would be very difficult to determine and not necessarily significant.

For example, if most of these taxpayers pay the wealth tax out of income that otherwise would have been invested in income-generating assets, then the affected taxpayers would have less dividends, capital gains, interest and other capital income in the future and thus pay less in income taxes. On the other hand, the money collected by the federal government through a wealth tax would be spent by the government somehow, which means it would become income to other people who would pay taxes on it. Also, in the case of a taxpayer whose net worth is great enough to be subject to the wealth tax but whose income in a particular year is low or negative, assets might be liquidated in order to pay the wealth tax (for example, corporate stocks might be sold) which would generate capital gains that would be taxed. In other words, a federal wealth tax could have both negative and positive effects on other types of federal taxes, so it is not clear what the net impact would be. It seems reasonable to assume that effects on other types of federal taxes will not significantly reduce the overall revenue yield of the wealth tax described in this analysis.

Fun fact: In 1999, Señor Trumpanzee proposed a one time 14.25% wealth tax on the net worth of individuals and trusts of $10 million or more. At the time, Señor T asserted that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt, although not at the rate that he's been running it up since Putin installed him in the White House, of course. Currently several countries have wealth taxes, including France, Spain, Norway, Italy, Argentina, Holland and Switzerland.

Trumpanzee (version 1999): "No one has put forward a plan to make this country entirely debt free as we enter the next millenium. The plan I am proposing today does not involve smoke and mirrors, phony numbers, financial gimmicks, or the usual economic chicanery you usually find in Disneyland-on-the-Potomac... By my calculations, 1 percent of Americans, who control 90 percent of the wealth in this country, would be affected by my plan. The other 99 percent of the people would get deep reductions in their federal income taxes... Personally this plan would cost me hundreds of millions of dollars, but in all honesty, it's worth it. It is a win-win for the American people, an idea no conventional politician would have the guts to put forward."

After I had written this this morning, I read in the Washington Post that Elizabeth Warren is going to propose an annual wealth tax on Americans with more than $50 million in assets. She's being advised by Emmanuel Saez and Gabriel Zucman, the two economists at UC Berkeley, on whose work the Institute on Taxation and Economic Policy report is based. Jeff Stein and Chris Inhraham wrote that they've advised Warren to levy a 2 percent wealth tax on Americans with assets above $50 million, as well as a 3 percent wealth tax on those who have more than $1 billion.

The wealth tax would raise $2.75 trillion over a ten-year period from about 75,000 families, or less than 0.1 percent of U.S. households, Saez said.

Warren’s campaign declined to comment on details of the plan.

“The Warren wealth tax is pretty big. We think it could have a significant affect on wealth concentration in the long run,” Saez said in an interview. “This is a very interesting development with deep root causes: the fact inequality has been increasing so much, particularly in wealth, and the feeling our current tax system doesn’t do a very good job taxing the very richest people.”

Warren’s proposal includes at least three new mechanisms to combat tax evasion, according to a person familiar with the plan. Those are a significant increase in funding for the Internal Revenue Service; a mandatory audit rate requiring a certain number of people who pay the wealth tax to be subject to an audit every year; and a one-time tax penalty for those who have more than $50 million and try to renounce their U.S. citizenship.

Mark DeSaulnier is one of California's most progressive members of Congress. A member of the Education and Labor Committee and a senior member on the Subcommittee on Labor Protections, he told me this afternoon that "America has an extreme inequality problem. In recent years, inequality has reached pre-Great Depression levels. We must take bold action, like taxing big wealth, to right the ship and ensure that the rich pay their fair share. I’ve supported wealth tax legislation before and have included it as part of our Future of Work, Wages, and Labor initiative as a necessary step to addressing inequality and strengthening our economy."

And the last word goes to... Professor Stephanie Kelton, America's greatest contemporary economist, and the reason why enrolling in Stony Brook University is an especially good idea!