Justifying a Wealth Tax

5/13/20

We’re all in this together. Not.

While we’re all suffering social isolation, the economic impact of this pandemic is anything but shared. Some are getting clobbered, but others are doing just fine.

Those lucky enough to find themselves still employed at their pre-pandemic salary levels have dodged a bullet. More likely than not, they’re probably adding to their savings at a faster pace now, relative to what they were able to save, before. Also, the rich have also been largely insulated from the economic effects of the pandemic. Sure, their portfolios have taken somewhat of a hit, but if they’re rich enough, where they’ve been able to exist without eating into their capital, there’s a real good chance that those losses will be reversed overtime.

It looks like we could be talking about years before an economic recovery of any consequence gets under way. Until we turn that corner, increasing numbers of households will be moving out of the “haves” camp into the “have-nots.” The conditions call for bold, structural change. In particular, those who’ve largely been insulated from the economic effects of this pandemic need to share their wealth.

The preferred solution would be a wealth tax along the lines of the one proposed by Elizabeth Warren. Recall that she proposed a marginal tax rate of 2% for wealth in excess of $50 million, going up to 3% for wealth over $1 billion. (I’d actually prefer a starting marginal rate of 5%. That’s just a nickel of each dollar of wealth, exempting the first $50 million.) The criticisms I hear most often about a wealth tax are (1) that fair and accurate valuation of personal wealth is difficult, and people will cheat and (2) people with wealth will leave the US.

Two responses: Call me crazy, but by and large I expect that the vast majority of wealthy people will be responsible and ethical. (With the level of wealth being considered, they certainly can afford to be.) And for those who would leave, good riddance.