Wednesday Jun 23

Winter 2020

Tax Wealth – What Do We Have to Lose: The Billionaire Vote?

By Drummond Pike

I’m richer than the average person – not exactly a 1 percenter, but I’ve been more than fortunate, mostly due to a business I helped start in the ‘80s. The 1% definition, of course, is a moving target. According to a Bloomberg report in October 2019, the income test for the top 1% hit $515,371 for the tax year 2017, and it’s not, like, gone down since then. Now if you’re one of the lucky ones on that track, you’ll have to save a good portion of that income in order to hit the top 1% in net worth which for 2020 was pegged by the Federal Reserve at some $11.1 million, and you need 4 times that to join the exclusive wannabe Mar-a-Lago applicants in the top .1%. Of course, that’s the bottom rung for a crowd that tops out with the Bezos and Elon Musk folks in the hundred billion-dollar plus club. ($100,000,000,000.00 is a very large number.)

It’s useful to consider these statistics when talking about a wealth tax, two words that will never be seen in a Republican Party platform, even if they had one (which they don’t, having decided in the 2020 campaign they didn’t need to burden their idol with actual policy positions). But a wealth tax in this fractured political era is starting to be discussed in some circles more seriously than any time I can remember, and there are intriguing new arguments in its favor that go far beyond “fairness” or “justice.”

Perhaps the most interesting is that made by Djaffar Shalchi, the remarkable Danish entrepreneur. I came across his story while following the convention-busting writer, Anand Giridharadas, whose “The.Ink” subscription blog regularly disturbs popular thinking. Giridharadas’ recent book, Winners Take All slays the myth of noblesse oblige; while the mega-wealthy do engage in philanthropy for social good, he argues, they never do in a fashion that threatens their accumulated winnings or the structures that got them there. After all, why should they? Instead, more often than not, the “winners” and their minions stoke the fear of “socialism” that will emasculate the vitality of capitalism and destroy freedom and liberty. Sound familiar?

Djaffar Shalchi immigrated as a child to Denmark from a dysfunctional state (Iran under the Shah’s repressive rule in the ‘60s) in a complicated family saga. Denmark, of course, is not the favorite stalking horse of rightwing fear-mongers certain America is becoming little more than a Soviet client-state. They far prefer Venezuela or Cuba as models to scare people. But they do complain that Scandinavia’s high taxation and generous (and popular) social programs funding health, education, and welfare would bury vaunted American entrepreneurial spirit and suffocate the economy. Remember Trump’s unfunded tax cuts from 2017 that promised the creation of “millions of new jobs”? No such luck. In the years that followed, prior to the pandemic, average monthly job creation fell from the prior four-year average of 220,000 jobs to a meager 11,000 in 2018 and 2019.

The socialism that conservatives rail against is the idea that government funded programs can provide for broad social needs. They are happy to socialize the costs of unbridled free market fundamentalism (e.g., bailing out the banks in 2008-9) but create affordable healthcare for all? Not a chance – that’s tantamount to communism. The GOP mantra might well be, as my friend Rob Johnson of the Institute for New Economic Thinking often says, “privatize the gains, socialize the losses,” thus keeping the rich safe from the effects of actual capitalism.

Shalchi, in his interview with Giridharadas, sets out his argument that social democratic Denmark is actually more friendly to entrepreneurs even with its high levels of taxation. To start a business there, one can assume that employees have their healthcare paid for (by taxes), have been educated extremely well for free (by taxes), and commonly share benefits of family leave, pensions, and the like (by taxes). It turns out that people are not disincentivized from hard work by high taxation, but value the security and high quality of what those taxes produce. Whodathunk?

So back here in the old US of A, where we pay far less than the average Dane in income taxes (max of 38% v. over 50%), the idea of a wealth tax has quietly entered the public dialogue as a potential means of financing “Medicare for All” or other social programs. It may well be the most viable way of achieving the twin goals of paying for social programs while addressing the gross economic inequality of our current “Golden Age.” It’s a tool being deployed in such notoriously troubled economies as Norway and Switzerland. I know: perish the thought.

A wealth tax is always assessed above a certain level of net assets. In the US, there are more than 15 million taxpayers with net worth of greater that $1 million, and 1.5 million with ten times that amount. Even if limited to just the 100,000 households worth more than $50 million and if taxed at a very low rate, it would produce substantial revenue. Elizabeth Warren’s latest proposal does this by limiting it to these very lucky 100,000 Americans by taxing wealth above $50 million at a 2% rate, and wealth above $1 billion at 3%. Estimates from experts suggest new revenue would total some $3 trillion over the coming decade if it were to pass.

Such a tax will involve complicated new calculations to ascertain “net worth,” which one can imagine will make tax lawyers and “work-around-artists” very happy. With the American super-wealthy already notorious tax dodgers thanks in no small part to a decade-long GOP effort to de-fund IRS enforcement (the number of auditors in the agency has fallen by a third since Republicans re-claimed Congress in 2010), a wealth tax needs to be accompanied by a proper enforcement budget. Tax cheats ought not to be tolerated, especially in this “Golden Age” of high-end wealth accumulation. There’s only so much inequality that a democracy can handle. 

No one knows if Trump’s debt-saddled “house of cards” empire will survive the many threats facing it now that he is out of office, but it is ironic in the extreme that Republicans’ fervent worship is now complimented by majority GOP support for taxing the super-wealthy (53% of Trump voters, according to Reuters/Ipsos polling). The unending anti-tax efforts of Grover Norquist and friends is losing its grip, or so it would seem.

In a future, socially-progressive America, perhaps sporting a wealth tax, one can imagine more than a few Djaffar Shalchis generating far more well-paying jobs than the failed “trickle down” economics of current GOP idolatry.

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