The first thing to say is: carefully. You don’t want to do something that sounds good, like raising the rate on wealth to equal the rate on work, but that winds up costing money (because to avoid tax, billionaires need only not sell, borrowing against their holdings instead).
I recently suggested ways I particularly like to raise more revenue. (Raise the corporate rate partway back, add a surcharge where the boss makes hundreds of times more than the median worker, end 1031 exchanges, close the carried interest loophole, close estate tax loopholes, fund the IRS adequately.) If you missed that column and have an interest in this stuff, take a look?
Today, though, I want to talk specifically about “the wealth tax.”
I think there may be a way to enact one that even many ultra-high net worth individuals would accept. I’d like to know what you think.
Begin, though, with this:
The headline says it all.
And extreme inequality rarely ends well.
Seven years ago, billionaire Nick Hanauer wrote The Pitchforks Are Coming . . . For Us Plutocrats.
Since then, it’s only gotten worse: “Over the last 16 months, since the formal beginning of the pandemic lockdown,” reports Inequality.org, “the combined wealth of 713 U.S. billionaires has surged by $1.8 trillion, a gain of almost 60 percent. U.S. Billionaire wealth increased 19-fold over the last 31 years, from an inflation adjusted $240 billion in 1990 to $4.7 trillion in 2021.”
Four Americans, combined, have more wealth than the bottom 165 million.
And I say: good for them!
Because the second thing to say is: the language we use in discussing a wealth tax should be “non-pejorative.”
I bridled at all the flak Jeff Bezos took for his space flight — and for thanking his customers and employees for making it possible.
To me, Bezos is a great American.
I constantly use Amazon . . . no one forces me to . . . and am generally delighted that I can. Amazon-owned Audible? Ditto.
Yes, of course there are trade-offs.
Remember bookstores? Oh, how I miss going into one after another surreptitiously placing my book on top of Suze Orman’s. (Just kidding: Suze is a friend. She used to use my software!)
I would not argue Jeff Bezos has balanced every trade-off perfectly.
> Why, for example, did it take him until 2018 to raise Amazon’s minimum wage to $15? Why not 2017 or 2016? Why not $16 or $17?
But in a world where the federal minimum wage in 2018 was $7.25 an hour (and remains there in 2021, thanks to the Republican Party) — and where Washington State’s minimum wage was set to rise to only $12 a few months later — maybe $15 wasn’t so bad?
> Why, to take another example, did he pledge only $10 billion to the Bezos Earth Fund? Why not $20 billion or $30 billion? And why isn’t he deploying it faster?
But isn’t this a pretty good voluntary first step?
> Why is this effort to squeeze waste out of Amazon’s packaging not further along?
But isn’t it good that they’re trying?
And so on.
There are doubtless grounds on which fairly to criticize Amazon and Bezos — his critics serve a valuable function in pushing him to do better, faster.
But isn’t that true of all of us?
In a world where “Democracy Dies In Darkness,” aren’t we glad Jeff Bezos bought the Washington Post and not Rupert Murdoch?
So now let’s talk taxes.
Rather than vilify the ultra-rich for legally avoiding them, why not levy one they’d have to pay?
And — as I say — in a non-pejorative way, because it costs us nothing to applaud the ultra-wealthy for their success and thank them for sharing it, via taxes, with everyone else.
What if you . . .
1. Exempt the first $100 million. So barely one taxpayer in ten thousand would ever even have to think about it.
By one estimate, it takes $4.4 million, including your home, to be in the top 1%. To make the top tenth of one percent, estimate range from $25 million to $40 million. Exempting the first $100 million should exempt all but about the top hundredth of a percent.
(This calculator will show you where you stand — but gives up after $18 million. Whether you enter $18 million or $18 billion, it puts you in the top half of one percent.)
Fine with me to index that $100 million to inflation — and maybe throw in an extra $25 million exemption for personal effects like art and jewelry and anything else. Odds and ends. The goal here is not to nickel and dime anyone, or subject them to elaborate, soul-crushing audits. Just to get the broad strokes right.
2. Collect 2% of the excess each year for 10 years — but only 10 years — and none of it in cash.
Imagine someone whose entire net worth, apart from a couple of nice homes, a modest yacht, and a Picasso, were his shares in some public — or private — company. Plus 20,000 acres of farmland in Virginia and a 40-storey office tower in Dallas. Everything else she or he owned would be a rounding error, falling easily within the $100 million exemption (and that extra little $25 million exemption for non-financial assets). In all, say, $1 billion in taxable wealth — though there’d be no need to value it to the penny, because no pennies would change hands. Instead, 2% of those shares, and a 2% interest in those acres and that office tower, would be transferred to the United States Treasury and held in a special U.S. Patriots Infrastructure Account.
After 10 years of this, when much of our infrastructure and economy had been revitalized and the law had sunset, she or he would have just 81.7% as large a stake in the shares, farmland, and tower (not 80%, because after the first year, you’re grabbing 2% of the remaining 98%, etc.) . . . but the shares, farmland, and tower might have doubled in value by then (at 7%, compounded) — or at least grown by more than had been taxed-away — so the taxpayer’s 81.7% would be worth more than the 100% she or he started with, even as she or he had chipped in mightily to help America meet its challenges.
> Any dividends or distributions along the way would have gone 98% to the ultra-high net worth individual (in the first year, falling a bit each year) and 2% to the U.S. Patriots Infrastructure Account (rising to 18.3% in the 10th year) .
> The Treasury would be a passive holder — it would not vote or sell its shares; it would not sell its share of the Virginia farmland or the Dallas office tower . . . though if the company were acquired, Treasury would get its share of the proceeds like any anyone else. (As it would if the taxpayer ever sold the farm or the tower.)
Doing it this way would raise more than $1 trillion over 10 years. Which isn’t all we need, but is sure a good start. (I’m one of those who believes it’s okay to borrow to fund infrastructure that will last 50 and 100 years — that it will pay for itself through economic growth and increased efficiency.)
If instead of 2% you set the rate at 3% or 4% — perhaps after the first $1 billion — you’d raise that much more.
The “money” raised wouldn’t be in cash, but that’s fine: the Treasury doesn’t literally sit on hundred-dollar bills; its balance sheet is assets and liabilities. Adding $1 trillion in assets strengthens the balance sheet.
Not forcing the taxpayers to pay cash avoids all manner of otherwise-deal-breaking problems. E.g.: How do you value private company stock? Or the Van Gogh? Or the equity in a heavily mortgaged office tower? How do you sell just 2% of an office tower each year to raise cash to pay the tax? What would it do to the value of a thinly traded stock if its major shareholder has to sell a chunk each year to raise cash to pay the tax? What do you do if someone paid $20 million tax on $1 billion worth of shares that collapsed the following month — could he get a refund? All those problems and more go away if you simply receive the 2% of the assets themselves.
Municipal bonds? Transfer 2% of them to the U.S. Patriots Infrastructure Account.
A $300 million art collection? Sweep all the minor pieces under the umbrella of the $100 million and $25 million exemptions but sign over a 2% interest in each of the major pieces each year for ten years. If that Van Gogh is ever sold, the U.S. Patriots Infrastructure Account would get its proportionate share of the proceeds.
Some billionaires might renounce their citizenship to avoid this tax, but because it would sunset after 10 years — and because taxpayers would be lauded for paying it — most might not.
There might be financial disincentives to leaving, also, like some sort of “exit tax” — as already exists.
Perhaps Secretary Yellen could persuade other countries to adopt a similar program, as she has persuaded a growing number to adopt a 15% minimum corporate income tax, so there’d be less financial advantage to emigrating.
In drafting the details, Treasury should hire top-level tax pros (pro-bono or, if necessary, at top dollar) to anticipate the loopholes and close them in advance. E.g., splitting your $500 million net worth into five $100-million-exempt trusts for each of your grandchildren. There could be penalties for knowingly and purposefully violating the intent of the law.
I’d staff an elite corps at the I.R.S to administer this program — and give them discretion to award taxpayers up to a 5% discount for being forthright and cooperative and making the process go quickly and amicably each year.
Why not? We’re all in this together.
Two percent a year for 10 years — while not nothing — sure beats having to storm the beaches of Normandy or slog through the jungles of Vietnam. Or fly commercial.
Taxes are the price we pay for civilization. It would be great if the nation’s few thousand most successful citizens chose to embrace this chance to step up in service of a grateful nation. I think many would. The rest would have to pay anyway . . . but perhaps not get the 5% discount.
What do you think?
Quote of the Day
Be who you are and say what you feel because those who mind don’t matter and those who matter don’t mind.~Dr. Seuss
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