I often hear that Joe Biden does not go far enough with his tax plans. In the somewhat liberal echo chamber which can sometimes be my friendship group, it is easy to reject Biden’s entire policy platform as overly illiberal, sacrificing ambition and promise for a lacklustre idea of moderation. Bernie Sanders especially is often pointed to as an example of a candidate who had a much more promising platform, raging against billionaires with a Wealth Tax comprising a key element of his campaign platform. This brief essay will analyse a wealth tax not only from the perspective of its efficacy and morality, but also whether pragmatic for a policy planner to implement one within their platform.
Both Elizabeth Warren and Bernie Sanders proposed a wealth tax targeting high millionaires and billionaires. A wealth tax would not only tax the income of the ultra-wealthy, but rather would tax based upon a share the total value of their assets. Each of the aforementioned senators argued for a tax only upon the ultra-rich. Warren proposed a tax of 2% for those with a net worth of over 50 Million and 6% for wealth over $1 billion. Meanwhile, Bernie had the same 2% tax over 50 million whilst also proposing an even more aggressive 8% for wealth over $1 billion dollars
Before I discuss the practicalities of actually implementing a wealth tax, it is worth considering whether a wealth tax is justified morally. I believe it is. Whilst a wealth would be immoral if applied to a working class or middle-class person, bills to have a wealth tax only realistically apply to those at the very top. Those who a wealth tax would apply to generally have far more money than they need deserve, and it is not morally wrong to take some of it to fund initiatives such as healthcare or benefits for the poor. Everyone subject to a Warren or Sanders style wealth tax still will have $50 Million of assets which are completely untaxable, which should be more than plenty. Those at the top will have taken advantage of the USA’s social structures, government institutions and general populace. They likely will have also had a large degree of luck involved in their success. It is moral to suggest that, whilst they are entitled to a large degree of their earnings, they have a certain responsibility to give back to those who were facilitated their success as well as to aid those who did not have the same degree of luck and so ended up in lower positions in society. There is nothing that those who ultimately became centimillionaires or billionaires did which gives them more moral worth, they just happened to have the luck or specific skills at the time which allowed them to be successful. Therefore, it is indeed justified to take a portion of their wealth to repay those who their success lied upon or help out those who the person could have become if bad luck led them to being less successful. This duty to society it no different with static income than with taxable income. Indeed, it is perhaps morally justified to suggest there should not be such big inequalities within society. Above 50 Million dollars, those being taxed almost certainly have more money than they need anyways, and taking a small share will not change this. Therefore, due to the societal duty incurred upon the wealthy, a wealth tax is justified.
The bigger question when addressing its feasibility is how successfully it would generate funds. And unfortunately for the most part it does not seem to be that effectively. Theoretically, it would raise a very large amount. It is estimated that Warren’s wealth tax would raise $2.75T over its 10 years of implementation. It is possible there could be follow-on effects which reduce the productivity of the economy, thus lowering revenue overall in the long term; however, the negative effects within projections from Wharton, UPenn are not too serious and are undoubtedly outweighed by the benefits coming from the potential new influx of cash into the government. There have been arguments that a wealth tax would have other adverse affects on the economy. Most notably, critics say, a wealth tax could lead to a decrease in capital stock and innovation. However such arguments generally do not carry to much weight to them. Firstly, decreases in capital stock (which are likely not going to be too extreme) can be offset by the government, and are thus not generally to big an issue. Decreases in innovation, meanwhile, are unlikely to happen to a large degree due to the nature of innovation, and how it generally occurs with younger individuals who fall outside of its reach. However, a wealth tax does undoubtedly have problems. It is with actually administering the wealth tax and trying to ensure all those who are liable to pay actually do pay where the first issue for a potential policy-maker is reached.
Tax evasion is already an extremely prescient issue within the US, especially among the billionaire class. Numerous loopholes, both accidentally and intentionally put in (intentionally largely due to lobbying and influence groups) exist which limit the amount billionaires need to pay. One only needs to look at the case of Trump’s tax returns to highlight how easy it can be for billionaires to avoid paying taxes, through a number of mechanisms. An estimated $40B at least is lost every year through tax loopholes from the billionaire. This disparity would be vastly amplified with a wealth tax. It may genuinely be difficult to fully appraise the value and worth of an individual’s holdings. Under our current system, an item’s worth is generally determined by how much an individual will pay for it. With a wealth tax, by contrast, a series of subjective estimates will have to be made on items such as art, real-estate, or private enterprises, thus opening up significantly the room for corruption and loopholes. Such a system would need excessive bureaucracy which would likely struggle to fully comprehend and objectively evaluate the wealth of an individual. Considering how many billionaires pay no tax under our much more clearly defined and clearly understandable system nowadays, it is uncertain this tax will generate near to as much new revenue as it sets out to.
Moreover, it is unlikely that it will be politically feasible to pass such a bill. It is likely such a bill would get no support at all from the Republican party. A wealth tax is generally seen as extremely radical by those in the political scene. Whilst this could eventually change, as, according to several polls, around two thirds of Americans support a wealth tax to some degree, under the current status quo it is unlikely to pass. Indeed, it as seen as radical enough to mean many moderate Democrats would not be willing to pass a bill to allow it. It is likely the Democrats would need the presidency (under a left leaning president), a moderate majority in the House, and an overwhelming majority in the Senate to introduce a wealth tax, due to the filibuster. This is generally unfeasible to expect to happen, and therefore it is unlikely any candidate will be able to pass a bill proposing a wealth tax.
However, perhaps the biggest issue with a wealth tax is its constitutionality. It is laid out within the constitution that any ‘direct taxes’ must be apportioned throughout the population. This essentially means that if a wealth tax is considered a direct tax, it is unconstitutional unless excused by the 16th amendment, which exempts taxes which are based upon ‘Incomes, from whatever source derived, without apportionment’. However, such an amendment likely only applies to income taxes, not wealth taxes. This thus means that any wealth tax would likely be struck down by a legal challenge in court. This is especially likely due to the increasingly conservative tilt of the Supreme Court right now. Thus it is likely that, even if a theoretical bill which closed all loopholes actually managed to overcome the challenges it faces and pass into law, it would likely be struck down due to being unconstitutional. This presents the last nail in the coffin for the feasibility of actually implementing a wealth tax within the US.
Thus, whilst a wealth tax is a compelling concept, and may indeed be morally and economically sound, it is not really possible at the moment. Due to the difficulties faced in actually making billionaires pay, passing the bill through government and its likely unconstitutionality, at least for the present a wealth tax is not a feasible option within the US. Therefore, wealth taxes, even if theoretically a good idea, are unfeasible within the US today. Other proposals, such as increased capital-gains taxes, income taxes, inheritance tax or sales tax are currently much better tools for a policy planner than a wealth tax.