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We're going to need a wealth tax

July 12, 2020

Before the covid-19 pandemic, I never would have considered a wealth tax. But this is a national emergency. Income tax revenue is way down due to the stay-at-home order and restrictions on non-essential businesses. At the same time, the expense of fighting the pandemic is rising. The federal government was running a huge deficit before this started, so all the money it has magically created for "stimulus" payments to individuals and businesses is going to have to be paid back when this is over. There is going to be a huge need and the only place to find that kind of money is the accumulated wealth of citizens.

Presidential candidate Elizabeth Warren called her wealth tax a "Ultra-millionaire tax". It was proposed to finance Medicare for All and applied only to households with net worth over $50 million. The rate was 2% on household net worth over $50 million with a 4% surtax on the amount over $1 billion. So if your net worth was $2 billion, you'd pay 2% on the $950 million between $50 million and $1 billion and 6% on the remaining $1 billion, for a total liability of $79 million - about 4% over all. The tax was annual. Warren expected it to bring in $3.75 trillion in revenue over a ten-year period.

We are going to need a lot more than that. $3.75 trillion divided by 10 is $375 billion, about one-third of the budget deficit. We need enough to finance Medicare for All, eliminate the budget deficit, get started on repairing the nation's infrastructure, and pay back all that stimulus money. To get it, I would expand Warren's wealth tax to include a larger swath of wealthy households, starting with those worth over $1 million. Something like this:

For example, if you were worth $55 million, you'd pay 1% on the $4 million between $1,000,000 and $5,000,000($400,000), 2% on the next $5 million ($100,000), 3% on the next $40 million ($1,200,000), and 5% on that last $5 million ($250,000) for a total of $1,950,000. Households worth less than $1 million would pay nothing.

I don't know how much revenue this would generate. Rates and ranges would have to be adjusted to match the amount brought in to the amount needed.

In addition, I would eliminate the corporate income tax, require corporations to distribute all income to shareholders and eliminate the special treatment of dividends and capital gains. That would likely result in a net revenue loss, but it has other advantages:

1. It would make the U.S. a more inviting place to do business compared to other countries.

2. Not having to pay the tax would reduce corporate costs, allowing them to lower prices, thereby increasing customers' standard of living by an amount approximately equal to the loss in corporate tax revenue.

3. Having to pay tax on dividends and capital gains at the same rate as on ordinary income would eliminate a tax inequity enjoyed primary by wealthier taxpayers.

I would also impose a carbon tax to combat global warming and make up the revenue loss from eliminating the corporate tax.

Another idea: To Pay for the Pandemic, Dry Out the Tax Havens, Foreign Policy, July 16, 2020

Also: Covid: Argentina passes tax on wealthy to pay for virus measures, BBC News, December 5, 2020

Send comments, questions, and tips to stevenrharry@gmail.com or call or text me at 517-730-2638. If you'd like to be notified by email when I post a new story, let me know.

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