The wealthiest 5 percent of American families now hold $57 trillion, or two-thirds of all household wealth in the country (up from about half in 1960). An exemption for the first $2.5 million of household wealth would exclude the bottom 95 percent from paying any tax at all and leave the top 5 percent with total taxable wealth of roughly $40 trillion. A one-time 5% tax on the richest 5 percent of households could thus raise up to $2 trillion. A onetime assessment of the 5 percent at the top would do wonders — and help prove that we are all in this together.
By Daniel Markovits, a law professor at Yale and the author of “The Meritocracy Trap.” April 21, 2020
The calamitous coronavirus pandemic has befallen an America afflicted by massive, entrenched economic inequality. The resulting hardships — both present and still to come — fall most heavily on the already disadvantaged. This terrible suffering demands an exceptional response, and policies that were controversial just months ago are common sense today, or ought to be. Our extraordinary battle against the pandemic should draw on the immense reserves that the most privileged among us have accumulated over decades of abundance. To achieve this goal, America should institute a wealth tax.
Congress has already enacted three bipartisan relief packages, including the Cares Act, that collectively provide roughly $2 trillion in pandemic aid. Further assistance is hopefully on the way. These are necessary but enormous public expenses. To put them in perspective, the stimulus package enacted in the shadow of the Great Recession was $831 billion, while recent annual federal budget deficits average about $700 billion.
Congress has rightly been more concerned with providing pandemic relief than with paying for it. But eventually, the bill will come due. Government borrowing is tempting because debt is now so cheap. But borrowing will in the end burden the young, who — already worse off than their parents’ generation — are now suffering their second economic calamity in a decade. Instead, the relief effort should be funded through a one-time wealth tax imposed on the richest Americans, whose wealth has exploded alongside rising inequality.
The precise contours of such a tax obviously require detailed design. Still, a rough outline illustrates the basic idea. The wealthiest 5 percent of American families now hold $57 trillion, or two-thirds of all household wealth in the country (up from about half in 1960). An exemption for the first $2.5 million of household wealth would exclude the bottom 95 percent from paying any tax at all and leave the top 5 percent with total taxable wealth of roughly $40 trillion. A 5 percent tax on the richest 5 percent of households could thus raise up to $2 trillion.
The virus does not respect social boundaries, and (especially because there are no miracle cures) it strikes people in every class. Tom Hanks and Prince Charles both caught Covid-19 early, and the news includes daily reports of other rich and famous people who are sick or who have died from the disease.
But the social and economic effects of the coronavirus vary markedly by class. The rich retreat to comfortable homes with private gardens, or even to second houses in the country. The rest remain cooped up, often in small apartments in dense neighborhoods, and struggle to find daily necessities. Even in the face of social distancing, the economic essentials of elite life can continue unabated. The rich tend to do jobs that allow for remote work and provide employment security.
Americans with college degrees are three times more likely to be able to work from home than those with no education past high school, while those who earn more than $80,000 per year are over four times as likely to be able to work from home as those who earn less than $33,000. Small wonder, then, that cellphone location data reveal that residents of rich neighborhoods isolated themselves sooner, and have remained isolated longer, than residents of poor ones.
The inequalities among children are especially awful and will reach deep into our future. Rich private schools move online with great success, while public schools, especially in poorer districts, find remote learning much more challenging. Long summer holidays already segregate the rich, whose achievement test scores continue to rise, from the poor, whose reading and math skills fade each summer. Just imagine the unequal effects of a lost semester or, God forbid, two.
An effective, really robust relief package, unconstrained by cost, is in everyone’s interest. The Cares Act’s direct cash payments phase out once households make $150,000 per year and are eliminated for households that earn more than $198,000 per year, but the relief effort’s indirect effects extend more widely and reach the rich nonetheless. These programs protect everyone’s health by making social distancing financially possible for ordinary Americans. They save jobs, prevent bankruptcies and keep the economy afloat, which helps investors. The initial stock-market bump triggered by the Cares Act’s passage added more than $4 trillion to the value of equities in the United States, and the richest 10 percent of households, holding 84 percent of American-owned stocks, benefited from this bump to the tune of roughly $2 trillion.
Wealth taxes have always been politically controversial. Both Senators Bernie Sanders and Elizabeth Warren proposed ongoing levees on wealth while they were running for president, applied every year, as part of a broad program of reducing economic inequality. Both proposals sought anti-oligarchy taxes, limited to extreme wealth of over $32 million (in Mr. Sanders’s plan) and $50 million (in Ms. Warren’s), which both candidates associated with the richest 0.1 percent. And both proposed to use the revenues that they raised to fund substantial expansions of the country’s permanent social safety net.
The Sanders and Warren programs hold appeal, especially for progressives, but they also face challenges. The focus on extreme wealth reduces the tax base and therefore the revenue raised — while the top 5 percent hold two-thirds of the wealth, the top 0.1 percent hold roughly one-sixth. It also complicates collection. The very richest tend to store much of their wealth not in publicly traded securities but in private businesses, art and other difficult-to-value forms. The superrich also possess both the means and the motive to engage in offshoring and other sophisticated tax avoidance schemes. Finally, an ongoing wealth tax regime would affect future behavior, threatening to reduce capital accumulation, stifle innovation and depress growth.
But whatever the merits of those proposals, this one-time wealth tax is fundamentally different, and its appeal ought to cross partisan lines. Indeed, in 1999 Donald Trump called for paying down the national debt through a one-time wealth tax of 14.25 percent on fortunes over $10 million. Today, an exceptional wealth tax’s ideological roots lie in a national solidarity that transcends ordinary politics.
The effort to control the coronavirus is commonly analogized to a war, but while the entire society is indeed at risk, it is very hard for people without medical training to join the fight. A wealth tax would fund the relief effort in a way that gives meaning to shared sacrifice in the face of a universal threat. It is fitting that an extraordinary — once in a century — catastrophe befalling the whole nation should be paid for not from the income-flows that fund routine policy in ordinary times but rather by a one-time charge against the nation’s accumulated stock of wealth.
The exemption is high enough to ensure that the tax falls only on families so rich that it doesn’t interfere with their ability to pay for current consumption, but low enough for the tax to pull in most of our society’s wealth, including wealth held in transparent, easily valued forms. And being set off by a readily identifiable and truly exceptional event, the wealth tax would minimize both the motive and the means for evasion and impose no economic distortions on future savings or investment.
As for the old canard that a wealth tax falls outside the powers granted the federal government by the 16th Amendment, the better argument holds that wealth taxes are clearly constitutional. And if the conservative justices of the Supreme Court want to reach into politics to exempt the rich from shared sacrifice in the face of a national catastrophe, Congress should dare them to try.
‘Congress Must Cover Paychecks of Every US Worker,’ Says Sanders as Laid-Off Americans Struggle to Obtain Benefits
A person files an application for unemployment benefits on April 16, 2020 in Arlington, Virginia. (Photo: Olivier Douliery/AFP via Getty Images)
Sen. Bernie Sanders on Monday said Congress should pass legislation to “cover the paychecks of every U.S. worker” as many small businesses struggle to apply for taxpayer-backed loans to keep their employees on payroll and laid-off workers grapple with outdated and punitively complex unemployment systems.
“With 22 million Americans filing for unemployment and up to 35 million expected to become uninsured, we are the only wealthy nation on Earth where our people are losing jobs and healthcare at precisely the moment that they need them the most.”
—Sen. Bernie Sanders
“A furloughed German worker retains 90-100% of his salary, while his American counterpart is struggling to obtain unemployment benefits. Unacceptable,” Sanders tweeted, linking to a VICE article by journalist Clio Chang contrasting how the U.S. and German governments are responding to the economic downturn caused by the global Covid-19 pandemic.
“Depending on how their country is handling the situation,” Chang noted, “the first month of this historic recession has gone drastically different for different workers.”
Chang compared the experiences of a U.S. worker and a German worker, both of whom were laid off in recent weeks.
Jonathan Bowen calls the Oregon unemployment office hundreds of times a day. Or at least he has since March 21, when he first applied online after losing his job as a cook at a small taqueria. Bowen was told then that his claim wasn’t valid and that he had to call the office, so he did. Every week, he still puts in his claims, in order to create a record of how long he’s been unemployed. One day, the 38-year-old estimated that he called the office over 1,000 times.
A few weeks before Bowen lost his job, Daniel Flohr, a 33-year-old part-time flight attendant, was sent home from work. Flohr lives more than 5,000 miles away from Portland, in an apartment an hour outside of Frankfurt, Germany, and has been working as a flight attendant for more than ten years. Because of the existing contract that was negotiated between his company and his works council, Flohr’s basic salary is still being paid in full. At the end of April, he expects for his pay to go down to 90 percent of his salary, with most of that coming through Kurzarbeit, Germany’s short-term work scheme.
On Saturday, Sanders and three other senators introduced a bill to bring the U.S. closer to the German approach by guaranteeing wages and benefits for employees of businesses harmed by the ongoing economic downturn.
The Paycheck Security Act, according to a detailed summary (pdf) released by Sanders’ office, would for at least the next six months “cover salaries and wages up to $90,000 for each furloughed or laid-off employee, plus benefits, as well as up to an additional 20 percent of revenues to cover fixed operating costs such as rent, utilities, insurance policies, and maintenance.”
Companies would have to meet a number of requirements to qualify for federal grants under the bill, including offering all workers laid off since Feb. 1, 2020 their jobs back and not cutting pay or benefits.
Sens. Mark Warner (D-Va.), Doug Jones (D-Ala.), and Richard Blumenthal (D-Conn.) joined Sanders in unveiling the legislation, which is similar to a proposal released earlier this month by Rep. Pramila Jayapal (D-Wash.).
“With 22 million Americans filing for unemployment and up to 35 million expected to become uninsured, we are the only wealthy nation on Earth where our people are losing jobs and healthcare at precisely the moment that they need them the most,” Sanders said in a statement. “This is a man-made crisis. Our job now is to join the rest of the industrialized world and pass the Paycheck Security Act.”
The massive stimulus package President Donald Trump signed into law last month, titled the CARES Act, authorized a $600-per-week increase in unemployment benefits on top of what states normally provide.
But many laid-off workers have struggled to obtain their benefits due to antiquated federal and state systems that have been overwhelmed with claims in recent weeks as the coronavirus crisis keeps large swaths of the U.S. economy completely shuttered.
“Many states have such outdated technology—which also rely on decades-old software—that their systems have struggled to make unemployment aid available for gig workers and self-employed workers who don’t normally qualify for money but were made eligible by the new law,” the Washington Post reported last week. “Florida has resorted to handing out paper applications and said this week it has a backlog of 850,000 applications. So far, the state has sent money to only 34,000 people.”
Josh Bivens, director of research at the Economic Policy Institute, said in a statement endorsing the Paycheck Security Act that “workers and their families are paying the price for going into the current crisis with a weak social insurance system and public safety net.”
“Given this pre-existing weakness, transformative responses to this economic crisis have to be put together on the fly,” Bivens said, “and the Paycheck Security Act is a bold solution to provide needed relief during the lockdown period of the crisis and would put us in much better position to mount a rapid recovery once the public health all-clear was sounded.”Our work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Feel free to republish and share widely.