How to Redistribute Wealth—Without the Guillotine
We can't just tax billionaires’ paychecks. We should tax the wealth they've already amassed.
I stumbled into the crowded bookstore on a cold winter day a few years ago, rushing to catch a glimpse of the author speaking in the back. As is my custom, I was late and his speech was well underway.
The question and answer began and someone in the crowd asked something I hear often at events like this one: “Don’t you get tired of banging your head against the wall? Is there any room for hope?” The speaker laughed a bit before responding quite seriously that he was indeed quite hopeful. Things may look hopeless in the very near term, but the change he’s talking about takes decades.
The author was Gar Alperovitz, speaking about his most recent book, What Then Must We Do? The line is one he’s repeated often—and one that’s stuck with me ever since: If you’re in the business of social change, you have to think in terms of decades.
It’s with this lesson in mind that we should consider taking on one of the most pressing problems of our time: wealth inequality. The problem with wealth inequality, after all, isn't simply that it's been growing steadily over the past 30 years. The problem is that it's showing no signs of stopping in the near or distant future.
And things are going to get worse.
The Long View
Short of an all-out, torches-and-pitchforks revolt, reducing structural inequality means going through the legislative process—most particularly, reforming the tax code. But with an intransigent Republican Congress, a campaign-finance system dominated by wealthy donors, and a dispirited and deeply divided public, it’s clear that legislative change isn't going to come soon.
That places us in what Alperovitz calls “pre-history.” We have to lay the foundation for change without knowing when it will come.
His heroes, Alperovitz says, are the civil rights workers of the 1930s and ‘40s. They took on insurmountable odds—as well as serious personal risk—to lay the groundwork for what would become the very successful civil rights movement of the 1960s. They knew they might never see the fruits of their labor—Jim Crow and its supporters in Washington seemed impossibly entrenched—but their efforts made it possible for success in the unknowable future.
With the benefit of this long view, we can look past election cycles to see what solutions would actually solve our serious problems. On wealth inequality, that means a direct tax on concentrated wealth.
We shouldn't just tax billionaires’ paychecks, in other words. We need to tax the wealth they've already amassed. That idea isn't going to clear Congress anytime soon. But it's just as serious, reasonable, and likely to become law as any other genuine solution.
A Precarious New Era
To understand why we need to tax wealth, we first need to get sense of what makes modern wealth inequality different from the inequality of previous eras. Just how unequal are we?
For starters, the United States leads the planet in billionaires. In fact, we have more billionaires than the next five countries combined. According to numbers my colleague Chuck Collins and I crunched, the 400 wealthiest Americans now own more wealth than the entire GDP of India, a nation of nearly 1.3 billion people. And the 20 wealthiest Americans alone—a group small enough to fit on a private jet—are richer than the bottom half of Americans combined.
Wealth concentration is commonly encapsulated by the duality of the 99 percent vs. the 1 percent, the now famous framing advanced by Occupy Wall Street. But a more accurate distinction is between the 99.9 percent and 0.1 percent. This tiny group—the top one-tenth of 1 percent—now owns about as much wealth as the bottom 90 percent of the country combined. That's a bigger share than at any time since the Gilded Age of the 1920s.
On the other end of the economic spectrum, a survey late last year found that most Americans have less than $1,000 in their checking and savings accounts combined. If they slip on the sidewalk or their car engine light comes on, they can literally be left penniless.
When you factor in race, things look even worse. Across nearly every household economic indicator—from home ownership to retirement savings to income, wealth, and debt—black and Latino families lag behind white families. White families control 10 times more wealth than Latino families and 13 times more wealth than black families.
Wealth is the safety net that enables families to live without fear of a bump in the road—a missed paycheck, a reduced schedule at work, a busted water heater—sending them into destitution. Wealth is security. And without it, millions of families lead perilous and precarious lives.
The Promised Land
A small number of Americans are unfathomably secure, while more and more of us are slipping into permanent precariousness. But it's worse than just that.
Research across several disciplines has shown that extreme inequality undermines democracy, social cohesion, and economic stability. A recent New York Times study revealed that just 158 families contributed half of the early contributions to the candidates in this presidential election cycle. Do we really live in a democracy when such a small group is able to wield so much influence?
Inequality is also destroying our health. According to public health researcher Richard Wilkinson, you're better off living in a community with greater equality, even when the overall standard of living is lower than in a more unequal community. That's because inequality has been linked to a host of negative health outcomes—including heart disease, asthma, mental illness, and cancer—for everyone in unequal societies, not just those at the bottom. Infant mortality, for instance, in the United States is double the rate seen in Japan or Sweden, significantly less unequal countries, for everyone—not just those at the bottom.
Make no mistake, the negative impact of inequality still impacts the poor more than the rich. A recent study showed low-income men live 15 years less than wealthy men. The disparity for women is 10 years. As Wilkinson points out, “greater equality makes most the difference at the bottom, but has some benefits even at the top.”
Beneath this theft of our health and democratic ideals is a more fundamental pathology: Inequality demolishes our basic idea of fairness. Many of us like to associate wealth with hard work—that's the American Dream, right? But it's a lie.
Today, the strongest indicator that you'll amass lot of wealth in your lifetime is being born into a family with a lot of wealth. In fact, soaring inequality has made the United States among the least socially mobile developed countries in the world. Children born to a typical middle-income family today are less likely to earn more money than their parents did.
If you're not wealthy but aspire to the American Dream—saving money, building a home, paying for college, retiring before you die—you're better off living in Canada.
This is a grim new reality for white Americans who grew up during the vast expansion of the middle class after World War II. It’s not so new for millions of people of color, who continue to be systematically blocked from rising into the ranks of the middle class.
An Alternative to the Guillotine
OK, so inequality is a problem. How do we solve it?
Not by poking around the margins. Slight adjustments to tax rates or child-care tax credits might ease the pain, but they won't cure the disease.
Throughout history, as Thomas Piketty discovered from digging through centuries of tax data in Capital in the Twenty-First Century, serious wealth stockpiles have only ever been shaken loose in times of intense catastrophe—like wars and reconstruction. While it’s true that inequality has been reduced in the past, it’s never been done without a massive war and subsequent economic disruption.
I, for one, am not eager to see the return of the guillotine. Fortunately, there's a more peaceful option. Piketty points to a tax on wealth—not just the money people make, but the money they already have—as the least disruptive way to bring down spiraling inequality.
In fact, Piketty's idea isn't new. Veteran wealth tracker and economist Edward Wolff penned an article in 1996 calling for a direct tax on concentrated wealth. Other proposals are older still. Yet the idea was met with bemused scorn by the Very Serious People who guard mainstream political thought in policymaking circles.
This reaction appears incredibly shortsighted—and it wouldn’t be the first time conventional ideology turned out to be wrong in the long run of history.
The Rumblings of History
Consider a flat, 1 percent wealth tax levied exclusively on the wealthiest 1 percent of households.
The top 1 percent controls 42 percent of the nation’s household wealth, about $26 trillion in total. In its simplest form, a 1 percent tax would raise $260 billion annually—more than the federal government now spends on education and environmental protection combined.
Because most money managers are able to deliver investment returns greater than 1 percent, the impact on those taxed would be negligible. Of course, implementing a progressive wealth tax with even higher rates on the 0.1 percent could yield more revenue still.
Taxing wealth directly strikes at the heart of the problem Piketty describes using his mountain of historical tax data: Capital, left unchecked, will inevitably concentrate at the very top. That’s why other solutions won’t solve the problem, and why the push for a significant tax on wealth is worth digging into for the long haul.
The seeds of this movement are already beginning to sprout, not least in the surprising success of Bernie Sanders’s presidential campaign.
Even if the Vermont senator ultimately comes up short against Hillary Clinton, he's mobilized millions of supporters who view taxing the wealthy as a means to fund programs that could greatly improve their lives—like debt-free college and early child care. Those ideas are popular even among Clinton supporters, and Sanders’s overwhelming support from younger voters—GOP consultant Frank Luntz calls millennials “frighteningly liberal”—means they're not going away anytime soon.
There's a tectonic shift underway on the politics of inequality. Even if the wealthy interests that control Congress haven't fallen yet, they're surely starting to feel the rumblings—and, if we start putting more cracks in the political fortress they’ve built for themselves, we may yet shake history loose in our lifetimes.