The economic inequality crisis in America is not rooted in income inequality—it is rooted in wealth inequality. To solve it, you can’t just tax income; you have to forge into the new frontier of taxing wealth. Now, a presidential candidate is reportedly proposing just that.
Most of the very richest people in America—the mega-billionaires, who represent the top tier of wealth that really stretches out the inequality figures—are not rich because they get paid well each year from their job. They are rich because they own assets, most often financial assets like stock, or entire companies. Their earned income each year may be relatively trivial, but their wealth can grow hugely as stock prices increase. And since America does such a poor job of taxing capital gains and inheritances, wealth inequality grows and grows.
The Washington Post reports that Elizabeth Warren is now going to actually propose what many lefty economists have been asking for ever since Piketty’s Capital in the 21st Century came out: a direct tax on wealth. Her plan will reportedly call for “a 2 percent wealth tax on Americans with assets above $50 million, as well as a 3 percent wealth tax on those who have more than $1 billion.” And this is how it addresses the obvious concern that rich people will try to pick up their money and flee the country to avoid the tax:
Warren’s proposal includes at least three new mechanisms to combat tax evasion, according to a person familiar with the plan. Those are a significant increase in funding for the Internal Revenue Service; a mandatory audit rate requiring a certain number of people who pay the wealth tax to be subject to an audit every year; and a one-time tax penalty for those who have more than $50 million and try to renounce their U.S. citizenship.
A wealth tax may face serious challenges when it comes to the ability of the very rich to move their money internationally. But a well-crafted tax should still be able to capture a significant amount of wealth for the public till. Until someone has a better proposal for mitigating wealth inequality, everyone should support this one.