ELIZABETH WARREN AND THE WEALTH TAX
By Thomas Piketty
[This article published in March 2019 is translated from the German on the Internet, www.blaetter.de.]
Elizabeth Warren, the former law professor at Harvard University, recently threw her hat in the ring. In the Democratic primaries, the Senator from Massachusetts, will try to replace Donald Trump as president in 2020. Now, she appears in public with a proposal that will doubtlessly be one of the central points of her campaign. She would introduce a genuinely progressive wealth tax on the federal level for the first time in the history of the United States.
Her draft was carefully worked out by the economists Emmanuel Saez and Gabriel Zucman and is supported by the best constitutional lawyers. It earmarks a two-percent tax on wealth between million and a billion dollars; assets over a billion will be taxed at three percent. The rich who leave the country and renounce their citizenship will pay a farewell tax of 40% on their total wealth. This tax would affect all assets without exception. Persons or governments that refuse information about foreign wealth will face sanctions.
The debate over this proposal has only begun. The envisioned tax rate could be expanded and made more progressive so, for instance, the rates for multi-millionaires could rise five to ten percent annually. Tax justice will certainly be a central theme in the 2020 presidential election campaign. The New York representative Alesandria Ocasio-Cortez proposes a tax rate of 70% on the highest incomes while Bernie Sanders wants to tax enormous inherited wealth at 77%. Warren’s proposal is the most innovative of the three but these concepts could complement and support each other.
How US capitalism was more egalitarian through taxes
Why is this theme given special emphasis? To understand, we must go back. The concentration in industrial and financial wealth in the US increased between 1880 and 1910. The measure of inequality threatened to reach the level of old Europe. In that time period, a powerful political movement arose for a better distribution of wealth. This culminated in 1913 with the introduction of a federal income tax followed by the 1916 inheritance tax.
Between 1930 and 1980, the top incomes in the US were taxed at 81% and the top inherited wealth at 74%. Obviously, this did not destroy American capitalism. Quite the contrary, it was more egalitarian and productive. In this period, the US had not forgotten that its prosperity was based on education advances and investments in training and not on the religion of property and inequality.
Ronald Reagan, George Bush and Donald Trump later tried to destroy this inheritance tax. They turned away from the egalitarian roots of the country and emphasized historical amnesia and fomented identity divisions. Today, we know the results of this policy are disastrous. Between 1980 and 2020, the increase of the national per-capita income was half the increase in the 1930-1980 period. If there was less growth, the income of the poorest 50% of Americans completely stagnated. Today’s movement for a return to progressive taxation and greater justice is very obvious and long overdue.
An annual progressive wealth tax
The newness in Elizabeth Warren’s proposals is her creation of an annual progressive wealth tax in addition to the income- and inheritance tax. This is a crucial innovation with regard to justice and efficiency. After the two world wars, different special taxes were levied on real estate and financial wealth to pay off public debts, particularly in Japan, Germany, Italy, France and other European countries.
The rates would necessarily be more limited with a permanent wealth tax. They must be high enough to make possible genuine wealth mobility. In this regard, a tax on inherited wealth begins much too late. Jeff Bezos or Mark Zuckerberg should not first be 90 years old before they begin paying tax. With an annual rate of three percent, as Warren proposes, a wealth of 0 billion would be returned to the community within 30 years. That would be a good beginning but the starting point should doubtlessly be higher(at five to ten percent or more).
Reducing the great inequality
All these tax measures should be used to reduce inequality. The US land tax seriously burdens all citizens with limited resources. This venerable tax is levied on commercial goods like offices, property or warehouses and not only private homes. This tax should now be finally changed into a progressive tax on net assets with significant deductions for indebted households who want to acquire homes.
We hope the coming US presidential election campaign will include a deep discussion on the taxation of property and tax justice.
John Cassidy, Piketty’s Inequality Story in Six Charts, 3/26/2014
12 février 2019
Wealth tax in America
What if the final blow for Emmanuel Macron came from the Massachusetts State senator and not from the yellow vests ? Elizabeth Warren, Harvard University law professor, not really an adept of Chavism or urban guerrilla warfare, a declared candidate in the Democratic primaries in 2020, has just made public what will doubtless be one of the key points in the coming campaign, namely the creation for the first time in the United States of a genuine federal progressive wealth tax. Carefully calculated by Emmanuel Saez and Gabriel Zucman, supported by the best constitutionalists, the Warren Proposal sets a rate of 2% on fortunes valued at between 50 million and 1 billion dollars, and 3% above 1 billion. The proposal also provides for an exit tax equal to 40% of total wealth for those who choose to leave the country and to relinquish American citizenship. The tax would apply to all assets, with no exemptions, with dissuasive sanctions for persons and governments who do not transmit appropriate information on assets held abroad.
The debate has only just begun and the schedule proposed could still be extended and made more progressive with rates rising for example to 5% -10% per annum for multibillionaires. What is certain is that the issue of fiscal justice will be central to the presidential campaign in 2020. The representative from New York, Alexandria Ocasio-Cortez has suggested a rate of 70% on the highest incomes, while Bernie Sanders defends a tax rate of 77% on the highest inherited estates. While the Warren proposal is the most innovative, the three approaches are complementary and should be mutually beneficial.
To understand this, let’s look back. Between 1880 and 1910, while the concentration of industrial and financial wealth was gaining momentum in the United States, and the country was threatening to become almost as unequal as old Europe, a powerful political movement in favour of an improved distribution in wealth was developing. This led to the creation of a federal tax on income in 1913 and on inheritances in 1916.
Between 1930 and 1980, the rate applied on the highest incomes was on average 81% in the United States, and the rate applied to the highest inherited estates was 74%. Clearly this did not destroy American capitalism, far from it. It made it more egalitarian and more productive, at a time when the United States had not forgotten that it was their level of educational advancement and their investment in training and skills that was the backbone of their prosperity, and not the religion of property and inequality.
Reagan, then Bush and Trump subsequently tried to destroy this heritage. They turned their backs on the egalitarian origins of the country, by counting on historical amnesia and by fuelling identity-based divisions. With the hindsight we have today, it is obvious that the outcome of this policy is disastrous. Between 1980 and 2020, the rise in per capita national income was halved in comparison with the period 1930-1980. What little growth there was, was swept up by the richest, the consequence being a complete stagnation in income for the poorest 50%. There is something obvious about the movement of return to progressive taxation and greater justice which is emerging today and which is long over-due.
The innovation is that it is now a question of creating an annual wealth tax, in addition to the income and inherited estate taxes. This is a crucial innovation in terms of justice and efficiency. Numerous one-shot capital levies have been successfully applied to real estate, professional and financial assets subsequent to the world wars to pay off public debts, in particular in Japan, in Germany, Italy, France and in many European countries. Collected only once, the rates applied to the largest private estates often rose to 40% -50%, or even more. With an annual wealth tax designed to be applied on a permanent basis, the rates are of necessity more restricted. However, they must be high enough to enable genuine mobility of wealth. From this point of view, the tax on inherited wealth comes much too late. We are not going to wait until Bezos or Zuckerberg reach the age of 90 before they begin to pay taxes. With the 3% annual rate proposed by Elizabeth Warren, a static estate worth 100 billion would return to the community in 30 years. This is a good beginning but, given the average rate of progression of the highest financial assets, the aim should undoubtedly be higher (5% – 10% or more).
It is also crucial to allocate all the revenue to the reduction of inequalities. In particular, the American property tax, like the French real estate tax (taxe foncière) weighs heavily on those with limited resources. Those two venerable property taxes which, contrary to what is sometimes stated, tax not only the ownership of housing (independent of any income, which everyone readily admits, at least for the biggest owners), but also tax business assets (offices, plots of land, warehouses, etc.). The problem is that they have never been genuinely re-thought since the 18th century. The time has come for them to become progressive taxes with graduated rates on net assets, with the key element being strong reductions for indebeted households who are seeking to accede to property ownership. Let’s hope that the forthcoming American campaign, like the French discussion around the yellow vests, will at last afford the opportunity for an in-depth discussion on the taxation of property and fiscal justice.
PS: on the Warren proposal, see also this paper by E. Saez and G. Zucman, « How would a progressive wealth tax work?« .
How would a progressive wealth tax work?, 21 pp, 2018
AMERICA’S LEFT COMES OUT OF ITS DEPRESSION
The leftist senator Bernie Sanders was unexpectedly successful in the 2016 presidential election
By Roman Berger
[This article published on January 21, 2019 is translated from the German on the Internet, www.infosperber.ch.]
“Breaking down in roast beef and apple pie”
The meeting took place in March 1979 at a “Holiday Inn” outside the oil-metropolis Houston near the airport… At the “Holiday Inn,” 300 representatives of a socialist group organized in the Democratic Party assembled that called itself the “Democratic Socialist Organizing Committee” (DSDC). The activists sand the Socialist International after the dinner on Saturday night with roast beef, baked potatoes and apple pie. In my report in the TagesAnzeiger newspaper, I quoted the German sociologist Werner Sombart that all socialist utopias in the US “break down in roast beef and apple pie.” This thesis was first presented in his 1909 study “Why there is no socialism in America?” Socialism had no chance in a satiated US population, Sombart said.
The 1979 meeting in Houston occurred under the chairmanship of Michael Harrington. In 1962, Harrington published “The other America,” a study that comprehensively analyzed poverty in the US for the first time and refuted Sombart’s thesis of American “saturation.” Harrington’s book, the New York Times said, was one of the few studies with political consequences. In his first 1964 State of the Union address, President Lyndon B. Johnson announced a program for fighting poverty in the US.
Unexpected Signs of Life
America’s left showed unexpected signs of life around thirty years after Harrington’s death in 1989. Bernie Sanders who took part in the 2016 election campaign for America’s presidency profiled himself as a leftist alternative to the official representative of the Democratic Party, Hillary Clinton.
But Donald Trump was elected president. Those “uncoupled” from globalization preferred Trump. The uncoupled were called “deplorables.” 13% of America ns live below the poverty line. Many full-time employees have an income below this level. Women, colored, and persons forced to take several jobs simultaneously at the lowest wages belong to this “working poor.” Thus, the “other America” exists.
In November 2018, Alexandria Ocasio-Cortez (29) was elected to the House of Representatives. She belongs to a group of women who are young and politically leftist. Ocasio-Cortez calls herself a “democratic socialist” and is a member of DSOC. What are the goals of this young representative?
For a “Green New Deal”
Alexandria Ocasio-Cortez or AOC – as she is often called – was elected in the progressive state of New York. She urges a “Green New Deal” in the US that could prevent the emission of greenhouse gases within a few decades. The “democratic socialist” demands free health insurance for everyone and a universal base income financed by a 70-percent tax on the richest of the rich.
With her projects, Ocasio-Cortez inspires the strengthened left-wing of her party. At the same time, she makes things difficult for her party because centrist voters are lost. As a result, the election of a progressive president could be put in question.
Young Americans Sympathize with Socialism
Older Americans remember “socialism” from the Soviet Union and the Cold War. However, the 2008 financial- and economic crisis was the catalyzing event for the younger generation. A 2016 survey of Harvard University of 18 to 29 year olds came to the following conclusions: 51% of the interviewed rejected capitalism and 33% supported socialism in the model country of capitalism. Socialism is no longer regarded as un-American.
Young Americans emphasized the radical reforms under Franklin D. Roosevelt (New Deal) that rescued America from the worst economic crisis of the 19302.
The publishers of the left-radical magazine “Jacobin,” Bhaskar Sunkara, also hopes for a leftist or more leftist America. As a youth, the 29-year old with parents from Trinidad joined the “Democratic Socialists of America” that has 60,000 members today. At the university, she founded the “Jacobin” magazine in 2016 that is published on the Internet and on paper.
“Jacobin” should “spread neo-Marxist thinking among the people, free from doctrinaire jargon, with humor, irony but radically,” Sunkara told me in a bar in Brooklyn in 2013. The print-edition is published on expensive glossy paper. “We want to be outwardly different from the boring grey journals of the old “liberals,” Sunkara said.
Moving the Democratic Party to the Left
Michael Harrington once defined the goal of his leftist group as “the left wing of the possible.” With that, he meant that progressives must always see America’s realities. The goal of the DSOC is to move the democrats as a party to the left, not to supply a leftist president.
Mark Bray, “Is Trump’s National Emergency a Step Toward Fascism? Feb 15, 2019, https://truthout.org/articles/is-trumps-national-emergency-a-step-toward-fascism/
Julia Conley, “Institute Impeachment Immediately,” Feb 15, 2019, https://www.commondreams.org/news/2019/02/15/after-trumps-national-emergency-declaration-legal-scholar-says-initiate-impeachment
Tom Engelhardt, “An Obituary for the Republic,” Feb 15, 2019, https://www.commondreams.org/views/2019/02/15/obituary-republic
Henry Giroux, “Resisting the Weaponization of Ignorance in the Age of Trump,” Feb 12, 2019,
Robert Weissman, “America is a Constitutional Republic,” Feb 15, 2019, https://www.commondreams.org/views/2019/02/15/why-we-must-stop-unstable-trump-and-his-dangerous-national-emergency-declaration