October 22, 2019
Of all the proposals from the left-most Democratic candidates, there is one that has spread the most consternation on Wall Street: a wealth tax.
French economist and Professor of Economics at UC Berkeley Gabriel Zucman has advised two of the more left-leaning candidates in the 2020 race - Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) - on their plans to combat the growing wealth gap, and distribute the power of money into the hands of those less fortunate.
"For most people, wealth is safety, it's security, it's a good thing to have," Zucman told Cheddar Monday. "But for the very, very rich, wealth is not safety, wealth is power. And an extreme concentration of wealth is an extreme concentration of power."
In his book, The Triumph of Inequality, Zucman found that the top 400 wealthiest Americans are paying 23 percent of their income in taxes.
Nevertheless, he explained, the wealthy paying low tax rates is not a long-standing tradition. Rather, from the 1940s up until Reagan's administration , the U.S. had a "long tradition of tax justice, of tax progressivity."
Zucman cited a speech made by Franklin Roosevelt in 1943, in which he explained the need for a "legal, maximum income," regulated by some form of umbrella tax.
"The U.S. is in the process of reconnecting with that tradition," he said, adding: "The wealth tax is one way to reconnect with that tradition."
According to the most recent census, the gap between the richest and the poorest has hit its highest level in more than 50 years. The Gini index, which measures income inequality on a scale of 0 to 1 (0 indicates perfect equality and 1 indicates perfect inequality), last year rose to 0.485, compared to a 0.482 in 2017.
The wealth tax plans presented by Warren and Sanders are similar at the core, Zucman noted, by placing a tax on the ultra-wealthy to pay for programs like Medicare-for-All and free public college. Nevertheless, there does exist contrasts as it pertains to how much wealth an individual bears.
"The main difference is the tax rates that would apply to billionaires. In the Warren wealth tax, it is 3 percent tax rate for billionaires," he explained.
He added: "For Bernie Sanders, it increases all the way up to 8 percent for wealth above 10 billion dollars."
Therefore, Sanders's wealth tax proposal, "Would have a more powerful effect on inequality. It would reduce the wealth of billionaires more strongly than the Warren wealth tax." And while Democrats debate which progressive tax policy would be best fit to fix the growing income gap, President Trump continues to tout his landmark victory with the 2017 Tax Cuts and Jobs Act, which upended the tax code to benefit those making the most.
If President Trump were to be elected again in 2020, Zucman argues that inequality would continue to rise, and those with the most power in government (i.e. those with the most money), would lobby for a bill that would cut their taxes even more than the TCJA.
"We are really at a crossroads. Do we really want to go down that path, what you could call plutocracy? Or do we want to safeguard democracy?" asked Zucman.