At the heart of the debate on taxation is the question of whether it is fair or unfair to heavily tax extreme wealth. The fact is, it does not matter. We must reinvest most of the money currently held by the wealthiest Americans into public revenue. We need to do this in order for our country, economy, and democracy to function.
No country can maintain a functional economy or healthy democracy when 1 percent of the nation’s citizens own more wealth than 90 percent of the nation’s citizens, or when eight billionaires control as much wealth as three and a half billion people. The country now suffers from this extreme inequality and our democracy and economy have been failing as a result.
This level of inequality is directly causing:
- economic instability,
- job loss and low consumer activity,
- decreased entrepreneurship,
- and reduced innovation, among many other economic ills.
If it continues, it will likely result in another major depression. The United States risks descending into developing country status as a direct result of this radical inequality.
This level of inequality is directly causing the erosion of democratic institutions through:
- elite influence of elections: rich people fund campaigns and run their own candidates (more here);
- elite capture of the lawmaking processes: rich people influence the decisions of elected and appointed government officials;
- elite purchase of media institutions: most major news outlets are owned by millionaires and billionaires; and
- elite domination of civic organizations: rich people’s foundations control and fund many civic institutions.
One percent of Americans own more wealth than 90 percent: this has not led to innovation, more jobs, a stronger economy, or a healthier democracy as many right-wing politicians and economists have long promised. It has led to the direct opposite. A strong economy and healthy democracy cannot survive this extreme inequality.
The surest, fastest way to reverse this cancerous inequality is through massive wealth taxes. Transforming the sedentary, hoarded capital currently recirculating through tiny elite markets into dynamic public revenue will allow it to be reinvested in the economy through technological innovation, education, tax cuts and benefits for middle- and lower-income Americans, desperately needed infrastructure projects, and other economic stimulators.
Only distributed, dynamic capital in the hands of many citizens – rather than stagnant capital hoarded in the hands of a few – can build a strong economy, produce jobs, and yield innovation. Only a large, affluent middle-class customer base can create jobs, forge new ventures, and give citizens the education, time, and resources to participate in democratic institutions.
One of the prime arguments against heavily taxing the wealthiest 1 percent of citizens is that it would place an unfair burden on them.
First, one could argue that most of the means by which those members of the wealthiest 1 percent came to hoard such vast wealth was itself not fair. They inherited it, they were in the right place at the right time, they exploited the labor of those less privileged, they evaded their civic responsibility to contribute public revenue, they exploited gaps in an under-regulated market, they exploited government-funded research and development, they closed off markets with monopoly, they cheated competitors, customers, or regulators, they exploited public externalities, their losses were socialized by public revenue while they privatized their profits, and so forth. Therefore, removing a significant bulk of their unfairly hoarded wealth would not itself be an unfair action.
A common – yet fairly irrefutable – example of this unfair distribution: the average CEO makes 380 times that of the average employee, suggesting the CEO is 380 times smarter, harder working, and more talented. The average employee’s IQ is around 100. So, if this wage gap is fair, we can assume the average CEO’s IQ must be around 38,000. Einstein’s was probably around 160. So, one would be forgiven for concluding we must be living in an age of super brilliant corporate demigods. What a time to be alive. The average employee works at least forty hours per week. Perhaps the average CEO supergenius has discovered means by which to bend spacetime to achieve a workweek of 15,200 hours, despite us mortal plebeians living a mere 168 hours in a week. Neoliberal math has yielded equally reasonable conclusions before.
By all the laws of commonsense – and assuming we do not currently live amongst corporate management deities – we must acknowledge that the average CEO is not worth 380 times the average employee, yet they are compensated as if they are. This is not fair. Most wealth inequality is not the result of fair distribution of wealth.
But let’s descend into the wild utopia of contemporary economic fancy and say inequality is fair and the wealthiest entirely or mostly earned their extreme wealth, fair and square. We still need to tax it heavily if we want democracy and a strong market economy. It does not matter if heavy taxation on extreme wealth is fair. It does not matter if extremist libertarians are right and taxation is theft. High wealth taxation is simply necessary for a functional economy and democracy. If we want to have a functional economy and democracy, then we simply must have very high taxation on extreme wealth. There is no alternative.
There are plenty of examples in which we accept conditions deemed unfair because they are simply necessary, simply the way things are. For example:
We accept unfairness everyday to maintain society.
We accept the unfairness of luck in the success or failure of a venture.
We accept the unfairness of unequal privilege inevitable in life; some are born with more talent and inherent advantages than others.
We accept the unfairness of geographic asymmetry; some are born in places with fewer or more resources.
We accept the unfairness of the randomness involved in whether we are hired for a position, rejected as a mate, approved for a loan, accepted to a university.
We must either acknowledge that 1 percent of Americans hoarding more wealth than the other 90 percent is unfair and then put in place fair taxes to even the game. Or, we must accept that this inequality is fair, but we still have to reduce it anyway for the good of the country, economy, and democracy, even if that means instituting high taxation on extreme wealth. Either way, we need very high taxes on the very wealthy.
Many progressive commentators would say that this kind of extreme wealth tax – the kind we saw in the wake of World War Two of, say, 90 percent or higher – is politically unfeasible. But to give up on this goal of extreme wealth taxation is to give up on democracy. To say it’s too difficult politically, to say it’s unrealistic, is to say that democracy is too difficult politically, democracy is unrealistic.
Maybe it is.
But what’s certain is that any viable elected official, candidate, community leader, or thinker, whether populist Democrat, elitist Democrat, Libertarian, or moderate Republican, who believes in the importance of democracy and who enjoys a stable economy, must acknowledge the necessity of a very high wealth tax, and pursue it zealously.
Those pundits and activists who still cling to the idea that we need not impose heavy taxation on extreme wealth ought recuse themselves from participating in conversations on political economic matters, or face irrelevance. Any serious political movement must either make this aim central to its platform or accept the demise of democracy.