Wealth Taxes Will Not Save Democracy from Inequality

The Democratic Party’s lurch leftward has yielded tax plans designed less for raising revenue than for combating the corrosive force progressives believe wealth inequality exerts on democracy. Bernie Sanders has put forward a plan to reduce the threshold and raise the rates of the estate tax, while Democratic freshman House member Alexandra Ocasio-Cortez has called for a 70 percent marginal tax rate on income over $10 million per year.

Another progressive plan, from Senator Elizabeth Warren, is even more aggressive — and riskier. Warren has proposed to tax the net worth of the approximately 75,000 American households with fortunes greater than $50 million. Under Warren’s plan, “mega-millionaires” worth less than $1 billion would pay a 2 percent rate every year on everything they own — businesses, boats, stock, houses, land, art collections — while those with 10-figure Forbes -list fortunes would face a 3 percent levy.

Policy wonks tend to evaluate tax proposals on the basis of their likely impact on budgets, economic growth, and the dispersion of income and wealth. However, few of the many criticisms of Warren’s plan so far address its deeper and primary purpose: to prevent democracy from sliding into plutocracy.

“The root justification [for higher taxes on the wealthy] is not about collecting revenue,” write Gabriel Zucman and Emmanuel Saez, the Berkeley economists who performed the fiscal analysis of Warren’s proposal. “It is about regulating inequality and the market economy” and “safeguarding democracy against oligarchy.” This argument was offered in defense of the Ocasio-Cortez proposal, but it applies in spades to Warren’s plan, which would reduce the growth of large fortunes far more effectively than a bump in the top marginal income tax rate.

There should be no doubt that American democracy is in trouble, and that big money has something to do with it. However, we shouldn’t expect a wealth tax to work to thwart oligarchy. On the contrary, a wealth tax could harm the integrity of our democracy by subsidizing the growth of nefarious global networks of dark money already eating away at the foundations of the republic.

To understand how a wealth tax could be self-defeating as a means of protecting democracy, we need to dig into the political theory behind the left’s worries about the corrosive effects of concentrated wealth on democratic institutions.

This theory, which I call the “progressive master narrative,” says that once economic inequality passes a critical threshold, the wealthy as a class will use their concentrated resources to consolidate political power and rig the economic and political system to their advantage, leaving ordinary citizens disenfranchised, impoverished, and exploited.

If you buy this story, it’s easy to see why you’d want to limit the size of large fortunes to ensure that our political system is able to protects the basic democratic rights and material interests of ordinary citizens. However, the progressive master narrative just is a theory of the limits of political feasibility in democracies with high wealth inequality. If you take the progressive master narrative seriously, you ought to suspect that a wealth tax on the mega-rich, if not impossible to impose, will be difficult to sustain long enough to put a serious dent in the problem it is meant to solve.

The notion that the wealthy as a bloc are so powerful that democracy itself is at risk implies, at the very least, that an annual tax on the net worth of the super-rich own will face powerful, relentless political opposition and launch a wasteful avoidance/enforcement arms race that could unwittingly exacerbate the corrupt culture of dirty money that birthed Donald Trump and is undermining our democracy as we speak.

The record of wealth taxes in other countries shows there’s every reason to take this worry seriously. In 1990, there were wealth taxes in 12 OECD countries, but that number has since dropped to four. So why did most of the wealthy liberal democracies that had wealth taxes (including social democracies like Sweden and Denmark) ditch them over the past three decades?

A 2018 OECD report suggests that the cost and hassle involved in collecting wealth taxes often comes to outweigh the disappointing level of revenue they actually produce. And this dries up the political will to maintain them in the teeth of organized resistance – even in small, ethnically homogenous countries far more egalitarian in spirit than the United States is ever likely to be.

Wealth taxes are difficult and expensive to administer. If such a tax exempts certain classes of assets, holdings will be channeled into sheltered categories, shrinking the tax base and creating harmful market distortions. So it’s important to tax everything. The estate tax requires this kind of comprehensive valuation of net assets already, but it can take years of arbitration and litigation to settle the amount owed to the IRS. It would be far more complicated to assess the value of every ancestral manse, minor Basquiat, and closely held private partnership of 75,000 households every year . It ought to go without saying that these households have lawyers and accountants on retainer.

One study by economists at the IRS found that about half the estimated net worth of Forbes-listers goes “poof” in their posthumous estate tax filings. But this appears to be due neither to outright evasion nor wild inaccuracy in Forbes’ estimates. “This research,” the authors write, “highlights the inherent difficulties of valuing assets which are not highly liquid.”

More importantly, wealth taxes are hard to enforce. They create enormous incentives for the rich to avoid them, both legally and illegally, through family foundations, complex multilevel joint ownership structures, the manipulation of deductible debt, tax havens, and other instruments at or beyond the limits of the law.

Because wealth taxes act as immense subsidies to the tax avoidance industry, they tend to become increasingly leaky buckets that reliably deliver less revenue than their advocates advertise. The difficulty of constantly identifying and patching new leaks in the bucket is a principal reason many of the best administered states in the world let their wealth taxes go.

Moreover, tax enforcement in the United States is already too lax for the current system, which is much less complicated and administratively demanding than it would be with the addition of a wealth tax. The IRS is underfunded and understaffed, and the GOP under Trump has made it worse.

Defenders of Warren’s plan will reply that it’s certainly true that tax enforcement is currently too weak, but that’s the result of prior policy choices that are easily reversed. Warren’s plan accordingly includes a badly needed boost to the IRS’s budget and enforcement capabilities, a minimum audit rate, an exit tax equivalent to the estate tax, and new financial transparency measures. Moreover, the United States is an unrivaled superpower with a vast intelligence apparatus spread across the globe. Gabriel Zucman’s fascinating book, The Hidden Wealth of Nations ,” lays out a range of worthwhile options for cracking down on the offshore tax shelters the crooked rich use to conceal their assets abroad. There’s much that can be done to limit the avoidance and evasion of a new wealth tax.

But it’s not at all clear that what can be done will be done – or that it won’t be too swiftly undone. If you think we need a wealth tax because concentrated wealth has too much power in our democracy, you should be seriously concerned about this. Indeed, you should see the need to implement new enforcement measures and build the necessary state capacity before presenting the bureaucracy with such a colossal administrative challenge. Warren’s proposed tax would amount to the largest subsidy to growth and innovation in wealth-concealment in the history of the world. A new IRS Delta Force is unlikely to stand a realistic chance of winning a proliferating, bucket-patching arms race against some of the planet’s wealthiest and wiliest operators unless the tactically necessary regulations and administrative build-up have been well-established years in advance of the tax.

None of this is to say we should take it easy on the corrupt and corrupting rich. But we must pick our fights wisely. As I argued recently in the Times , it’s important to distinguish between beggar-thy-neighbor “extractive” wealth accumulation and socially beneficial, positive-sum “productive” wealth accumulation. We shouldn’t expect their effects on democracy to be the same, and policies that close off routes to ill-gotten fortunes will be sensitive to the difference.

Byzantine, administratively complex tax systems with lackluster enforcement are one such route to institution-weakening wealth, as I’ve argued elsewhere. Donald Trump’s fortune derives in large measure from tax evasion and our democracy and global national interests have been grievously compromised by the president’s corrupt entanglement with dirty money from illiberal regimes. That’s why beefed-up tax enforcement and a crackdown on shadowy international networks of banks, tax havens, and opaque shell companies are urgently needed, and ought to take priority in any serious agenda for protecting the integrity of American democracy against the depredations of corrupting wealth.

When he was FBI director, Robert Mueller warned of the grave threat posed by rival powers peddling influence through the nominally “private” banks, corporations, and investors that ply the global shadow economy. He was right, and we’re paying a steep price for our laxity.

The globalization of finance and corporate ownership, and the increasing mobility of capital necessarily involved, can produce huge gains in wealth and promote peace by tying interests together across borders. But it has also entangled investors, banks, and corporations in liberal democracies with oligarchs and foreign bagmen acting in the corrupt, illiberal interests of authoritarian despots. Indeed, the president of the United States may well be a compromised agent of authoritarian kleptocrats. We should see the risk of incentivizing America’s mega-rich to even hide more of their assets in the global shadow economy in the light of this truly terrifying fact.

You don’t need to agree with Elizabeth Warren about taxes to see her, as I do, as the greatest enemy of corruption, graft, and capitalist self-dealing in the U.S. Senate, and its most compelling advocate of clean government and democratic reform. But a wealth tax intended to shore up democracy risks doing the reverse by turbo-charging the shadow economy and aligning the interests of the non-crooked American super-rich with the interests of the despots, gangsters, and native grifters who have already shaken the foundation of our democracy from the backchannels of global dark money.

We don’t live in a democracy. I’m not sure what the author was getting at. We live in a Constitutional Republic.

Read the article and then comment.


I read the article and I can say one the author at that article doesn’t know his history, the difference between a democracy and a republic

Limiting a person capability to get wealthy leads to

  1. tax avoidance strategies legal and questionable.

2)The wealthy leaving the country , as what the Swedes, Brits did in the 1970’s.

What AOC is proposing is nonsense and she knows it, because really , who earns over 10 million dollars a year?
Superstar Athletes, superstar musicians, super star Hollywood A listers, superstar Corporate executives, basically superstars in general.

Why isnt Warren going after humps like Soros who legally put all of his assets in the Netherland Antilles Islands, a tax haven in the Netherlands, he has some assets in the Cayman Islands even though Soros is an American and this is legal?

Why doesn’t congress change that rule?

The bottom line is They can propose all they want, they know it will never get done, and even if its introduced in the house, by the time it gets out of committee it will be so waterdown it will be a joke and we won’t talk about what the folks in the senate will do when they get their hands on it and if some of the proposals affect their big donors

The wealthy are not the problem, while some like Soros are an issue, they represent a portion of the problem.

tax enforcement on the rich has always been laxed since the days of FDR, hence why he had so many loopholes put in

This to me is just another dog and pony show Warren and the rest are putting on to get votes like Trump pandering the base about Mexico paying for the wall

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That wasn’t the point of the article so I dismissed that oversight.

The rest of the article is where the reality sits.

It’s beyond stupid to think they can raise taxes without consequences. AOC’s 70% tax would generate a paltry 300 billion in additional taxes a year until they leave the country with their wealth. Chump change when you’re faced with a trillion deficit.

No , I got the point of the article , I was adding my two cents in, my point was AOC, Warren , Sanders knows their proposal would never make it out of the House finance committees.

They are just doing what typical politicians on the federal level does, make outlandish proposals, sucker in people, get their votes and just do the status quo

I really cant figure out if they truly believe raising the taxes on the wealthy will pay for their programs or are they the new wave of con artists

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I actually think they do believe this. France had a similar tax structure in place when Hollande was president, as you can see that worked out well for them. The reason I mention this is because a lot of the new progressive commiecrats look at Europe for their model, sort of like looking at the other side of the fence is greener analogy. Lol

Still happens to this day. Setting up Tax havens is easy to do, and Americans working abroad don’t have to pay a dime of taxes up to $119,000.

Their medicare nonsense is 32 trillion over 10 years, taxes for everyone will go up with that one.

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Tax his land
Tax his bed
Tax the table
At which he’s fed

Tax his tractor
Tax his mule
Teach him taxes
Are the rule

Tax his work
Tax his pay
He works for
peanuts any way

Tax his cow
Tax his goat
Tax his pants
Tax his coat

Tax his tie
Tax his shirt
Tax his work
Tax his dirt

Tax his tobacco
Tax his drink
Tax him if he
tries to think

Tax his cigars
Tax his beer
If he cries
Tax his tears

Tax his car
Tax his gas
Find other ways
to tax his ass

Tax all he has
Then let him know
That you won’t be done
Till he has no dough

When he screams and hollers
Then tax him some more
Tax him till
He’s good and sore

Then tax his coffin
Tax his grave
Tax the sod in
Which he laid

Put these words
Upon his tomb
Taxes drove me
to my DOOM

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Let me tell you how it will be
There’s one for you, nineteen for me
'Cause I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all
'Cause I’m the taxman, yeah I’m the taxman

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Don’t ask me what I want it for
If you don’t want to pay some more
'Cause I’m the taxman, yeah, I’m the taxman

Now my advice for those who die
Declare the pennies on your eyes
'Cause I’m the taxman, yeah, I’m the taxman
And you’re working for no one but me.

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Americans aren’t yet ready for Bernie Sanders and his message. Nearly the entire population is still taken in by the notion of the American way coming to their rescue. It’s not going to happen.

Do a search for ‘The world’s happiest countries’ to see how the modern world is leaving America behind.

Americans sorely need to start to understand the difference between communism/socialism and the rest of the world’s huge successes for their people in Socially Responsible Capitalism!

I’m a Canadian. Ask me about it sometime!

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His message is fraudulent

Only politically ignorant people believe that.

Like whom Denmark? Demark is the cancer capital of Europe, Sweden is the rape capital of Europe
France has more terrorist attacks from extreme Islamist

You mean leftist ignorant uneducated sheeples need to understand the differences between Communism and socialism,

Im curious Mr.Canadian do you?

what should I ask you Mr. Canadian?
ask you about socially responsible capitalism?


Canada is a land of cold winters, sparse population, and very few freeloaders. Self pity and whiny petulance are frowned on, rather than encouraged (as they are here). The cost of Canada’s healthcare system per capita is far lower than ours because Canadians use less of it, and because they don’t have a population of moochers and illegal aliens larger by a multiple - than the entire population of Canada.

Us horribly greedy folks south of your border know that sixty million people contribute nothing, take everything, and enjoy incredibly unhealthy lifestyles. The costs for the US of universal healthcare, let alone universal basic income, and reparations would bankrupt the country numerous times over.

People here would love to have everyone covered, but in truth, our demographics make it a financial suicide pill. The other part of this is immigration - Canada is very tight on that (smart, BTW) and you have the world’s richest country south of your border; we have the third world sending up literally tens of thousands of uneducated moochers every month. You’d change your tune right quick if we just packed them all on trains up to your border.

Those happy Scandinavian countries? Here up to 41K/year pay no fed taxes - in Sweden the same income is hit for 60%.

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One of America’s biggest problems is that too many very wealthy people don’t pay any taxes or anywhere enough taxes.

I’ve picked up on that point of yours and not the other nonsense because it’s mostly off-topic and there are people who are in a hurry to unduly police that.

We might be able to get into a discussion on that which i’ve mentioned in reply, depending on your attitude for learning.

Otherwise, the cost of the US’s far inferior health care is close to twice as much per capita than Canada’s. And of course Canada’s is rated as quite a bit better.

47% of people not rich also don’t pay taxes
yes a small percentage under 1% if that don’t pay federal taxes, but they pay other taxes
especially if they live in New York or California

Rated by whom?
America has the best stats for Cancer survival in the world
where does Canada rank in that?

We spend more because we have more population than you , you do know that right?
Your entire population can fit into the Democratic People’s republic of California.

As soon as you figure out how to deal with our 22 trillion in debt, get back to us then we will be ready for change you can believe in.

An interesting perception and certainly false as the top 10% of earners pay 70% of Federal Income taxes. Got any proof of to many of the wealthy pay nothing or too little?

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he is talking about the 0.01% like Soros and his cronies that don’t pay

of course he wont tell you that 70% of the federal taxes is paid by the 1%