Tracy Miller of George Mason University recently wrote in the Charlotte Observer about the inadequacies of a wealth tax. She highlighted the wealth tax proposed by Sen. Elizabeth Warren. Such a proposal is clearly worth studying. The income inequality we have today should disturb all of us, regardless of party affiliation or political beliefs.
My concern with Miller’s essay is not because I am a supporter of a wealth tax but because her arguments against such a tax are weak.
Miller first compares how much of the total tax the wealthy pay to how little the non-wealthy pay. That is not relevant to the issue she is raising. The reason, for example, that people making over $250,000 per year pay as a group over half of all the tax is because of their larger incomes and our progressive tax system. The comparison simply demonstrates the extreme income inequality which exists in our nation — a condition a wealth tax is in part attempting to address.
Miller makes the argument that adding a wealth tax on wages and investment on the wealthy will reduce incentive. This argument is a standard commandment for anti-taxers, yet I am surprised someone at a university feels the need to trot it out. In the 1950s, the tax rates were much higher than today, in some cases twice as high, and yet the U.S. economy saw a period of impressive growth up to the 1970s. She also cites the wealth accumulated by Steve Jobs through his development of popular consumer products. It is hard to imagine that if there were a wealth tax at the time Mr. Jobs was working on these products that he would have lost incentive, packed up and moved to the Caribbean.
Incentive comes from the strong desire to be good at what one does. It relates to an individual who has an idea for a good craft beer and starts a brewery and works hard to make it a success. It comes from the heart. Then add other factors such as earning a living for the family you love.
Miller uses a study from the Tax Foundation, basically an anti-tax/balance the budget nonprofit, to show the inadequacies of a 2% wealth tax proposed by the French economist Thomas Piketty.
One should be very leery of the reports from the Tax Foundation. It’s annual Tax Day report last April was seriously criticized by economists for its misleading methodology. For example, the report suggests all tax payers had to work the same number of days before being ‘free’ from the year’s obligation. In fact, because of our progressive tax system, 80% of all households will pay a smaller share of their income in federal taxes (Tax Policy Center). Also, the Tax Foundation focuses solely on tax rates and ignores what our taxes, our investments in our nation, provide.
Miller proposes eliminating loopholes in the tax system as one solution rather than a wealth tax. Earlier in her essay, however, she criticizes the wealth tax because Congress would include loopholes in the legislation.
The wealth tax proposal is worth studying, but let’s do so with a reasonable effort.
John H. Clark, former executive of non-profit arts organizations including station manager of WDAV, is retired and resides in Charlotte.