Doing something about economic inequality should be one of the highest priorities of the next congress. If nothing is done about it, our nation is heading at full speed towards social upheaval. And when our current economic bubble bursts as it surely will eventually from monumental debt and foreign ownership of it the meltdown will devastate the vast majority of Americans with little wealth, and far worse than what happened in the Great Depression prior to World War II. The Upper Class will hardly be impacted. In fact, they would just shovel more wealth into their pockets. As class warfare ignites here, the Upper Class will enjoy life in havens throughout the world.
A few years ago a wonderful little book Top Heavy by Edward N. Wolff caused considerable angst among Republicans. With little emotion but a truckload of data Wolff demonstrated the enormity of the economic inequality problem in the USA. Better yet he made a compelling case for the federal government attacking the problem by imposing a wealth tax a tax on net worth, meaning assets minus debt.
The core concept is to levy a relatively small tax on the considerable wealth of the richest people. So at the outset it is critically important to emphasize that a well designed wealth tax will have no effect on most Americans. But by imposing a small tax on the Upper Class it is possible to raise a large amount of money.
Wolff based his scheme on the Swiss system, which is regarded as a pretty fair system. Not only would it fall only on wealthy people, it would also be a progressive tax, hitting the super-rich with the highest tax rates.
First, the public must be told that there would be a substantial exemption something like $250,000 that would make most Americans exempt from the new tax. That level would exclude 80 percent or more of all families. If the value of a household's primary residence is excluded, then a larger fraction would be exempt. A key point is that because the tax is levied on the really wealthy, small tax rates produce large amounts of new revenue. A reasonable scheme would be to start out using a tax rate of just .2 percent on $250,000 to $500,000, then .4 percent from $500,000 to $1 million, then .6 percent from $1 million to $5 million, and a maximum rate of .8 percent of wealth above $5 million.
To put these rates in some perspective, they are generally less than what investors pay in annual fees to mutual funds and to managers of many other types of investments. In other words, these levels of taxes would not ruin the rich. Such a federal wealth tax would slightly slow down increases in the wealth of the rich.
Yet because so much wealth is taxed even at those low rates, some $60 billion or more would be raised annually. Probably 80 percent of households would pay nothing and perhaps another 15 percent would pay less than $1,000 annually. That leaves the top 5 percent of the richest taxpayers being hit significantly, but not enough to knock them out of the Upper Class. In past years, the top 5 percent of families received about 75 percent of capital gains. Wolff noted that the top 5 percent hold about 60 percent of all the net worth in the nation 5 percent own more of the nation's wealth than the remaining 95 percent! The 95 percentile has a net worth upwards of $1.4 million and the 99 percentile has a net worth above $6 million. The wealthiest 5 percent own about 90 percent of all the business assets in the country, over 90 percent of the value of bonds, about 80 percent of the value of all stocks, and over 70 percent of all nonresidential real estate value. So you see there is no need to shed tears for those hit hardest by a wealth tax. They do not pay enough taxes now!
Consider all the good that collecting the wealth tax revenues could produce. The money roughly a trillion dollars over 15 years could help reduce the incredibly high federal debt and also address the looming shortfalls for social security and Medicare. It certainly is time for a responsible congress to stop giving tax breaks that mostly benefit the rich and start taxing the richest Americans. And certainly it is time for America's Upper Class to support the nation that has in many ways made them rich.
A wealth tax is just a rational first step in addressing economic inequality. Many more steps should be taken by the next congress, including raising the minimum wage and addressing the core cause of massive illegal immigration that is killing working- and middle-class Americans by prosecuting illegal EMPLOYERS, and imposing serious jail terms, not just fines. When a new Wal-Mart opened outside Chicago recently more than 25,000 people applied for 325 jobs! Lousy jobs! And things will only get worse.
All we have now is freedom for all and prosperity for few. Massive economic inequality means massive injustice that no sound democracy should tolerate. Eventually, after too much avoidable suffering, class warfare may lead to economic justice. How long will we wait? How long will most working- and middle-class Americans be stuck on stupid - working to make the rich richer? After all, it really is the economy stupid!
[Learn about the author's new book at www.delusionaldemocracy.com.]