Taxing wealth is at the heart of a robust new program for progressive politics.
April 9, 2020
With Responses From
Apr 9, 2020
8 Min read time
Taxing wealth is at the heart of a new program for progressive politics.
In a whipsaw political season, we see one progressive constant: the call for taxing the wealthy.
Taxation is central to the four prongs of the new progressivism: restructuring the economy, providing public goods, empowering innovation, and protecting democracy.
As Emmanuel Saez and Gabriel Zucman note, wealth taxation requires three things: a more progressive income tax, more aggressive corporate taxation, and a progressive tax on wealth itself. The latter has caught fire. A 2 percent wealth tax on fortunes greater than $50 million is popular with almost two-thirds of Americans, including 77 percent of Democrats and even a majority of Republicans. Cutting taxes has been at the heart of conservative orthodoxy for half a century, but raising taxes is now key to a progressive realignment. It is a new day in tax politics.
Some have argued that Saez and Zucman claim too much for wealth taxation. One of the most interesting critics comes not from the right but from the left. In his review of Saez and Zucman’s new book The Triumph of Justice, Liam Murphy, in these very pages, argues that tax justice cannot be separated from just economic outcomes as a whole. But this is an unfair, or perhaps misplaced, critique, because taxing wealth is at the heart of an emergent progressive worldview and a new progressive politics.
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This new progressivism rests on four related arguments about the possibility of a wholly new political economy, inverting today’s power relationship between the private and the public sector, and focusing on the power of public institutions and the centrality of government.
1. Taxes Will Better Structure the Economy
The first group of new progressives are structuralists. They focus on how government guardrails shape markets, and how government rules—or the lack thereof—determine who the economy works for, and who it leaves out. Structuralists include Elizabeth Warren, architect of the Consumer Financial Protection Bureau, who argues that “markets work when there are rules and competition”; antitrust legal experts such as Tim Wu and Lina Khan, who focus on rules governing corporations; organizer Rashad Robinson, who leads corporate campaigns with “power is the ability to change the rules”; and the economist Joseph Stiglitz, who reminds us that we must rewrite our economic rules.
All of these thinkers believe that structure of today’s economy is oriented toward the rich: labor’s share of income relative to capital has steadily declined. We know, thanks to the work of economists such as Thomas Piketty and others, that the rates of return on capital outpace wage gains unless we actively structure our economy to work otherwise.
Taxes have been the bedrock of Republican appeal and power for half a century. But cutting taxes for the wealthy is now radically unpopular—so unpopular that Republicans were not able to run in 2018 on Donald Trump’s only legislative achievement.
Taxing wealth is a central tool in the structuralists’s toolbox for changing these rules and encouraging a different allocation of economic resources. We tax corporate wealth badly, with significant loopholes and a poor system for capturing global profits. Highly profitable companies—from Google and Amazon to General Motors—avoid taxes by using accounting rules that benefit executives disproportionately or by stashing profits in tax havens domestically and offshore. Bad corporate tax rules benefit the wealthy almost exclusively and disincentivize companies from investing profits in a number of ways that would benefit a range of stakeholders, including their own workers. Higher taxation on corporations, better enforced, would begin to reverse this trend. Higher taxation on wealthy individuals would also begin to reverse the ability of a handful of superrich actors and their hired lobbyists to buy access to public officials, using market power to write rules—from financial deregulation to minimum and living wage laws—in their own favor.
2. Taxes Are The Basis for Equity and a Dignified Life
The second group of new progressives are public providers. They make a simple and profound argument: at a time when many people do not have access to a basic standard of living, we can and should use the state more robustly, not only as a market-structuring tool but also as a provider of fundamental goods and services. Public providers include Bernie Sanders, who famously argues for publicly provided universal health care; economists Darrick Hamilton, Mark Paul, and William Darity, who bemoan “reliance on market-based solutions to our social problems”; and economists such as Heather Boushey, who remind us that government has a responsibility in paying for costs, like paid family and sick leave, that otherwise fall on individuals, disproportionately women.
Public providers argue for direct government provision of health insurance, higher education, child care, housing and transportation—all necessary for a dignified, thriving life in the twenty-first century, and all provided radically unevenly across geography, race, and gender in today’s market-dominated system.
Both Warren and Sanders have wealth tax plans that would yield, by Saez and Zucman’s reckoning, significant revenues. Warren’s two-cent tax would bring in an estimated $2.75 trillion over ten years; Sanders’s more steeply progressive plan would bring in an estimated $4.35 trillion. Sanders has argued that a wealth tax would pay for a national housing plan focused on relief for renters, universal child care, and make a significant down-payment on universal health insurance. Wealth taxation can go very far in providing the basis for dignified and decent livelihoods for all Americans.
3. Taxes Can Power Innovation and Transformation
The third group of new progressives are innovators, who argue that government is essential to setting the direction of economic transition. This group includes economists such as Mariana Mazzucato, who advocates for a state that can “build visions for the future”; Dani Rodrik, who is focused on state-led industrial policy; and Green New Deal advocates, from the Climate Justice Alliance to the Sunrise Movement, who want to use the power of the state to build a clean, front-line community-focused economy.
Innovators recognize that today’s economy is that it is stuck in low gear, with flagging demand, persistent stagnation, and limited monetary tools to tackle these problems. At the same time, they note that the existential threat to our planet is climate change—which we could begin to tackle if we decarbonize the economy by building greener transportation, buildings, and infrastructure. Taxation helps here too.
Should a wealth tax focus on raising revenue? Or should it instead focus on curbing power? The answer is clear: both are critical.
Plans to decarbonize the economy will be costly, and they will require state-led public investment to transform energy consumption across sectors. But taxing the wealthy is essential to plans to pay for this kind of transformation—whether Washington Governor Jay Inslee’s well-regarded proposal of a $4 trillion decade-long investment or Sanders’s proposed $13 trillion plan, by far the most ambitious. Financing such a transition can be accomplished without raising costs or taxes for everyday people through some combination of wealth taxation and public debt.
Such a move would not only drive economic transformation, but also act as a needed economic stimulus in our time of stagnation, providing green jobs and opening creating new markets in renewable energy. Wealth taxation is thus a key tool for dismantling the neoliberal age of austerity that foreclosed on many smart progressive ideas. Taxing wealth can flip those politics on their head.
4. Taxing Our Way to a Better Democracy
The fourth group of new progressives focuses on economic democracy. These thinkers are political institutionalists, ranging from lawyers and political theorists such as Sabeel Rahman, who advocates democracy against domination, to labor organizers such as Jane MacAlevey, who promotes whole-worker organizing as essential to democracy. Both our government and the institutions that serve engines of power for working people—labor unions, mass movement organizing—must be high-functioning and publicly accountable.
Wealth taxation supports economic democracy in two ways. First, it would help resolve the paradox that although the public has grown more distrustful of government, at the same time it also wants government to do more. One obvious but essential in this direction is to stop starving the government of resources.
The second way that wealth taxation can support healthy democracy is to reverse the plutocratic hijacking that has become so commonplace in today’s politics that we barely notice it. Extreme inequality, enabled by weak taxation, allows the wealthy to dominate our democracy. Some of that hijacking is visible at the highest tier of electoral politics—Donald Trump, Tom Steyer, and Michael Bloomberg buying political notice, and in some cases actually buying political office, with relative ease. Some of it is less visible, but shows up as market power. The best recent research in economics and political science is clear. Mix supercharged lobbying by the wealthy with the engineered complexity of our political system and you get superrich individuals and dominant companies winning the vast majority of policy fights. Ordinary voters and overwhelmingly popular policy ideas—from minimum wage to financial reform—lose. Wealth taxation taxes away extreme power, making it key to our democracy.
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The new taxation is thus central to the four prongs of the new progressivism. It is also generating new debates. Should a wealth tax focus on raising revenue? Or should it instead focus on the market structuring and power curbing so necessary in today’s upside down political economy? The answer is clear: both are critical. The structural argument is essential, because it’s about baking better economic outcomes into the functioning of the system itself, and driving more economic equality so that our democracy actually reflects the demos. But raising revenue is just as essential: in a world where public goods are harder and harder to come by, and where great ideas for economic innovation are shut down when naysayers can say that they are unaffordable, the new taxation is the smart and readily available financial answer.
This is why wealth taxation drives post-neoliberal politics. Taxes have been core to the neoliberal worldview for half a century, the bedrock of Republican appeal and power. But cutting taxes for the wealthy is now radically unpopular—so unpopular that the Republicans had to abandon their 2017 tax cut in 2018, and were not able to run on Donald Trump’s only legislative achievement. With the new taxation, anchored by taxing the superrich, front and center, Democrats should play their upper hand. They can be clear: taxes support a high-functioning economy and a strong democracy. Sanders and Warren both recognize that we can tax extractive power away. And their support has led more moderate Democrats to engage the new progressivism.
We are at the beginning of a new era. The taxation debate today has been fundamentally redrawn by Saez, Zucman, and their colleagues. We have long known that wealth and power dominate our politics. Their work shows that the balance of power must, and can, shift toward equity and democracy.
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April 09, 2020
8 Min read time