On Taxing the Rich

It’s easy for the rich to avoid taxation in the US – it appears that the 400 richest Americans now have an effective tax rate below that of the bottom half of income earners. How unusual is this?

Very Unusual, and Very Destabilizing

It is, of course, extremely unusual, and in fact downright regressive instead of the progressive tax system we like to think we have. An article by Gabriel Zucman in the NYT ^[1] gives us the data over time, as shown here. Zucman is an economist at the Paris School of Economics and UC Berkeley.

This is a startling graphic: the effective (average) tax rate for the 400 richest Americans has gone from 56% down to 23% since 1960. In the meantime, the rate that most of the rest of us pay has gone from 22% to 24%, i.e., remained stable.

The net result is our failure to tax where the money is, with the result that we can’t afford anything any more and Republicans talk about shutting down Medicare and Social Security.

This is a policy choice: we could, of course, restore upper brackets to the levels of, say, 1975 just before Reagan, and be just fine. We’d have to close off a bunch of tax avoidance loopholes to prevent billionaires from hiding or fleeing, but it could be done with things like a global minimum tax.

This, according to Zucman, would apply to the super-wealthy: about 3,000 people world-wide.

But for now, the US tax code is, at the low and high ends, not progressive at all!

Something similar has happened to US corporate tax rates. When I was a kid, I remember my father saying his company paid 50% of everything they made to the government. Now, it’s only 20%. Even at these levels, corporations do amazing stunts like reverse acquisitions to appear to be domiciled in some tax haven, while doing business here. If we want to restore corporate tax rates to their proper level, we’ll need to close those loopholes, too.

If the New York Times isn’t enough for you, there’s another piece in the distinguished scientific journal Nature to consider, beyond what’s already been noticed last month in this CrummyLittle Blog That Nobody Reads (CLBTNR). It’s a piece by Lucas Chancel ^[2], reviewing the book Limitarianism by the Dutch/Belgian economist Ingrid Robeyns. ^[3]

It catalogs limits on extreme wealth throughout history, even in ancient times. Even in the US, in 1942 FDR proposed a tax system that would limit income to an equivalent in today’s currency of $480,000.

We took the other path: now the top 1% of the US population owns as much as the bottom 90%. In a world were money can buy influence and control political speech, this is anything but a democracy, as Robeyns documents in the disproportionate political power of the rich.

Robeyns points out that many sources of great wealth are either tied historically to military conquests and slavery, or to the more brutal excesses of capitalist exploitation. A maximum wealth limit of around $10 million would be easily accepted by almost the whole population, though no doubt fiercely and hysterically resisted by the rich.

In particular, our inability to tax the rich cripples our ability to respond to climate change. This is likely an extinction-level event. Would we prefer the fall of human civilization and possible extinction, or taxation of the wealthy to get the resources to save all of us?

Just so you’ll know we’re not complete slouches here at Château Weekend, we’ve been reading with an intent to write a book review of Brian Merchant’s book on the history of the Industrial Revolution’s changes to British clothmaking, the sadly maligned Luddites, and the application of all this to modern Big Tech. ^[4]

He reviews the plight of Britsh cloth-workers in the early 1800s: steam-powered machines were destroying their livelihoods, leaving hundreds of thousands unemployed, homeless, and starving. The profits, of course, accrued to a very few wealthy industrialists and aristocrats.

The Luddites, often maligned as mere anti-technology troglodytes, were in fact a labor movement responding with property violence to the economic violence being perpetrated upon them. One cannot read these first-hand accounts without some sense of pity, when workers were advised to “find the nearest ditch, lie down in it, and die”.

Merchant’s book applies this same historical analysis to the crushing impact of Big Tech, particularly the bamboozling LLM’s of artificial intelligence. Again, all the profits go to some economic aristocrats who contribute little in taxes, lobby to have social programs dismantled, and fund monstrosities like Trump.

Effects of the Rich

Robert Reich, economics professor and former Secretary of Labor under the Clinton administration, invites us to consider the effects of this concentration on everyday life. In particular: why is housing so unaffordable to almost everyone?

Rent is astronomical, and home prices are downright cosmological in their scale.

A lot of homes have been purchased by hedge funds and private equity firms after the 2008 financial crisis. You know how stories with hedgies and PE bros always end, right?

This was not a small effect: in 2022, they accounted for 28% of all home sales in the US! They used their stock market bidding software to make offers on homes faster than ordinary people could even make offers, let alone beat them. By 2030, at present trends, Wall St organizations will control 40% of use single-family homes. (Worse yet, consider what happens when they turn, as a herd, to dump all those homes on the market when they’re no longer fashionable?)

They’ve concentrated on affordable housing and communities of color, yanking prices up out of the range of those communities.

This, of course, comes on top of the lack of supply and ridiculous refusal of towns to zone for dense housing. Here in Massachusetts, every town served by the MBTA mass transit system has to zone dense housing near terminals. Several suburban towns, refusing to do so, have asked if they can get rid of mass transit in order not to have to allow apartment buildings. There is, of course, a racist undertone: they don’t want “city people”, by which they mean black and brown people, to move to their white suburbs.

Democrats have bills in both houses of Congress to prevent hedge funds and private equity firms from owning single-family homes. Republicans, of course, are blocking it in favor of the interests of the rich people who fund them.

Voting Republican is bad.

The Weekend Conclusion

The Weekend Publisher and the Assistant Weekend Publisher are on the watch for Things to Come:

• We can tax the rich, as the US did in “the great leveling” in the mid-20th century ^[5].
• Or we can “eat the rich”, as happened in the French Revolution.

It will be one or the other.

We can still choose which, for a little while longer.

(Ceterum censeo, Trump incarcerandam esse.)

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Notes & References

1: G Zucman, “It’s Time to Tax the Billionaires”, New York Times, 2024-May-03. ↩

2: L Chancel, “How rich is too rich?”, Nature 629, Book Review, pp. 282-283, 2024-May-06. DOI: 10.1038/d41586-024-01276-1. ↩

3: I Robeyns, Limitarianism: The Case Against Extreme Wealth, Astra House, 2024-Jan-16. ISBN-13 978-1662601842. ↩

4: B Merchant, “Blood in the Machine”, Little, Brown, 2023. ISBN-13: 978-0316487740. ↩

5: M Fisher-Post, “Examining the Great Leveling: New Evidence on Midcentury American Inequality”, World Inequality Database of the World Inequality Lab at the Paris School of Economics, Working Paper No 2020/01, 2020-Jan. ↩