- David Goldstein is a senior fellow at Civic Ventures and cohost of the “Pitchfork Economics” podcast.
- In this opinion piece, he writes that “it is no longer possible to choose democracy without also choosing to tax concentrated wealth.”
- The wealth tax debate, he says, isn’t just about money. It’s about who has power. “A democracy that cannot rein in such a dangerous concentration of wealth and power isn’t really a democracy at all,” he writes.
- For more on this topic, listen to the latest episode of “Pitchfork Economics.”
- This article is part of Business Insider’s ongoing series on Better Capitalism.
- Visit Business Insider’s homepage for more stories.
“We must make our choice,” Supreme Court Justice Louis Brandeis warned Americans near the dawn of the New Deal. “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”
Eighty years ago, our republic made the choice to address this existential threat of concentrated wealth by embarking on an era of highly progressive taxation and broadly shared economic growth. Working together as one nation, we pulled ourselves out of the Great Depression and through the Second World War, defeating fascism abroad while building at home the largest and most prosperous middle class the world has ever seen. The wealthy still saw their wealth increase, but not nearly as fast as the majority of working and middle-class Americans.
But over the past 40 years, all of this progress has been reversed by a trickle-down agenda of tax cuts for the rich, deregulation of the powerful, and wage suppression for everybody else that has reimposed a level of wealth and income inequality not seen since the Gilded Age. And as Justice Brandeis warned, the wealthy and powerful are doing everything they can to fend off any democratic challenge to their wealth and power.
In Washington, DC and in state capitals across the nation, high-priced lobbyists are now writing the rules as giant corporations monopolize market, political, and regulatory powers for themselves. Through voter suppression, gerrymandering, and the unlimited political dollars unleashed by Citizens United, an increasingly autocratic Republican Party and its wealthy patrons are seeking to subvert Congress and the Electoral College in order to exert minority rule. Even more worrisome, a decades long campaign to establish a corporatist majority in our courts is threatening to ratify the radical notion of the “unitary executive,” a dangerous legal theory that would place near dictatorial powers in the hands of the President.
America is once again facing a Brandeisian choice between democracy and concentrated wealth. And it is only in this context that the rhetorical backlash to the wealth tax can be fully understood.
To be clear, in our 21st century economy it is no longer possible to choose democracy without also choosing to tax concentrated wealth. “The reason for that,” explains economist Gabriel Zucman on the latest episode of “Pitchfork Economics,” “is that when you are very wealthy, you can own a ton of wealth while reporting little taxable income.” For example, Warren Buffett owns about $80 billion in Berkshire Hathaway stock, yet his taxable income is realized only when he sells shares — about $10 to $20 million a year. “That’s why for billionaires, you need a wealth tax,” says Zucman. “A progressive income tax is not enough.”
If both Brandeis and Zucman are right — that democracy and concentrated wealth can’t coexist, and that we can’t curb concentrated wealth without taxing it directly — then the wealth tax debate is about much more than just money. It’s about power. It’s about who will have the power to write our laws, to set our priorities, and to craft our tax code — a handful of billionaires or the American people?
When billionaire hedge fund manager Leon Cooperman literally cries that a wealth tax “would lead to unnatural acts,” it isn’t a few percent of his $3.2 billion fortune that he fears losing, but his power. When the famously tax-averse Jeff Bezos calls up Michael Bloomberg to urge him to run for president, that’s two multi-billionaires having a personal chat about power. And when Wall Street donors threaten Democratic leaders that they’ll back Trump if the party dares to nominate wealth tax advocate Elizabeth Warren, there isn’t a clearer example of the power of wealth being used to undermine our democracy.
That concentrated wealth leads to concentrated power has been true throughout all of human history. And the failure of our tax system to regulate extreme inequality, warns Zucman, is “adding fuel to the fire.” Over the past 60 years, the 400 wealthiest Americans have used their outsized political power to help lower their own taxes from an effective rate of 56% in 1960 to 47% in 1980 to a mere 23% in 2018. For the first time ever, these 400 billionaires now pay a lower effective tax rate than working class Americans, even as they’ve increased their share of our nation’s wealth to almost $3 trillion — more than that of the bottom 60% of American households combined.
But there is no economic law that says we cannot reverse these trends. “It’s not for economists or anybody to decide what the top tax rate should be,” says Zucman, “it’s for the people to decide through democratic deliberation and the vote.”
A democracy that cannot rein in such a dangerous concentration of wealth and power isn’t really a democracy at all. And America cannot rein in concentrated wealth unless we choose to tax it.
Or to paraphrase Brandeis: “Democracy — use it or lose it.”