There is an awful lot of money in America, and only a very few of our beloved representatives in congress seem troubled by the fact that almost all of it is falling into the hands of a very limited number of Americans. It's gotten so bad that one must resort to hyperbole to describe that top class of wealth holders. We've zoom-climbed past the “obscenely wealthy,” and I think we are well into the zone of the “intolerably wealthy.” You know what I'm talking about.
Most regular people don't even seem to notice anymore, beyond a vague desire to join those intolerably wealthy people in the winners' circle. Regular people are limited to two possible avenues for achieving even bottom rung “rich” status: the Power Ball lottery, or a lucrative law suit. They will certainly not make it on wages of any kind, and truly brilliant, murderous, cutthroat entrepreneurs are few and far between.
Did I say “bottom rung?” I ballpark the low end of “rich” these days at about fifty-million dollars. Fifty mil doesn't buy what it used to. It's not enough now to put you in the super-yacht and private jet category. You'd be lucky to keep up a mansion somewhere, a few nice cars, and a condo with a view in New York. In fact, I'm not sure that fifty-million would even support that lifestyle. Fifty-million could best be described as “merely rich” in today's financial environment. “Comfortable,” let's say.
Not to worry, though! Lots of people are doing just fine, in spite of today's high prices.
What Wealth Tax?
Elizabeth Warren, bless her little heart, is one of the precious few in Washington who believe that nothing good can come of allowing all of the money to be Hoovered up by the intolerably wealthy class. If every dollar is parked in the custody and control of some individual, family, or trust, that does not need it, and couldn't possibly even imagine something to spend it on, what are the rest of us supposed to use to pay our rents? She is proposing a wealth tax that would be levied against anyone with a net worth of over fifty-million dollars. She suggests two percent. I read it phrased as, “two cents on every dollar over fifty-million.”
I would quibble about starting as low as fifty-million dollars, or starting with a tax of two percent, but this is just her trial balloon. It is too early to get upset about the details. Having said that, I am firmly behind Senator Warren's effort to get something like this rolling. It's about God-damned time somebody addressed this glaring problem with the distribution of income in America. (Insert mention of unfair taxation.)
This is not a new idea. Many countries already have a wealth tax of the type suggested by Senator Warren. Other countries have similar taxes under different names, or taxes that apply only to the “yield” of wealth. It shouldn't be such a big deal. Everybody understands that real property is wealth, and real property is subject to property taxes without anyone getting their panties in a twist.
I'm overseas, but I can already hear the Scrooge MacDucks in America screaming about this. “This money was taxed already!” And, “I earned this money fair and square!” And, “this is socialism!” And, “over time, this will bankrupt us!” You know how they love to go on. I have not heard, nor have I read anything about, the Republican umbrage that is no doubt being expressed already. “This will kill investment!” And, “this will make America noncompetitive.” And, “this will serve as a strong disincentive for the job-creators!” You know, those entrepreneurs that believe themselves to be the very engine that runs the world. The entrepreneurs who have provided many Republicans with enough money to be affected by this wealth tax. And oh, yes, since I'm being more evenhanded these days, many Democrats as well, and I'm sure that they will scream just as loudly as the weapon gores their ox.
Where do you think that the intolerably rich are getting all of this money? Partly, they make it out of thin air, and partly they steal it from you. Here are a couple of interesting facts. (If you do not already read the Harper's Magazine, you should seriously consider it. It's worth the cost of a subscription for the “Harper's Index” alone.) Consider:
“Hypothetical median income of full-time US workers if income were distributed as evenly as it was in 1975: $92,000.”*
“Actual median income of full-time US workers: $50,000.”
In other words, dear readers, in spite of the huge increase in your productivity over the last forty-five years, your share of the national income has been cut in half. The other half has gone to the new Robber Barons.
Here's another interesting Harper's tid-bit from this month's issue:
“Percentage of unpaid taxes that are owed by the richest one percent of Americans: 70%”
You can bear that in mind when they start complaining about taxation. They obviously have no general belief in the concept.
Real World Effects
Who will be affected by Ms. Warren's proposed wealth tax? How much will they lose? Will it negatively affect their lives? Should we be worried that they will come for us next? (Like taxing all bank accounts.)
One percent of $1,000,000 is $10,000. So two percent is $20,000. On this basis, every million dollars in wealth, over the base amount of fifty-million, would be taxed $20,000.
Example: The family or individual has a “wealth” that the law calculates at $70 million. $50 million is exempt. Twenty (the number of millions) times twenty-thousand comes to $400,000. Losing that much to a wealth tax will not change the people's lives one iota. And before you say anything, understand that it will come out of the growth of that $70 million, not out of principal. Only twenty-million will be taxed, but the entire seventy-million is still growing. Don't start suggesting, like some of the particularly stupid Republican members of the House of Representatives will, that “at that rate, after about thirty-five years the entire $20 million would be gone!” No such thing.
No such thing, because of one of the mysterious characteristics of money these days. If you only have $100,000 in wealth laying around, and you don't feel like taking giant risks with it, you're stuck with almost no interest at all. A two percent tax would probably be more than the interest you're getting. But when you are up around two or three hundred million dollars, your wealth multiplies like bunnies. You need a separate accountant to count the new money. If your wealth is in the billions, it is multiplying like cockroaches. For the upper reaches of wealth holders, two percent of any fabulous fortune will come out of growth, and the principal will continue to grow like a wildfire year by year.
Who Are the Real Targets of this Wealth Tax? Let's not worry too much about the millionaires. There are currently over eleven million millionaires in the United States, but my guess is that a substantial number of them fall under the fifty-million dollar threshold. Besides, even for the angriest socialist out there, people like run-of-the-mill sports stars, pop-stars, car dealership owners, and even the typical CEO of a middling corporation, do not elicit true outrage. Maybe just annoyance. The real action is with the billionaires.
There are now 630 billionaires in the United States alone. That's the most recent figure from my Google efforts. That includes people who only have a couple of billion, all the way up to Jeff Bezos, whose wealth seems to be jumping by a couple of billion dollars every day at this point. When I first checked, it was given as $185.7 billion. (I include the “point seven,” because it is, after all, $700 million dollars.) Business Insider magazine gives it as $196 billion.
Example: the family or individual has a wealth that the law calculates at $10 billion dollars. That's 10,000 millions of dollars. Did I get that right? It's hard to even conceive of amounts of money like this. I'm a lawyer, not an accountant.
Taking off the exempt $50 million, that leaves $9.95 billion subject to the wealth tax. At two percent, the tax bill comes to $199,000,000. That, I admit, is an eye-watering tax bill. But before you start feeling bad for this family or individual, bear in mind these two things:
Their remaining wealth is $9.9 billion dollars, plus whatever that money earned this year; and
During the year 2020 alone, billionaires in the United States alone have added $1 trillion dollars to their wealth.
I won't bother you with details about the increasing wealth tax bills that would result as the billions climb past twenty, or thirty, or fifty, or one hundred. It is safe to say that however much money it comes to, the money is coming out of growth. At that level of wealth, these tax bills are not going to force any lifestyle changes. It's all so much money that no one could dream up things to spend it on. At the entry level to this billionaires' club, they start buying super-yachts and sports teams; at the top level, all they can think of is personal space programs. Save your compassion for those unfortunates living under the bridge. As certain as it is that these tax bills will sting, the pain is strictly emotional. They won't miss one cent of the money. More likely, they never knew that they had that money in the first place.
The Legacy Trap
George W. Bush, or Bush II, “43,” was a mediocre student for his entire life. In spite of all of that, he was accepted to Yale University, where he continued his unbroken string of mediocrity. This travesty was allowed to happen because W. was a legacy. His father, President George H.W. Bush, “41,” had attended Yale, and was recognized as one of its most famous and successful graduates. W.'s paternal grandfather, Prescott Bush, had attended Yale, as had HIS paternal grandfather and a maternal uncle. Holding their collective noses, the Yale acceptance committee allowed W. to matriculate. They graduated him too, and it probably wasn't an easy decision. All of these people were members of Skull and Bones, which is some kind of secret society. This is the power of being a legacy.
The more money there is behind the legacies, the greater the advantages that life will bestow upon them.
A dangerous result becomes inevitable once this multi-billionaire express gets rolling. Increasing numbers of legacies are born into a wonderful world with trust funds in the hundreds of millions of dollars. They leverage their way into prestige Ivy League schools by means of either ancestors or cash. Then they own things, and run things.
You will have noticed that along with this proliferation of billionaires has come a renewed effort to lower or eliminate estate taxes. (The so-called “Death Taxes.”) Only a very small portion of the population will ever be subjected to estate taxes, so really it's only a very small number of Americans who pressure politicians (and pay them large sums of money) to kill the taxes. Silly question, but does anyone else remember when Senator Bob Dole suddenly became hysterical about the horror of the “Death Tax” after the Gallo wine family channeled a few million dollars into his campaign coffers? He got a law passed to reduce estate taxes in a certain way that mostly benefited, any guesses? The Gallo family. And Bob Dole, of course. (Google Bob Dole the Gallo Wine Amendment)
One way or another, lawyers and accountants will find ways to get around any inconvenient laws to ensure that all of the billionaire's “hard earned money” stays in the family. The money continues to grow; it stays in the family; we all end up working for descendants of the Walmart fortune. And, of course, a select group of other legacies who hit the genetic lottery and are born into hundreds of billions of dollars.
A carefully measured wealth tax, coupled with a robust estate tax, would save us from this miserable fate.
*Harper's provides all of the sources for the information used in the index, by the way.