2020 is shaping up to be different, the most ideas-driven election in recent American history. Although the central idea is not always spoken, we need to bear it in mind at all times. Robert Reich has said it: the central problem is wealth The great wealth of the United States is no longer shared equally, and this leads to a host of problems. The result is a great deal of poverty in a country in which there is an average wealth of $300,000 per person but the median wealth of $45,000 (meaning that half of the people have less than $45,000 in wealth, but if the wealth were spread evenly, everyone would have $300,000).
What would happen if the top wealth were capped at $50 million? In other words, if we taxed wealth above $50 million at 100%. (This is more radical that Warren’s tax of 2% on wealth above $50 million). One example: in 1982, according to Forbes, the richest 400 Americans were worth $93 billion. In 2017, Forbes tallied that group at $2.4 trillion. If we took away from the richest 400 all wealth except for $50 million each, that group would have $20 billion, and the balance $2.340 trillion, would go to the government for spending.
According to one estimate, the U.S. needs $2 trillion in repairs to its roads and bridges. So if we took the excess wealth away from most wealthy Americans, we would pay for that very expensive project and leave the very wealthy with $20 billion. But what would happen to the $2 trillion? If it were spent carefully (that is, used only for American contractors and material suppliers) the money would boost the economy – and certainly, some portion of this money would flow back to the very wealthy. But just putting the money into the economy with increasing employment, probably by at least $1.5 trillion, which would increase other spending by those who received it.
If the government were to tax away $2.380 trillion from the wealthy, wouldn’t this reduce “disposable income” and reduce GDP? I would argue that the amount of wealth of about $50 million is not really “disposable.” Rather, it is saving. It would include very valuable paintings, jewelry, land, and other forms of wealth that do not really improve GDP. When the wealth goes out to building bridges and roads, the money comes into the hands of people who will spend it. That is, the wealth first builds the necessary roads and bridges (which improves the economy) and then goes to people who will spend it on other things (including the workers and materials needs to do the construction). That spending helps get rid of wealth inequality.
Let’s compare this to a proposed “wealth tax”. The taxes group “collectively holds about $20 trillion in wealth above $10 million per household. From there the calculation of wealth tax is simple: a 1 percent wealth tax on the wealthiest 1 percent of households above $10 million could raise about $200 billion a year, or $2 trillion over 10 years.” In other words, going after all the people who have $10 million or more per household at 1% a year raises the same $2 trillion. So a wealth tax helps get rid of wealth inequality, improves GDP, generates jobs, and has no overall negative impact on the economy because the wealth being taxed isn’t really used actively for investments and isn’t being spent in an active sort of way.
I wrote to Robert Reich as follows: “Wealth inequality and the wealth tax are important to me. From what I can tell, taxing the wealthy is going to help the GDP because the money goes from a source where it just sits (maybe in the form of land, jewelry, or other inactive investment) into a form that will employ people and buy products and push the economy. Do the wealthy contend that their excess wealth is needed by the economy?”
He was good enough to reply, and as follows: “Yes. Many justify their wealth on the basis of the debunked theory that the rich are the “job creators” because they invest in means of producing goods and services. “