Every time I hear that as a nation we can’t afford something – whether it’s ensuring safe water in Jackson and Flint or universal preschool or an industrial policy with teeth – I wondered how many dollars a national wealth tax could bring in. So I looked at the numbers.
Wealth turns out to be far more important than income. Our total wealth in the United States in 2021 was $150 trillion. Total income, combining personal income and company profits, was about $25 trillion. A small wealth tax would clearly generate much more government revenue than a much larger income tax.
Like income, wealth in the United States remains highly concentrated. The richest 1% of Americans own about a third of that $150 trillion in American wealth. That’s $50 trillion, twice the total annual income of all Americans, from millions of workers earning less than $15 an hour to corporate executives earning millions. Again, you don’t need an algorithm to figure out that even a tiny wealth tax on the top 1% could produce as much – or more – than a large income tax on everyone else. .
A modest national wealth tax could solve a lot of problems and fund a lot of the common good, even if that tax only somewhat reduced our wild economic inequalities.
Senators Elizabeth Warren and Bernie Sanders proposed pioneering proposals to introduce national wealth taxes in the United States. Critics have raised various objections to these proposals. Collecting a wealth tax would prove impractical, with some paying. Others say taxing wealth at the federal level would be unconstitutional. Senator Warren has answered these objections convincingly, but I would just like to add one point: taxing wealth would provide an almost inexhaustible source of revenue for the government. The collection of these revenues may come up against administrative or political obstacles. But overcoming these obstacles would be worth it.
Let’s look at what a 1% wealth tax on our top 1% could buy, and then see how much pain and suffering that levy would impose on those paying the tax. A 1% wealth tax on the top 1% would produce $500 billion in revenue a year, or $5 trillion over the 10-year budget calculation required by federal legislation.
These 500 billion dollars could buy something like a revolution in the education of children. President Biden’s original proposal, Build Back Better, had elements of such a revolution, but never received full funding because implementing family-friendly policies will always be very expensive. With a 1% tax on the richest 1%, we could meet this expense.
Here’s what a plan to help kids and make parenthood more manageable could do with a 1% tax on the 1%:
|Excerpt from “Building Back Better”||Annual cost||Cost over 10 years|
|Expanded child tax credit||$160 billion||$1.6 trillion|
|Subsidies for childcare and universal preschool||$125 billion||$1.25 trillion|
|Paid family leave||$20 billion||200 billion dollars|
|Extended earned income tax credit||$13 billion||$130 billion|
|Baby Bonds proposed by Senator Corey Booker||$60 billion||$600 billion|
|TOTALS||$378 billion||$3.78 trillion|
|Remaining 1 percent revenue-
on the 1% tax of 500 billion dollars
|$122 billion||$1.22 trillion|
This package would provide $3,000 per child for virtually all parents, to register an average of $11,000 for those who now use daycare for preschoolers, and to provide employment opportunities for parents of preschoolers who cannot afford daycare. All of this would be great for children’s academic, psychological and social development – and would transform the economics of parenthood, especially for low- and middle-income families.
Senator Booker’s Baby Bonds would create and seed a $1,000 savings account when each child is born in the United States, then add up to $2,000 each year based on household income. The funds would generate income that would not be available to children until they turn 18. At that time, they could use the money for education, to buy a house, start a business, or continue as a retirement account.
Taken together, this package would more than halve child poverty, dramatically improve overall education levels over time, and immediately provide substantial support to families during their most difficult years to manage both time and money. A modest wealth tax could provide all of these benefits, with money left over to do even more of the common good. But at what cost ? What harm would a wealth tax do to those elite few who would have to pay the tax?
As illustrated below, the amount that individuals would pay in wealth taxes would indeed be very high, often running into the millions or even billions of dollars. But most years and on average, America’s top 1% would continue get richer even with this wealth tax in effect. Since the average annual stock return of the S&P 500 since 1957 has overcome 11%, a mere 1% wealth tax would amount to little more than a rounding error for anyone in the top 1%.
|The impact of a 1% wealth tax on the top 1%|
|Assuming 11% annual income from investments||Increase in annual wealth with an effective wealth tax|
|$10 million||$100,000||$1.1 million||$1 million|
|$50 million||$500,000||$5.5 million||$5 million|
|$1 billion||$10 million||$110 million||$100 million|
|$190 billion||$1.9 billion||$20.9 billion||$19 billion|
Once established, a wealth tax could easily rise in small increments to a perhaps more reasonable 4%, producing $2 trillion in revenue per year, based on current levels of wealth. Or we could tax higher levels of wealth at higher percentages, like Senator Warren offers, with tax rates on billionaires reaching 6%. Even at these higher rates, the rich would continue to get richer. But taxing the wealth of these rich would open up a cornucopia of public capital to invest in solving our multitude of problems and improving the lives of working people.
By not by taxing wealth, we fail to tap by far the most important source of our potential government revenue. And because the wealth of the rich confers both economic and political power, we cannot adequately defend democracy if we continue to allow our economic oligarchy an entirely free lunch.
A clear majority of Americans Support most of the family-friendly policies listed above. Even larger majorities Support the concept of a wealth tax, with almost two-thirds of Americans in favor of a tax on large fortunes. Imagine that. Polls show higher support for taxing the rich than for the beneficial programs that taxing the rich could fund. It makes you wonder why our elected officials, especially the Democrats, aren’t lining up to support such a combination of politics and pay.
The next time you hear a politician say “we” can’t afford something that clearly needs to be done, stop for a moment and think about what a wealth tax on a very small proportion of Americans could accomplish.
Jack Metzgar, a retired adult educator from Roosevelt University in Chicago, is the author of Bridging the Gap: Working Class Culture in a Middle Class Society (Cornell 2021).