Elizabeth Warren, Michael Dell, Inequality

At the LA Times: Elizabeth Warren’s wealth tax proposal is constitutional, experts say — and necessary. By Michael Hiltzik, Jan 25, 2019.

Constitutional and necessary? That probably depends on who you ask. Makes me worry that Michael Hiltzik is writing for lovers of fantasy.

From the article:

Sen. Elizabeth Warren (D-Mass.), a newly declared presidential candidate, has turbocharged the progressive attack on income inequality with a proposal for a “wealth tax” aimed at Americans with net worth of more than $50 million.

An attack on wealth inequality, maybe, if it's a wealth tax. The article continues:

Warren herself hasn’t issued many details of her plan. But according to UC Berkeley economists Emmanuel Saez and Gabriel Zucman, who advised her on the proposal, the tax would be 2% on net worth above $50 million and another 1% on net worth above $1 billion. They say it would affect about 75,000 U.S. households, or less than 0.1% of the total, and raise $2.75 trillion over 10 years. That’s about 0.1% of gross domestic product per year.

"That’s about 0.1% of gross domestic product per year." So, obviously not a tax designed to balance the budget. That's interesting. It tells me Elizabeth Warren has something other than balancing the budget in mind. (I didn't know politicians could think about anything else!)

It doesn't need to be a big tax, to limit the growth of inequality. An inequality tax, if fully effective, would reduce inequality to the point that no one is subject to the tax. It would bring in zero revenue. To bring in no revenue these days, with inequality so extreme, would likely mean the tax is too weak. But even with a stronger tax, over time the revenue from the tax would fall as high-income earners redesigned their incomes to avoid paying it.

Myself, I'd pick maximum levels for income and wealth -- levels that answers the question "How much is enough?" -- and tax everything above those levels at 100%. This would create a true limit to inequality. Anything less than a 100% tax on income or wealth above the limit would slow but not stop the growth of inequality. It wouldn't solve the problem.


From the article:

The super-rich haven’t been shy about speaking up for their prerogatives. Asked at the Davos economic conference this week about the suggestion by Rep. Alexandria Ocasio-Cortez (D-N.Y.) to raise the top marginal income tax rate to 70% on high incomes, computer tycoon Michael Dell dismissed it out of hand.

“Name a country where that’s worked. Ever,” Dell said. To which Erik Brinjolfsson of MIT, a member of Dell’s speaking panel, promptly replied: “The United States.” Brynjolfsson schooled Dell by informing him that from the 1940s through the 1960s the top rate on income ran as high as 94%. “Those were actually pretty good years for growth,” he said.

Hiltzik thinks he has a zinger here.

The years from the late 1940s through the 1960s were better than "pretty good" years for growth. And income tax rates were definitely high. But there is no reason to assume that high tax rates on income were the cause of the good growth; that is fantasy.

What one can say with confidence is that high tax rates did not make good growth unattainable. And really, this is all one needs to say about tax rates and growth.


From the article:

Dell also said he contributes to society via a family foundation, adding: “I feel much more comfortable with our ability as a private foundation to allocate those funds than I do giving them to the government.”

It’s proper to observe that Dell’s multibillion-dollar fortune is based on mail and online orders of computers — in other words, on infrastructure created and funded by the government he disdains.

Hiltzik makes the point that Michael Dell's fortune was made by taking advantage of the economic environment our government created to promote general well-being and the pursuit of happiness. It's a good point. Dell is not a super-hero, except in his own mind.

One piece of the puzzle Hiltzik leaves out is the business tax code. By favoring growth, the tax code gives advantage to those who do grow. And the tax advantage grows right along with the business. So the lucky few gain almost all the advantage, and everyone else is left in the dust.

This tax advantage is why we've ended up with very few, very large corporations in most any industry you look at. It's also why we have so many private foundations like Dell's, which, by the way, pay no income tax.

This tax advantage is also what makes anti-trust generally ineffective.

From the article:

The question boils down to whether you want society funded out of the whims of Michael Dell or the debated judgments of your elected representatives.

I think there is a stronger argument. The question doesn't boil down to whim versus judgment. It boils down to whether capitalism, and society as we used to know it, can survive while inequality grows ever more extreme. The answer, I think, is obvious: It cannot survive. Society is already changing. And capitalism is giving way to financialism.

The time has come to reverse the trend and reduce the growth of inequality.