Wealth Tax, the best solution for Wealth Inequality?
One of the most impactful economic discussions in recent presidential debates is the possible implementation of a wealth tax. In recent weeks, it is increasingly becoming synonymous with “billionaire tax” – a levy that would only affect those with a net worth larger than $1 billion. The main proponent of this has been Elizabeth Warren – a democratic hopeful for the DNC’s nomination. This week, the New York Times dove into what her policy would mean for billionaires and quantified the results.
These are quotes from the economist who worked directly with her on the proposals:
“If her wealth tax had been in effect since 1982, for example, Mr. Gates, who had made his first billion dollars by 1987, would have had $13.9 billion in 2018 instead of $97 billion.”
“As for the 400 people who made it to Forbes magazine’s list of the country’s wealthiest people, each would have an average worth of $3.1 billion, down from the current $7.2 billion.”
This type of tax deteriorates wealth for those who have worked to accumulate it, with the goal of circulating it back into the economy. There are two sides to the debate: One says that change and reform is needed to address the ever-growing inequality of wealth in America. The Federal Reserve bank of St. Louis published an article in August highlighting the change in wealth inequality, and the findings reveal how the top 10% of income earners have claimed every greater piece of the pie since the data from 1989:
These charts suggest that there needs to be reform in order to redistribute wealth that is being withheld by these top earners. The other side of the argument is centered around innovation. What motivation will inventors and entrepreneurs have if they know that there is a ceiling to their earnings? Globally, France, Portugal, and Spain are examples of countries with wealth taxes. In France, there is a wealth tax cap in place that ensures that total taxes do not exceed 75% of income. Not all countries have this type of tax; Austria, Denmark, Germany, Sweden, Finland, Iceland, and Luxembourg have abolished it in recent years. If a wealth tax is passed, there is a chance that it