The election of Zohran Mamdani as mayor of New York City has brought new energy into discussions of wealth and income inequality. The NYT reported in an article on the French debate over imposing the Zucman tax (a wealth tax on those with more than 100M euros) that it is estimated that the wealthiest 1% in the world own 43% of the world’s wealth.
I find it difficult to understand how people cannot concede that wealth and income inequality have grown dramatically and that the superrich have far too much power in political and economic spheres.
The super rich, surrounded by sycophants and unimaginable wealth, become deluded about their accomplishments. They interpret their success as evidence of superior wisdom and capability. They imagine themselves as humankind’s heroic class. Like emperors, kings and robber barons of the past, they define their role as that of demi-Gods, chosen by destiny.
A subset of the billionaire class believes that they are more capable of solving the world’s problems than governments that they view as paralyzed by partisan rancor and boxed in by outmoded ideologies and platforms. They are convinced that their control of much of the world’s wealth is warranted. Many see massive investment in technology (under their control of course!) as more likely to provide long term benefits than any redistribution of wealth or other government programs.
But there is no technology quick fix for the world. Neither Musk’s robots nor Altman’s Super Intelligent AI nor Zuckerberg’s meta-world will substitute for the slow, but steady international improvement of conditions on planet earth. Indeed, it is more likely that these overwrought technology investments and frenetic races to dominate AI will cause more harm than good.
The French economist Thomas Piketty, in his book on this topic, Capital in the Twenty-First Century, recommends much higher taxes on both the income and wealth of the rich. But how likely is that to occur?
In the USA, the subject of taxation has been highly controversial since before the birth of our nation. Even when it is emphasized that tax increases would only affect the top 10% of incomes and wealth a significant percentage of those in the middle or lower classes side with their wealthier compatriots in strongly opposing such taxes.
The main arguments against increasing taxes on the wealthy are the following:
- Large tax increases will cause an exodus of those affected to countries with low tax rates (what Piketty calls ‘the race to the bottom’)
- Tax increases will hobble the economy by decreasing technology research, investment and expansion of businesses. It will decrease the incentive of entrepreneurs, inventors and job creators.
- The real economic problem is overspending by governments and increasing taxes will only make this problem worse.
- The rich already pay a majority of the taxes.
- Redistribution of wealth will only encourage sloth and dependency in the lower classes.
I will address each of these arguments and then explain why I sadly have almost no hope for any sizable wealth distribution outside of a major catastrophic chain of events.
First of all, let’s face it. Almost everyone fights like hell to keep what they have. And when you are a billionaire or have a few hundred million, then you have quite an arsenal for battling anyone or any group planning to take money from you. The argument that higher taxation will cause capital flight is very valid. Wealthy people already hide part of their wealth offshore. Many New Yorkers already live half the year in Florida to escape NY city and state taxes. But more on that later.
The long-lived argument that higher taxes on the wealthy will cripple the economy, stifle innovation, etc. etc. may have some validity at certain levels. But today’s plutocrats have so much wealth that it is ludicrous to claim that having to give up some of it would cause them to stop investing or innovating. Exempting smaller entrepreneurs and business owners where increased taxation might hamper their efforts would need to be part of a larger tax concept.
The argument that governments are overspending and that higher taxation will simply encourage more profligate spending may have a germ of truth in some cases. Any significant tax increases must go hand in hand with earnest bi-partisan efforts to analyze government programs, reduce where possible and eliminate waste. I think it is reasonable to aggressively pursue both revenue and expenses. But a chaotic, vengeful and slapdash gutting of government departments a la DOGE is clearly not the right way to do it.
The argument that the rich already pay a majority of the taxes is specious. The amount of taxation should be based on how much the taxpayer can bare without serious consequences, not by the percentages, especially in times of rising inequality. Significant increases in taxes on both income and wealth would not change the lifestyles or the business decisions of the superrich and would barely impact even the top 10%. As Jesus said, to whom much is given is much required! 😉
And the final argument, that wealth redistribution would only encourage sloth and dependency, is a fallback to the weary, old claim that the world will always have rich and poor and that the rich propel the world forward, while the poor drag it down. Yes, human nature has elements of sloth and opportunism, and it also has elements of avarice and arrogance. No one is advocating a scheme to completely eliminate poverty or inequality.
To counter this line of argument, I would avoid using increased tax revenue for direct transfers to low earners. Instead, I would invest in quality-of-life areas such as healthcare, education, transportation, network access, housing and urban renewal. This would defang the concerns about creating more dependencies and entitlements. Creating a better quality of life so that there is less cost for healthcare, transportation, childcare and housing could make lower wage earners more productive, more stable and less vulnerable.
But there has rarely been a move to significantly raise taxation in advanced societies. The great majority of the wealthy will never embrace it and they have ever more power to obstruct it. Capital flight would certainly occur and it is highly unlikely that all nations will agree to avoid the ‘race to the bottom’ of providing tax shelters for those fleeing taxation.
The only times in history where redistribution of wealth has been achieved and inequality has decreased occurred after major wars or brutal economic depressions. Unfortunately, this is probably the only likely scenario for rectifying the current disparity of wealth in this world. And all signs point to one or the other occurring in the not-too-distant future. I vote for depression, being the less catastrophic of the two. But maybe climate change will trump them all!
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