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To the editor,

I am not sure why Steve Pressman wrote, and you published, such a lame set of arguments against a wealth tax (Sep 1 issue, p 6).  The article claims “Perhaps the biggest negative is that the wealth tax does not have a very distinguished history.” The main historical fact reported is that some wealth taxes were repealed, or reduced, or were unpopular as evidenced by their decline. So what?  In general, many progressive policies have been rolled back recently: fewer OECD countries had wealth taxes in 2000 than in 1990. Should we conclude the policies were a bad idea? Wouldn’t it be more reasonable to conclude that the coincidence of the repeals and increasing wealth concentration shows they were a good idea?

Despite the reference to the historical record, and the flat assertion that the “an annual tax on wealth has far too many drawbacks to be effective” at the conclusion, the only empirical part of the article
is the dubious interpretation of history discussed above.  The bulk of it consists of speculative arguments about possible drawbacks of a wealth tax. The author seems to want us to confuse his speculation with fact.

The article fails to note the US has wealth taxes right now, namely property taxes. I wonder how that’s possible if wealth taxes are unpopular and unworkable?

The article also omits most arguments for a wealth tax.  I’d like to suggest one: we are in a period of massive transfer of wealth upward. There are many culprits: government policies that weakened most
worker’s negotiating position by weakening labor law and maintaining unemployment to fight inflation; patents and monopolies (drugs, software, media); direct government subsidies such as the Fed’s giving banks cash for their nearly worthless securities in the last financial crisis; energy companies that paid nothing for wrecking our planet.

Further back, the labor and wealth of Africans has been systematically looted. We sit on land conquered from native people or Mexicans. Ordinarily the remedy for a  crime would be to undo it and return the money. But little of what happened is amenable to such a remedy. A wealth tax is the next best way to right the wrongs.

Ross Boylan, Ph.D.
San Francisco, CA

Pressman responds:

First, and maybe most important, property taxes are not wealth taxes. The property tax is a tax on the assessed value of a home and the land it sits on. It is not a tax on the equity that one has in one’s home, which would make it a wealth tax. The same property tax applies to someone underwater on their mortgage and someone who owns their home outright — when the two homes are of equal value in the same neighborhood. Rather than a tax on the wealthy, property taxes fall primarily on the middle class. As Edward Wolff (the expert on this issue) has documented, these are the people who have the largest majority of their wealth in home ownership. The rich have the vast majority of their wealth in the form of financial assets, which escape the property tax. If we want to tax the rich, a financial transactions tax would be a much better alternative (for more on this, see my article in the October Washington Spectator).

Second, I don’t disagree that wealth and income inequality have increased greatly in the US over the past 4 decades. This is supported by a great deal of empirical evidence. And, as some of my own work documents, things are even worse than what the standard data shows. However, the lack of a wealth tax is not responsible for this, as the US has not abandoned (or lowered) its wealth tax while inequality began its steep ascent (as we have no wealth taxes). You did mention one important cause of rising inequality in your comment — the reduced power of labor. Missing from your list of causes are two extremely important things — lower top income tax rates and the even lower tax rates for income received from owning wealth (beginning in 1980, when the great rise in inequality began).

Finally, while I agree that the inequality problem needs to be solved, and that we need to tax the rich; but we need to do it in the right manner. There is no point in focusing on options (like the wealth tax) that are neither a cause of the problem nor likely to solve the problem, given centuries of historical experience with wealth tax (including the window taxes in England, which I discussed in my September Washington Spectator piece). The right response to rising inequality seems to me to go back to where we were before Republicans began slashing income taxes for the wealthy. And we can deal with the accumulation of wealth by taxing the transfer of wealth (at death), either with an revived estate tax or with an inheritance tax. I will be discussing these issues in greater detail in the Washington Spectator soon.

Steven Pressman