Since 1980, the U.S. economy has increasingly divided Americans along class lines to a degree now rivaling the Gilded Age. Economic elites have gained massively from 40 years of a structurally weakened working class, failure to break up monopolies, job-exporting trade agreements and a tax system that hits secretaries harder than billionaires.
The wealthy gain while the rest of us pay taxes
Economic elites have long benefited from government largesse: public land grants and leases, public infrastructure, public education, government-sponsored research and a legal system that protects their property rights. Nevertheless, these super-beneficiaries fail to pay their fair share of taxes.
Effective tax rates for the wealthiest Americans have fallen dramatically since 1980. Billionaires have seen their taxes decline roughly 79% as a percentage of their wealth since 1980. The “effective tax rate” on the billionaire class — the actual percentage paid — was just 23% in 2018 compared to 47% in 1980. Today, billionaires pay proportionately less than most middle-income taxpayers.
Rich getting richer
New data from the Federal Reserve shows the top 1% now holds 15 times more wealth than the lower half of Americans combined. During the pandemic, as millions lost their jobs, Elon Musk saw his wealth increase by 242%, surpassing $100 billion. Jeff Bezos added $65 billion to his net worth.
Not surprisingly, the billions ladled upon the ultra-rich have not “trickled down” to the masses. The income gap between those at the top and the rest of us has markedly widened. Between 1947 and 1979, real income for the lower four-fifths of American families grew an average of 110% while the upper 1% saw a 61% increase. Incomes for the bottom fifth grew 116%. After 1980 the trend reversed. Between 1979 and 2014, incomes for the lower 80% of American workers grew a paltry 7.5% while incomes of the top one percent shot up 162%. Incomes for the lower fifth actually fell by 12%.
Why wealth should pay its fair share
French economist Thomas Piketty demonstrated in his epic Capital in the 21st Century that the rate of profit from capital naturally rises faster than national income. The only period in American history that trend was interrupted is the post-war period before 1980. New Deal tax reforms ensured that wealth contributed a larger share. Not only did inequality drop to an historical low, economic growth and productivity reached historic highs. Tax equity was good for people and the economy. There are ways to reverse the current inequality trend without raising taxes on the vast majority of American households and businesses.
Most Americans already pay a wealth tax. It’s known as the residential property tax, which often falls most heavily on lower wealth households. Meanwhile, most concentrated wealth goes untaxed. Several wealth tax proposals have been floated in Congress. The most ambitious would levy a 1% tax on wealth above $32 million, for married couples, and then slowly increase the tax for the wealthiest households to a maximum of 8% on wealth over $10 billion. The proposal would cut billionaire wealth in the U.S. by half in 15 years and entirely close the wealth growth gap between billionaires and the average American family. According to University of California economists Gabriel Zucman and Emmanuel Saez, the tax would raise $4.35 trillion in 10 years, more than twice the cost of President Biden’s $2 trillion infrastructure plan.
Speculative transactions tax
There are a number of benefits, such as restraining unproductive speculative transactions. Nobel laureate economist James Tobin favored a financial transactions tax, or FTT, because it encourages longer-term investments by raising the cost of speculative transactions. The levy is progressive as most equities are owned by the wealthiest investors. According to the Congressional Budget Office, a .1% transactions tax would raise $777 billion over 10 years.
Raise the social security cap
Currently, only wage income up to $137,700 is taxed to pay for Social Security benefits upon which millions of Americans depend. Wages and unearned income above the cap are untaxed. A CEO pulling down $10 million a year in pay and bonuses pays zero Social Security on $9.8 million of that. The cap has not kept up with the extreme growth of top incomes, eroding the Social Security tax base. Removing the cap and including non-wage income would go a long way to ensure Social Security’s long-term viability.
Trump and bush tax cuts
Repealing those Trump tax cuts benefiting the wealthiest would net $500 billion over the next decade, reduce the federal deficit and significantly improve tax equity for middle class Americans. Repealing the Bush cuts for the super-rich could yield an additional $700 billion over 10 years. Numerous loopholes and tax avoidance opportunities primarily benefiting the wealthiest could be closed as well.
As we have witnessed over the past 40 years, America has become a nation of massive and accelerating inequality. A tiny handful are amassing wealth beyond imagination while millions of Americans face deepening financial distress. It’s time the wealthy uphold their end of the social contract and begin to pay their fair share.
Just Economics is written by members of the Economic Justice Collective of the Rocky Mountain Peace & Justice Center.
This opinion column does not necessarily reflect the views of Boulder Weekly.