3. A radical wealth tax is crucial to resist oligarchy and sustain democracy-they don’t just fight inequality they deconcentrate wealth

(Emmanuel, E. Morris Cox Professor of Economics and Director of the Center for Equitable Growth at the University of California, Berkeley and Gabriel, Assistant Professor of Economics at the University of California, Berkeley https://www.bostonreview.net/forum/gabriel-zucman-taxing-superrich/ , 3-17)

From 1930 to 1980 the top marginal income tax rate in the United States averaged 78 percent; it exceeded 90 percent from 1951 to 1963. These quasi-confiscatory top rates championed by Franklin Delano Roosevelt and his successors in office were meant to reduce the income of the superrich: not simply to achieve tax justice, but to compress the income distribution. These tax rates applied to extraordinarily high incomes only, the equivalent of more than several million dollars today; only the ultrarich were subjected to them. In 1960, for example, the top marginal tax rate of 91 percent started kicked in at an income threshold that was nearly 100 times the average national income per adult, the equivalent of $6.7 million in income today. The merely rich—high-earning professionals, medium-size company executives, people with incomes in the hundreds of thousands in today’s dollars—were taxed at marginal rates in a range of 25 percent to 50 percent, in line with what is typical nowadays (for instance, in states such as California and New York, when you count state income taxes).According to the evidence, the policy of quasi-confiscatory tax rates for sky-high incomes achieved its objective. From the late 1930s to the early 1970s, income inequality fell. The share of pre-tax national income earned by the top 1 percent was reduced by a factor of two, from close to 20 percent on the eve of World War II to barely more than 10 percent in the early 1970s. In 1960, for example, only 306 families earned more than $6.7 million in taxable income a year (the threshold above which income was imposed at 91 percent). This tax policy reflected the view that extreme inequality hurts the community; that the economy works better when rent extraction is discouraged (indeed, the economy grew strongly in the mid twentieth century); and that unfettered markets lead to a concentration of wealth that threatens our democratic and meritocratic ideals. Extreme wealth concentration, like carbon emissions, imposes a negative externality on the rest of us. The point of taxing carbon is not to raise revenue but to reduce carbon emissions. And the point of high tax rates on the very highest incomes is not fundamentally to fund government programs. They are aimed at reducing the income of the ultra-wealthy. The reason for reducing those incomes is not, as critics sometimes say, to give vent to envy. It is to disrupt privilege, impede rent extraction, and protect democracy. When 90 cents out of any extra dollar earner will go to the IRS, we will disincentivize negotiating a $20 million salary, earning millions by creating a zero-sum financial product, and spiking the price of patented drugs. Quasi-confiscatory tax rates equalize the distribution of pre-tax income, make the market place more competitive, and limit the concentrations of economic power that pave the way for undemocratic concentrations of political power. To see how wealth taxation might work to reduce such concentrations of wealth and power, let’s contrast a moderate with a radical wealth tax. A moderate wealth tax, say with marginal tax rates of 2 percent above $50 million and 3 percent above $1 billion, would generate a lot of revenue—about 1 percent of GDP each year, according to our estimates. Consider now a more radical wealth tax with a marginal tax rate of 10 percent above $1 billion. A person with $1 billion in wealth would pay the same $19 million as under a moderate wealth tax. A radical wealth tax would not make it harder to become a billionaire; it would make it harder to remain a multi-billionaire. A person with $2 billion would pay almost 5 percent a year, a decabillionaire such as David Geffen 9 percent, and a centibillionaire such as Bezos 10 percent (instead of 3 percent with a moderate wealth tax). Just as Roosevelt’s 90 percent top marginal income tax sharply reduced the number of families earning more than $10 million of today’s dollars, a radical wealth tax would eventually lead to a reduction in the number of multi-billionaires. More than collecting revenue, it would de-concentrate wealth. There would still be multibillionaires, no doubt. If a wealth tax of this higher sort had been in place over the last decades, Zuckerberg would still be worth $21 billion in 2018—instead of the $61 billion recorded by Forbes. Why? Because Zuckerberg’s wealth has grown at a rate of 40 percent a year since 2008 when he first became a billionaire. A 10 percent annual wealth tax would not have stopped his stratospheric ascent. But a more mature billionaire such as Bill Gates would be worth “only” $4 billion—instead of $97 billion in 2018—because he has been a billionaire for over three decades now, giving the radical tax more time to reduce his wealth. If a radical wealth tax had been in place since 1982, most of the 400 richest Americans would still be billionaires in 2018, but they would be only one third as wealthy as they currently are (see graph 1). Their share of U.S. wealth would be similar to what it was back in 1982, before the wealth inequality took off. A radical wealth tax would have raised $250 billion in revenue from the 400 richest Americans alone in 2018. That is more than 1 percent of GDP. But if such a tax had been in place since 1982, it would have only raised $66 billion from the 400 wealthiest families in 2018, while a moderate wealth tax, despite its much lower rate, would have yielded almost as much—about $50 billion. In the long run, a radical wealth tax erodes top fortunes so much that it reduces the taxes paid by the ultrarich. Is a radical wealth tax worth it, then? Would society benefit from curbing huge fortunes, even if it means lower tax collection at the top end? Over the years, our own thinking about this question has evolved as the stagnation of working-class income, the boom in extreme wealth, and the threats to democracy became clearer. Perhaps yours will too.