Wealth taxes obscure the real sources of rising inequality

(Dean, Co-Director of the Center for Economic and Policy Research, https://www.bostonreview.net/forum_response/dean-baker-wealth-tax-distraction/ , 4-5)

Emmanuel Saez and Gabriel Zucman are right to focus on soaring inequality as one of the major problems of our time. Unfortunately, their wealth tax is not an effective solution. Not only is it likely to prove infeasible, but it distracts from the causes of the rise in inequality, which is before-tax income, not declining tax rates. As Saez documents on his website, the reduction in top tax rates is not the major factor in the rise of inequality. While there has been a reduction in top tax rates, it is not as large as Zucman and Saez indicate. The top federal income tax rate has indeed fallen from 70 percent in the 1970s to 37 percent today, but many states have substantially raised their income tax. Rich people living in California face a marginal tax rate of 13 percent, while those in New York City pay 11 percent. The Affordable Care Act also applied a 3.8 percent tax to both the labor and investment income of the rich. This means that many of the richest people in the country still face a marginal tax rate of more than 50 percent. Of course, we could make this rate higher, but the drop-off from the 1970s is not as large as it may appear. The real story is how the market is structured to cause more before-tax income to go to the top. At the most basic level, we have made patent and copyright monopolies longer and stronger. The beneficiaries of these government-granted monopolies are overwhelmingly those at the top of the income distribution. We need look no further than Bill Gates, one of the richest people in the world, to see the importance of these monopolies for the distribution of income. Gates would likely still be working for a living if anyone could freely copy Microsoft’s software. There are plenty of other millionaires and billionaires who owe their fortunes to these monopolies. The financial sector is another major source of the country’s rising income inequality. There would be far fewer millionaires and billionaires produced in finance if the industry were subject to the same sort of sales or value-added tax as most other sectors of the economy, a privileged position that has even drawn the attention of the International Monetary Fund. Finance has been favored in many other ways—most visibly, by the bailout that saved it from the disaster it had created in building up the housing bubble. Had the market been allowed to work its magic in 2008–2009, almost all the country’s leading banks would have gone bankrupt. This would have allowed them to be reorganized and downsized as they were sold back to the private sector. Outlandish CEO pay is another major source of rising inequality. Contrary to the claims of apologists for the superrich, CEO pay is not justified by the great returns to shareholders. It is possible to write contracts that don’t give disastrously failed CEOs, such as John Stump at Wells Fargo or Dennis Muilenberg at Boeing, tens of millions of dollars as they go out the door. The reason their contracts are not written this way is that the boards who write them owe their allegiance more to top management than to shareholders. In a similar vein, there is no plausible reason that Facebook should not be subject to the same liability rules as major broadcast and print outlets. Would Mark Zuckerberg still be incredibly rich if Facebook could be sued for spreading libelous material in ads or on its users’ webpages? The point is that the market is structured in ways that have caused an enormous share of national income to be diverted to those at the top. There was nothing about the intrinsic workings of the market that led to an increased share of income to the top one percent; it was the result of a set of deliberate policies.