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The vast inequality in wealth among Americans is one of the most serious economic problems facing the country, but there is a very simple solution: a wealth tax. Ad Policy

The top 1 percent of Americans have more wealth than the bottom 95 percent, and that gulf is growing. Those in the top 0.1 percent have doubled their share of the country’s wealth over the past four decades, from about 10 to 20 percent of all wealth. A wealth tax could blunt this inequality and fund a more just and humane society.

In the eyes of the government, the wealthy are not like us. The vast majority of Americans earn their income by slogging through jobs. According to tax law experts Lily Batchelder and David Kamin, the bottom 95 percent of income earners make 80 percent of their income from wages and salaries. In contrast, the top 1 percent earn just over half their income this way, and that number drops rapidly as you go up the ladder. For those making over $53 million a year, or the top 0.001 percent, only 10 percent of their income comes from jobs. For these high-​income individuals, their money comes overwhelmingly from capital gains and dividends. That means they also face a lower top tax rate than high-end wage earners. MORE FROM Mike Konczal Can Joe Biden Unrig the Economy? August 21, 2020 Unemployment Insurance Is a Vital Part of Economic Freedom May 29, 2020 The Stimulus Plan That We Need Now March 19, 2020 Author page

In order to avoid paying taxes, the rich are able to claim how, when, and where to declare their income. They can hide their wages as corporate profits or financially engineer them into dividends or other types of capital income, which are taxed at lower rates. This alchemy of turning one kind of income into another has been turbocharged by the Trump tax cuts, which are very generous to people who claim to make their income from their own business rather than from a salary. By choosing when and where to declare their income, the wealthy can also manipulate profits and losses across different kinds of investments or squirrel their fortune across various tax havens. Batchelder and Kamin found that millionaires face a tax rate between 0 and 40 percent, depending on how they classify their income.

Senators Elizabeth Warren and Bernie Sanders have proposed wealth taxes, with Warren’s taxing 2 percent of wealth for those worth over $50 million and 3 percent after the first $1 billion. Sanders’s plan would levy a 1 percent tax on households worth more than $32 million, with higher tax rates for the wealthiest—up to 8 percent for those with fortunes in excess of $10 billion.

Researched and defended by economists Gabriel Zucman and Emmanuel Saez, a wealth tax is one of the most progressive government levies available to us, falling entirely on the extremely wealthy. It would help with some of the evasion problems: Efforts to hide income as wealth would be rendered futile, as that fortune would be taxed anyway.

Experts are addressing objections to the wealth tax. There is a question of how to value wealth so it can be taxed and whether people would be liquid enough to pay these taxes. Fortunately, much wealth is in stocks and bonds, which are easily calculated. And the IRS can develop new evaluation techniques for other financial assets. Sanders and Warren want to increase the agency’s enforcement budget. Under Sanders’s plan, billionaires would be audited every year. And the liquidity issue of having the cash on hand to pay can be addressed by allowing limited deferrals with interest. Unlike many countries, the United States collects taxes from citizens overseas. It also has a wealth penalty it charges people who renounce their citizenship to avoid taxes, as some fear might happen if a wealth tax is implemented. Warren’s plan, for instance, would impose a 40 percent exit tax on Americans worth more than $50 million who give up their citizenship.

It is worth noting what kind of public program expansion could happen with this kind of revenue growth. Saez and Zucman said that a proposal like Warren’s would raise $2.75 trillion over 10 years and that Sanders’s could raise $4.35 trillion over the same period. This would pay for free college, public day care, paid family leave, and a universal child allowance. It is a sad state that, with US life expectancy falling and families struggling to provide care and education for their children, the rich are hoarding an entire welfare state. Luckily, there is a clear path to changing that.