Don’t fall for disingenuous opposition to wealth taxes
By Vanessa Williamson and Michael Linden
In response to the growing popularity of recent wealth tax proposals, the New York Times this week published a handwringing analysis of their potential impact on economic growth. Not surprisingly, the very first anti-wealth tax argument comes from Treasury Secretary Steve Mnuchin who cites a discredited “trickle-down” theory that higher taxes on capital will hurt investment. It’s an especially preposterous position given the failure of the recent corporate tax cuts to spur any discernible increase in business investment.
Unfortunately, the scare-mongering does not only come from the usual conservative suspects. Well-known “left-leaning” economists give these specious arguments cover and comfort. The Times specifically cites a long article from Lawrence Summers, former Clinton Administration Treasury Secretary, and Natasha Sarin, a law professor at the University of Pennsylvania, in which they arguing against wealth taxes and substantially higher marginal income tax rates.
The Sarin and Summers article is worth analyzing in some detail, because it reveals what opposition to wealth taxes will look like from left-leaning neoliberals. The authors start by claiming they have “enthusiasm for progressive taxation that ensures the wealthiest pay their fair share,” but then devote several thousand words to tearing down the most innovative progressive tax plans proposed in decades. Despite their protestations of support for progressivity, their critiques of wealth taxation are basically the same as conservatives’, and are similarly confused, misinformed and contradictory.
For instance, Sarin and Summers are simultaneously concerned that tax rates would be so high as to encourage billionaires to flee the country, but also so low that billionaires would still have too much political influence. In reality, the best research on wealthy tax flight calls the phenomenon a “myth,” and new taxes on the wealthy could and should be accompanied by new restrictions on the tax deductions that subsidize partisan politicking on the public dime.
Sarin and Summers also make the genuinely bizarre and easily falsifiable claim that taxes on the rich are unpopular, an assertion they base almost entirely (and astoundingly) on one crowd’s reaction to a speech given by George McGovern in 1972. We would suggest that Drs. Sarin and Summers review the current state of American public opinion on the matter. Consistently, the biggest problem that American voters have with the tax system is that the rich and corporations pay too little. And in fact, the specific Warren and Sanders wealth taxes themselves poll very well. Raising taxes on the rich will be difficult to accomplish, but the public is not the obstacle.
We can’t say for certain why two such highly regarded scholars would make such a series of empirical missteps. But one reason for the muddle may be a discomfort on the part of the authors with stating upfront their real objections to steep new progressive taxes. Despite their gestures of support toward progressive taxation, Sarin and Summers appear to be deeply uncomfortable with the rationale behind wealth taxes: that the wealthy have rigged the economy in their favor, and that extreme income inequality is incompatible with democratic governance and broadly shared prosperity.
In short, Sarin and Summers dislike the idea of a wealth tax because they like the rich. They argue that if America had more billionaires “it would be a good thing,” and identify wealthy people by the euphemism “successful,” as though the only successful Americans are those with tens of millions of dollars or more. They defend the super-wealthy as “job creators” and innovators, using language that we’ve come to expect from adherents of trickle-down economics. They cite well-liked billionaires Steve Jobs, Bill Gates and Warren Buffett (all of whom got their start when tax rates were much higher, by the way) forgetting to mention other, much less-well-liked billionaires such as the Koch brothers or Sheldon Adelson or Rupert Murdoch, or the substantial evidence that even billionaires of comparatively positive reputation have done substantial harm to our economy and society.
Extreme inequality, for Sarin and Summers, is a sacrifice that America must make at the altar of “efficiency.” For the last forty years, those guiding the American economy have held to the same principle — and the results are a case study in the economic inefficiency of wealth concentration. By no reasonable standard is the American economy efficient when median household incomes have stagnated; the cost of necessities, like housing, education and health care, have skyrocketed; and real measures of human wellbeing, like life expectancy, have begun to decline.
The explanation is simple. The rich have ample means and motive to use their outsized power to distort the market and gobble up extra compensation for themselves, at the expense of everyone else. The multi-million dollar salary of a corporate CEO doesn’t reflect efficiency so much as it reflects that CEO’s ability to use his (it’s almost always his) power to claim an ever-larger share of the profits. Once you account for the fact that the top 1 percent aren’t earning their way into their fortunes, but rather extracting them, objections to a higher tax rate on efficiency grounds start to seem exactly backwards.
The lesson of the Sarin/Summers article is this: advocates of wealth taxes should not be distracted by bad-faith policy quibbles, even from those claiming to be supportive of progressive taxation. Sarin and Summers dislike big progressive tax proposals not because of genuine wonkish concern about effective tax policy, but because they dislike anyone pointing out the real reason for taxing the rich: that all billionaires inevitably use their power to accumulate more than they need, deserve or are owed, and that a democratic government can and should, in the public interest and in the interest of true economic prosperity, reverse that accumulation.