Would Wealth Taxes Solve Income Inequality?

Democracies become oligarchies when wealth is too concentrated.

So begins a letter by Berkeley economists Emmanuel Saez and Gabriel Zucman about presidential candidate Bernie Sanders’ wealth tax proposal.

This is not the kind of language usually used by economists, but I have to admit: I’ve been singing “you say you want a revolution” ever since I read their letter. And it made me wonder: Have we in the tax policy community missed the point about wealth taxes?

We may get some answers on Thursday when the Tax Policy Center hosts a conference that addresses the question “should the tax system be used to reduce wealth inequality in the United States?” The keynote speaker is Jason Furman, former chair of the Council of Economic Advisers in the Obama Administration.  He will be followed by two panels to discuss the topics in detail.

What is unusual for an event at TPC is that the first panel does not include anyone who specializes in tax policy. Instead, we will have experts who have extensively studied the social and policy causes of the wealth gap and the political consequences of that gap. And that can lead to consideration of whether the tax system provides the solution to the problem. As the Beatles sang, “You say you have a real solution….”

What do tax policy mavens talk about when we talk about wealth taxes?

Well, most of us don’t talk about oligarchies (at least I haven’t since my college courses on revolutions). Over the past year, many tax economists and law professors have evaluated how to tax wealth from the perspective of the fundamental principles of public finance: efficiency, equity, and simplicity. Thus we ask:

  • Will a wealth tax help level the difference between the taxation of labor and capital income?
  • What are the economic effects of taxing wealth and saving?
  • How progressive is a wealth tax? (Well, that has a fairly obvious answer by conventional measures.)
  • Can a wealth tax be effectively administered?

And of course, we estimate and debate how much revenue a wealth tax would raise.

While finding these answers is important, the traditional tax policy exercise fails to address a more fundamental question: Would wealth taxes reduce (or even eliminate) inequality?

And that is where our panel of specialists on inequality comes in.

What do the experts on wealth inequality talk about?

You can view wealth inequality from several different perspectives, including what obstacles prevent wealth accumulation by the poor and what are the consequences of the concentration of wealth at the top?

For insight on the first question, we will turn to Kilolo Kijakazi, an Institute Fellow at Urban. She has written much on the wealth gap and finds that social factors—such as racism and sexism—still are embedded in government policies that limit the ability of lower-income people to accumulate assets. Her findings are supported by research on housing values in black neighborhoods, which was conducted by another panelist—Gallup’s principal economist Jonathan Rothwell—jointly with Brookings researchers.

Our third panelist is Northwestern University political scientist Ben Page, one of the nation’s experts on the influence of the wealthy on politics and the coauthor of Democracy in America?  His research provides quantitative evidence of how the wealthy influence public policy—arguing that what the rich want, the rich often get. His basic conclusions are supported by Jonathan’s recently released book, A Republic of Equals, which examines how various professional organizations pursue policies that enable their members to become wealthy (often at the expense of others).

These panelists agree that wealth inequality is a problem, but their research findings don’t suggest that wealth taxes or even more government spending programs are a sufficient solution. Federal tax policies won’t eradicate social forces such as racism. And though a wealth tax would reduce the assets of the very rich, they’d still be wealthier—and likely more powerful—than everyone else.

We still are tax geeks

And so the event also includes experts on tax policy: Furman, Doug Holtz-Eakin (President of the American Action Forum), Chye-Ching Huang (Director of Federal Fiscal Policy at the Center on Budget and Policy Priorities), and Gene Steuerle (Institute Fellow at TPC). We can count on them to bring insight into such issues as the role of the tax system in enhancing asset accumulation.

Join us at TPC on Thursday between 9:00 a.m. and noon, or livestream the event. And if you are distracted by other events, you can watch the replay on our event website.