The tax debate America needs
Some straws in the wind from south of the border:
Two new opinion polls show Americans think it’s high time for the rich to pay more income tax. A solid majority thinks they should pay a “wealth tax” on everything they own, as well.
Jamie Dimon, one of those rich guys, agrees the ultrawealthy should be paying more. “I believe that individuals earning the most can afford to pay more,” says Dimon, CEO of JPMorgan Chase, “and I have no problem paying higher taxes to address some of the fundamental challenges and inequities in our society.”
Prominent Democrats, starting with Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez, are unapologetically crusading for higher taxes on the rich. And they’re getting a lot more support than you might expect. Ocasio-Cortez’s suggestion to put a 70-per-cent tax rate on incomes of $10 million a year and up is being seen as bold, but not particularly radical. The United States used to have taxes like that back in the 1950s and ’60s, and grew like gangbusters.
Is this a real, lasting shift in opinion, or just a blip at a time in the election cycle when far-out ideas can safely be discussed? At this point it’s impossible to know. The left-wing Democrats floating bold ideas about taxes could go on to dominate the party and even win the 2020 presidential election. Or, as usual, they could be crushed by the more “pragmatic” wing of their party who see ousting Donald Trump as the only thing that matters.
Regardless, this is a debate that Americans badly need to have. It’s the debate the country should have had eight or nine years ago in the wake of the Great Recession of 2008-09. The financial class that crashed the system was never properly brought to account. And the gap between the very rich and everyone else just kept on growing over the past decade: the richest 1 per cent in the U.S. now owns more wealth than the bottom 90 per cent.
This kind of extreme inequality undermines democracy and tears at the social fabric. Until recently, though, both major parties have been trapped in the same paradigm. Republicans want lower taxes on principle and because their wealthy donor class benefits most. Democrats have been mostly cowed into going along because voters bought into the lowtax-at-all-cost narrative.
The new-model Democrats are shaking that up. OcasioCortez, their young star, made a splash in January with her suggestion for a 70-per-cent tax rate on the highest incomes — the “tippy-tops,” as she called them. It turns out this isn’t some loony idea; leading experts in the field, such as Nobel laureate Peter Diamond, figure the optimal top tax rate for getting the most out of the rich is actually 73 per cent.
Warren’s proposal is arguably more radical, because it would target accumulated wealth and not just income. She would impose a 2-per-cent annual tax on a household’s net worth above $50 million, and an additional 1 per cent on fortunes over $1 billion. That would hit only the very wealthiest Americans, about 75,000 families, but their fortunes are so vast that Warren says it would raise some $2.75 trillion over the next decade.
Yes, yes, we know: calculations like this are unlikely to work out in practice. The very rich aren’t like you and me in so many ways, and one thing they do very well is figure out clever ways to avoid (or simply evade) efforts to harness their wealth for the common good. This goes under the deceptively bland label of “tax planning,” and if anything is certain it’s that accountants and tax lawyers will get very busy if any of these schemes seems likely to become reality.
Political factors may well also get in the way. There’s a very real risk the Democrats will self-immolate over identity politics (Warren herself is under fire for past claims of Native American ancestry) and let Trump slip back in. And the president is already starting to demonize his opponents as “socialists” who would turn the United States into another Venezuela. Never mind that the supposedly “socialist” policies of the Democratic left (like health care for all) might at most remake the U.S. into a warmer version of Canada.
What does it all mean for Canadians? The tax debate in this country is very different. Historically we’ve been used to paying more tax and getting more generous social benefits in return. Largely for that reason, Canada’s middle-class hasn’t been decimated in the way that so many have in the U.S.
Nor do we have such enormous concentrations of wealth. Putting higher taxes on incomes over $10 million here would be worth doing just for the sake of fairness, but it wouldn’t raise much simply because so few Canadians make that kind of money. The issue in Canada is more about closing loopholes that let the wealthy lower their tax bill, and finding ways to stop companies hiding money from the tax man offshore.
But the debate in the United States is an important one. The rich have rigged the system to avoid paying their fair share for far too long. And as long as our enormous neighbour has such distorted tax policies, it puts a drag on efforts to make our system fairer as well. Changing the paradigm south of the border would go a long way toward changing thinking in this country as well.