Increasingly we hear calls for a wealth tax, sometimes from from surprising places. One of the most surprising, perhaps, is an organisation called Patriotic Millionaires.

The Patriotic Millionaires advance three propositions. In the first two of these they refer to ‘every American’; I’m going to change that to ‘everyone’. The Patriotic Millionaires just happen to be American and base their propositions on the belief that ‘most Americans’ agree with them. With that emendation the propositions read as follows:

1. Everyone deserves as much political power as millionaires;
2. Everyone who works full time should be able to afford their basic needs;
3. Millionaires and large corporations – who have benefitted most from [their] country’s assets – should pay a larger percentage of the tab for running the country.

This is an excellent starting point, and it’s reassuring to know that ‘most Americans’, including even this influential body of very rich Americans, agree with them.

One of the main conclusions the Patriotic Millionaires draw is that there should be a wealth tax. It’s easy to see why: the idea is that a wealth tax would be redistributive—reducing both economic inequality and disparities of politic power, while also ensuring that the rich pay a fair proportion of the cost of ‘running the country’. Let’s take a closer look at this and see to what extent it holds true.

Proposition 1

The proposition that ‘everyone deserves as much political power as millionaires’ is unexceptionable, but whether it could be achieved by imposing a wealth tax depends on how much tax we have in mind. Unless the very rich pay so much that they cease to be very rich, they will still have far more political power than the rest of us, and, incidentally, will still distort the market by their atypical spending and saving behaviours.

However, a quick look at the numbers makes it clear that there is no intention of their paying a significant proportion of their wealth as tax. Although the proposals are hailed (on the Patriotic Millionaires website) as ‘revolutionary’, the actual rates proposed are derisory. People with a net worth of from 50 million to a billion dollars (in any given year) would pay a mere 2%. At that rate someone with a net worth of $1,000,000,000 would pay $20,000,000—a lot of money, admittedly, but it still leaves $980,000,000 untouched.

Well-meaning as I’d like to believe this is, in practice it would be no more than window-dressing. It makes no significant difference to your financial power whether you have 1,000 million dollars (a billion) to your name or a mere 980 million (0.98 billion). Either way you are stupendously wealthy and can exert vastly disproportionate influence over the wheels of political power.

So if we ask whether the actual proposals fulfil the demands of the first proposition, the answer has to be a clear ‘No, they do not’. In fact they come nowhere near doing so.

Proposition 2

The second proposition is, ‘Everyone who works full time should be able to afford their basic needs’. Interestingly this suggests a recognition of the admittedly obvious fact that many people who work full time are nevertheless unable to afford their basic needs. But it’s hardly ‘revolutionary’ to say that this is, or should be, unacceptable. It’s surely a scandal that there are people all over the world—including the USA—who cannot, however hard they try, garner enough resources to feed, clothe, and provide health care for themselves and their children, and to educate their children.

And why stop at those who work full time? What about those who cannot work full time, either because there is no work available or because they are unable to do it, due to age, infirmity or incapacity? Are they not also worthy of consideration, of a decent and rewarding life-style?

But I think we should go further. Everyone’s needs should be met, regardless of their ability or even willingness to work. Of course everyone should make a contribution to society, whether through what we like to call ‘work’ or not, but are we really prepared to punish those who can’t—or won’t—by denying them even the basic essentials of life?

So it seems to me that proposition two is little more than a smoke screen. There is nothing revolutionary about ensuring that every full time worker is able to afford their basic needs. It doesn’t even qualify as a bare minimum requirement.

Proposition 3

If the first proposition is window-dressing and the second is a smoke screen, the third is, I’m afraid, economically illiterate. Despite the widespread assumption that tax pays for public expenditure, it does not. (See The Deficit Myth by the eminent economist Stephanie Kelton, among many others, if you would like to check this statement out.) So yes, millionaires and large corporations have ‘benefitted most from [their] country’s assets’, but this has no bearing on whether they should more tax. The government of an economically sovereign country creates and provides its own money. Tax receipts do not pay for ‘running the country’, or for anything else for that matter.

Of course, I am not arguing that the rich should not pay more tax, merely that their doing so does not affect what the government can afford to spend, and consequently the cost of running the country is not itself a valid reason for a wealth tax. There are plenty of other reasons.

So why should the very rich pay a wealth tax?

One reason is that excessive wealth confers excessive power. The Patriotic Millionaires are quite right in diagnosing this as a problem, but simply reducing the wealth of the super-rich to 98% of its current level (or 97% in the case of the super-super-rich) clearly will not fix it. If our objective is that ‘everyone should have as much political power as millionaires’ then we clearly need to ensure that millionaires have no more power than anyone else—even the poorest. But one of the things money can (and does) buy is political influence, and no one has yet, to my knowledge, come up with a way to decouple one from the other. Indeed, one of the reasons for the appeal of wealth is surely the power that comes with it.

Millionaires (for which read ‘excessively wealthy individuals’) will retain excessive political power for as long as they remain excessively wealthy. Tinkering with marginal tax rates will not change their status as excessively wealthy, and I suspect it is not intended to. If we truly want a system in which everyone has the same amount of political power, there is no alternative but to abolish excessive wealth altogether. And the only way that can be achieved through taxation is with a wealth tax rate that is very close to 100%. If we cannot accept this then we must resign ourselves to a minority of the population always being able to exert disproportionate control over the lives of everyone else.

So what is to be done?

Enforcing an upper limit to wealth (and income) is an essential part of any attempt to reduce inequality and to eliminate poverty, since as long as there is no limit to wealth or income, the super-rich will respond to any general increase in wealth by using their financial power to increase their wealth even more. (This is, incidentally, why the so-called ‘levelling-up agenda’, now apparently espoused by both main UK political parties, is doomed to failure). But if there is an upper limit then the natural tendency to mild inflation, together with any general increase in wealth, will gradually reduce the gap between rich and poor. This effect would be particularly marked if accompanied by a corresponding reduction in the tax paid at the lower end of the wealth/income scale, and could be further enhanced by targeted government spending. The result would be a shift in production away from goods and services patronised only by the super-rich and into those of benefit to the population as a whole.

None of this will be politically easy. The super-rich will use their power to attempt to subvert any moves towards real equality. But it would be a marker, a small step in the right direction. In the longer term we will need to think about a Basic Income or Job Guarantee scheme.

But that’s a post for another day…