Larry Summers on a Wealth Tax

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Constitutionality

Source: Would a “Wealth Tax” Help Combat Inequality?
 A Debate with Saez, Summers, and Mankiw 
Peterson Institute 80 min. video

Preview: 1) E. Saez advocates a wealth tax
2) L. Summers advocates increased Capital Gains and Estate Taxes
3) G. Mankiw reinforces the Summer's presentation

Preview

Larry Summers on a Wealth Tax

Government should help U.S. of America become a more "just society."
Like many, he criticizes the inaccurate misleading data presented in
Triumph of Injustice.: How the Rich Dodge Taxes and How to Make Them Pay favors a Wealth Tax
Larry believes advocates of a Wealth Tax to lower wealth inequality should consider three key factors.
 

1. Extremely high wealth is not the only source of political power/influence About $5 million will do the job.
 A. Wealth can be used in many ways
 1. Wealthy person A created a very successful company and rather than spend, profit was invested.
 2. Wealthy person B lived in the fast lane and accumulated little wealth.
 3. A Wealth Tax discourages reinvestment hit it encourages the fast lane life style to increase economic activity.

 B. Donations to non profits who spend donations just moves political influence to people with similar values.
 See The Artificial Generosity of the Super-Wealthy

 C. Is wealth of the NRA, Realtors, Corporations used to create lobbying influence is not addressed by the wealth tax.

2. Propensity to spend differs between Wealth vs. Permanent Income.
A. Wealth increases when expected future income increases and/or
the rate used to determine said incomes PV (estimated wealth) decreases.

B. There post war increase in wealth as a percent of GDP was  300% to 500% according to Triumph of Injustice. 
The 76% post war increase in the Shiller PE Ratio accounts for all of this wealth increase.
Editor: In other words, Post WW 2 US business adjustments made by U.S.  business accounts for the increased wealth.
Once this permanent change in income is considered, the emphasis on wealth argument loses much force..

3. Reform Goals
A. Improved satisfaction with Health Care and Soc Sec safety-net programs creates
a properly insured lower income deciles with less need for liquid assets,
Do we lower the wealth inequality ration with less for the top or increasing safety net programs?

B. How do we want to tax the wealthy who have exceptionally high income?
Increase their income tax to raise tax revenue and lower spending on personal stuff          
Lowering their current income taxes by allowing contributions to nonprofits with similar life ideals
 Delaying tax payments by allowing investment deductions
Periodically increase capital gains taxes paid with a mark to market for investments with carry forward for loses.
Higher taxes on gifts, estates or estate recipients income
 Jamie Dimon advises some to take the 2017 tax cut package that doubled donation exclusion to $22.8 million for married couples.
One way, funding a trust fund for a child to keep their wealth in the family to avoid a wealth tax. 
The rich had a similar conundrum in 12/12 when a $5 million gift and estate tax exemption
provided by the G.W Bush tax cuts would go back to $1 million.   11/11/19
 

More Political Views

Scott Greenberg of the Tax Foundation

Recently, based on work by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, Scott Greenberg
of the Tax Foundation argued that “taxes on the rich were not that much higher” in the 1950's.
But, he does note that he highest earning 1 percent of Americans paid an effective tax rate of 42 percent.
By 2014, it was only down to 36 percent—"a substantial but by no means astronomical decline."

Greenberg notes :the max tax rates on investment income were far lower than on wages and salaries, and
the 90 percent tax rates on income over $200,000 income ($2 million today dollars) affected-about 10,000 returns.
To Greenberg, the top 1 percent of Americans do not face Historically Low tax burdens.

But, the decrease from 6 percent points received by one-presenters is on  a vastly larger share of the national income.
Source


Making Social Security and Medicare more progressive looks at the goal of change.
 
Better Ideas than a Wealth Tax from business Week 11/11/19 Finance section

Bachelder and Kamin estimate the Cortez tax rate of 70 percent on income
over $10 million would raise $260-$320 over ten years. 9/11/19

Wealth tax problems
Unconstitutional
IRS would find valuing fortunes of Wealthy taxpayers difficult
Mark to Market would be just as difficult.
A better designed Corporate Income Tax
It makes a good bumper sticker see

Composition of Reported Income by AGI Percentile Income Group, 2016 e

  Bottom 95%

(Under $197K)

95 to 99%

($197K-$480K)

99% to 99.9%

($480K-$2.123M)

99.9% to 99.999%

($2.1M-$53.1M)

Top 0.001%

(Above $53.1M)

Wages/Salaries 80% 70% 53% 29% 10%
Long-Term Capital Gains & Qualified Dividends 3% 9% 17% 39% 71%
Business Income (e.g., partnerships) 4% 12% 26% 28% 13%
Other 13% 9% 4% 4% 6%
Total 100% 100% 100% 100% 100%
Share of All AGI 65% 15% 10% 7% 2%
Average Income Tax Rate 9% 19% 27% 28% 23%

 

 

Taxing the Rich: Issues and Options

Lily Batchelder* and David Kamin⸸

September 11, 2019

Abstract: The U.S. economy exhibits high inequality and low economic mobility across

 

Selected Revenue Options within the Current System

Within the basic structure of the current tax system, policymakers have proposed a range of policies that would raise considerable revenue from those with the greatest resources. In Table 2, we list several of these proposals to provide a sense of scale. This section is not a comprehensive compilation of all such measures, as there are many.

All of the proposals listed focus either solely or disproportionately on those with the greatest resources or the businesses they own. For organizational purposes, the table is broken down between direct repeal or reform of elements of the 2017 tax legislation, along with further measures that could be taken. A number of these proposals would, in addition to raising revenue in progressive fashion, reduce complexity and wasteful tax planning. We consider many to be good ideas. But since they have, for the most part, been discussed in other contexts and do not involve fundamental shifts in the system, we do not delve into the details or relative pros or cons of each here

 
Table 2. Incremental Revenue Measures 2021-2030 (Billions)
Current Law Current Policy
Repeal or Reforms of 2017 Tax Law
Return Top Individual Rate to 39.6% from 37% (1) $90 $200
Reverse Doubling of Estate Tax Exemption (back to $11.4M per couple) (2) $60 $110
Repeal Pass-Through Deduction (2) $280 $620
Increase Corporate Rate to 28% from 21% (2) $730
Raise Minimum Tax on Foreign Income to 21% + Apply Per Country (3) $340
Sub-Total $1,500 $2,000
Additional Measures
10% Surtax on AGI Above $2 Million (4) $610
Tax Accrued Gains at Death and Increase CG/Dividends Rate to 28% (5) $290
Broaden Base of Self-Employment Tax + 3.8% ACA Surtax (5) $280
Cap Value of Itemized Deductions at 28% (6) $410 $310
Estate Tax: $7M Per Couple Exemption, 45%-65% Rate, Limit Avoidance $310
Return to 2009 Parameters + Anti-Avoidance Measures (5) $210
Increase Rates on Largest Estates (Max = 65% on Transfers >$1B) (7) $100
Eliminate Accelerated Cost Recovery for Largest Businesses (2&8) $760 $920
Sub-Total $2,970 $3,030
Total $4,470 $4,970
% of GDP 1.6% 1.8%

 

Constitutionality

Is a Wealth Tax Constitutional by Greg Rosalsky

summary from Quick Notes

 

Twenty years before a wealth tax became a serious consideration in national politics, two legal scholars battled over whether the policy would be constitutional.

Erik Jensen, emeritus professor at Case Western Reserve School of Law
got interested in a wealth tax in 1999 when “a guy named Donald Trump,”
presidential nomination of the Reform Party, proposed a one-time 14.25%
wealth tax on people with a net worth over $10 million. Jensen-it's unconstitutional.

Bruce Ackerman, a professor at Yale Law School, co-wrote a book with Anne Alstott
called The Stakeholder Society. It proposed a wealth tax. In 1999, he felt it was constitutional.

And then the debate kinda went to sleep for twenty years. That is, until earlier this year, when

 

Senator Elizabeth Warren recently proposed an “Ultra-Millionaire” wealth tax
and included an Ackerman letter defending the policy from legal attacks.

 

The 1895 Case That Could Be Trouble For A Wealth Tax

In 1895, in a case called Pollock v. Farmers Loan and Trust Company,
the Supreme Court declared the income tax was a direct tax and it therefore
had to be apportioned by state to be constitutionally valid,” Jensen says.
A states tax burden is determined by the size of their population.
To work, the tax rates will have to be wildly different in each state.
It ruled all taxes on income from property are direct taxes.
The income tax went away until the amendment in 1913.

Bruce Ackerman argues we should reject Pollock use a view first articulated
 by the Supreme Court in the early days of the republic. 
 
Horse-Drawn Carriages To The Rescue? 

In 1794, President George Washington signed into law what might be considered the first federal wealth tax. It was a tax on property: horse-drawn carriages. We have an entire episode about this tax and the subsequent legal battle over it.
The Supreme Court upheld the carriage tax. The justices called the apportionment rule “absurd” and “radically wrong.”