BERKELEY, United States, Nov 27, 2019 (BSS/AFP) – An outright tax on
wealth may seem out of style but two Democrats vying for the presidency in
2020, Elizabeth Warren and Bernie Sanders, say the United States should adopt
one.
To design their plans, they sought advice from two French economists at
the University of California, Berkeley, Gabriel Zucman and Emmanuel Saez,
whose research on inequality shows that billionaires today pay proportionally
less in income tax than the rest of America.
Zucman answers AFP’s questions below:
Q: When we talk about income taxes, American billionaires point to
philanthropy. Is this a good way to contribute to society?
A: Philanthropy isn’t negligible but the size of such generosity is vastly
overestimated in public debate. The richest 400 Americans own about $2.5
trillion in wealth. But how much do they donate every year? About $10
billion. So it’s as if American billionaires already paid a small wealth tax
of 0.4 percent. Elizabeth Warren and Bernie Sanders would ask them to pay as
much as six to eight percent.
The second problem is the difference between giving money to a foundation
and paying taxes. With a foundation, you decide how the money is spent. It
isn’t democratic. The rich decide what they think is a priority for the
United States and the world, similar to Victorian Britain in the 19th
century. In the history of Western societies, this marks one of the major
declines in democracy.
Q: Could a wealth tax make the rich flee?
A: That’s a simple problem to fix. American income taxes are based on
nationality. You can’t get out of them by fleeing to Monaco. The real risk is
renunciations of US citizenship, which are rare, especially since the United
States already have an “exit tax” based on unrealized capital gains.
Bernie Sanders and Elizabeth Warren are calling for an exit tax on wealth.
Warren’s plan calls for 40 percent. That’s a strong deterrent and it makes
sense. If you build a vast, $100 billion fortune in the United States, it is
in large part thanks to American infrastructure and workers educated here.
And all that is financed by the US taxpayer. There’s no natural right to
amass a fortune but then exempt yourself from taxes.
Similar tax exits undermined Europe’s wealth taxes, particularly in
France. The argument that came up all the time during the abolition of the
wealth tax was “it’s impossible because all the great fortunes will leave for
Switzerland, Belgium….” But letting them leave is a choice.
France could continue to tax wealthy French people who settle abroad or
say that if you were a French resident for tax purposes for thirty to forty
years, when you leave you will still pay the wealth tax for another five to
10 years.
Q: What can be done about financial arrangements for tax avoidance?
A: This, too, is a question of political will. From the 1930s to the
1980s, the United States not only had a very progressive tax system, with
marginal rates of 80 percent to 90 percent on the highest incomes, but also
the political will for this to succeed.
President (Franklin) Roosevelt spent his time explaining on the radio that
it was important to pay taxes. American tax collectors had resources. Audits
of high incomes were rather frequent and the financial and legal services
industries — the law firms and investment funds that help wealth avoid
taxation — were regulated.
All that changed in the 1980s under President (Ronald) Reagan. Social
norms shifted. The tax evasion industry developed. We saw an explosion of
methods for tax avoidance. For example, the rich can invest in companies that
create losses to be deducted from income taxes.
At the same time, the state chose not to really fight against the boom in
tax evasion, or even encouraged it in public remarks. That’s the period when
Donald Trump made his money.
This historical context is dated. It can change. We can certainly return
to regulation and social norms in which it would be much less acceptable for
wealth escape taxation.