UC Berkeley Boalt Working Papers in Public Law Title Can WealthTaxes Be Justified Permalink https://escholarship.org/uc/item/9rt158vp Author Rakowski, Eric Publication Date 2000-03-28 eScholarship.org Powered by the California Digital Library University of California DO NOT CITE OR QUOTE WITHOUT PERMISSION. ALL RIGHTS RESERVED. CAN WEALTH TAXES BE JUSTIFIED? ( Draft of 03/28/00) Eric Rakowski* I. Introduction Draped across the ramshackle facade of the Ashkenaz dance club in Berkeley is an urgent, inelegant, slightly irritating injunction. “Tax The Rich, Feed The Poor” it orders (or pleads). Perhaps the reason why some locals find the banner annoying is that they consider it an unfair reproach. They own more than many people, to be sure, but they work hard, pay over a third of their earnings in taxes already, and surely bear no blame for the government’s negligence or other people’s failings or bad luck. Besides, food stamps will not solve inner cities’ ills. Nor can the rich be pinched indefinitely. It’s not that simple. Of course they’re right. But our consciences and theirs might still be roiled. Disparities in means and opportunity between the poor and the prosperous yawn too wide to be shrugged off as the unpleasant but tolerable byproduct of a market economy or individual license, let alone as the sort of cosmic misfortune that lies beyond human remedy. In 1992, the richest 1% of U.S. households accounted for 37.2% of overall net worth.1 Their mean net worth in 1992 dollars was $7.925 million,2 * Professor of Law, University of California at Berkeley (Boalt Hall). For comments, I am grateful to William Andrews, Barbara Fried, Louis Kaplow, John McNulty, Daniel Shaviro, and Alvin Warren. 1 Edward N. Wolff, Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done About It 67 (rev. ed. 1996). Including the present value of Social Security and pension benefits in household wealth brings the fraction of national wealth held by the richest 1% down to 21.2% as of 1989 (rather than 1992). Id. at 78 - 79. with the shabbiest member holding assets worth $2.42 million.3 The next 19% of households claimed another 46.6% of overall net worth, with a mean of $523,600 and a lower bound of $180,700.4 At the same time, this country’s median household net worth was just $43,235.5 The least affluent four-fifths of households together controlled only 16.3% of the nation’s wealth.6 During the boom years of the mid-1990s, these numbers can only have grown more lopsided. The fact that income is spread more evenly than wealth and that people’s earnings and fortunes wax and wane over a lifetime is some consolation,7 but it cannot mask and in recent years certainly has not reduced the substantial differences in people’s command of valuable resources.8 Wolff’s numbers represent his own calculations based on data produced by the 1992 Survey of Consumer Finances commissioned by the Federal Reserve Board. Data from the Federal Reserve Board’s 1995 survey are available now, but not in a form that permits ready comparisons with Wolff’s numbers for 1992. 2 Id. at 68. Bruce Ackerman and Anne Alstott claim that the median (not mean) net wealth of the top 1% of households was $4.6 million in 1995. Bruce Ackerman & Anne Alstott, The Stakeholder Society 103 & n.31 (1999). 3 Wolff, note 1, at 63. 4Id. at 67, 68, 63. All dollar amounts are expressed in 1992 dollars. 5 Id. at 65. 6 Id. at 67. Wolff does not explain why the percentages of national wealth sum to 100.1% rather than to 100%. 7 For example, the 1992 Survey of Consumer Finances reported that the highest-earning 1% garnered 15.7% of national income, the next 19% received 40.7%, and the bottom 80% acquired 43.7%. Id. at 67. Mean income for the three groups was $671,800, $91,700, and $23,300 respectively. 8 Increases in national wealth in recent years have tended to flow to those who are already rich. According to Wolff’s calculations, “[t]he top 20 percent of wealth holders received 99 percent of the total gain in wealth over the period from 1983 to 1992,” with the top 1% enjoying 58% of wealth 2 Simple-minded though it may seem to ask the state to wear Robin Hood’s raiment, these figures may nevertheless make the Ashkenaz’s proposal tempting. Even if we look to an income or expenditure tax to furnish most of the means for keeping the navy afloat, the poor fed, and the elderly doctored, why not add a wealth tax as an accessory? Are not the rich better off even than their equal- earning contemporaries because they have more money to magnify their influence and renown, along with a greater sense of security should their businesses falter or their bodies betray them? Naturally, it is only because they elected to save rather than spend that they have more than their peers – an option that also was available to those who now have less. But there is no denying that they currently enjoy an advantage that is psychologically significant, indeed one that often is twinned with genuine sway over others and that generates benefits that never get netted by income tax collectors. Even if many (though too few) people slide back and forth across the wealth holding spectrum over the course of their lives, a wealth tax that funneled cash or benefits to those who own least at any given time by taking a small slice from the well-to-do might help narrow the numerous inequalities that stunt many people’s chances. Even a light skimming, repeated regularly, could help transform equality of opportunity from a joke into a prospect. Moreover, some would add, an annual wealth tax can at the same time be viewed as a fair charge for the many benefits the government bestows on those with the biggest wallets. If properly growth. Id. at 69. It is likely, of course, that class membership changed somewhat over this period, so that some who were in the top 1% or top 20% in 1983 ceased to be there by 1992. People typically earn and save more at some periods of their lives than at other times, and deaths, retirements, and the entry of new workers alters people’s positions in the wealth and income distributions over time. One can safely say, however, that most people stay in the top 20% or the bottom 80% of the wealth and income distributions during most of their adult lives. 3 targeted, it might be thought to yield important economic and political gains as well, by encouraging people to use their assets productively and by checking the accumulation of vast fortunes that can warp markets and corrupt democratic politics. Perhaps we could even multiply those benefits by substituting a wealth tax for gift, estate, or inheritance taxes that bite unevenly across chains of succession and that, unfairly in the eyes of some, take less over time from families lucky to have long-lived members and grab more from those that, through misfortune or generosity, pass their possessions along more briskly. The introduction of a wealth tax could hardly pretend to be a panacea, but if it could be administered without undue expense, would it not at least be a boon? No. My claim in this Article is that a wealth tax would not be desirable from the standpoint of justice. None of the justifications sketched above ultimately is persuasive, even when each is couched in its most attractive form. We live in a nation permeated with injustice – a society laudatory by historical measures, but still badly in want of reform. The maldistribution of property and financial assets in America is one sign of our default. But a wealth tax, I contend, is not the best means of repair, nor would it find a permanent place in a better world. The plan of this Article is simple. Section II sets forth my assumptions and excludes from consideration a number of problems that would have to be faced were a wealth tax worth closer study. In particular, I describe a crucial part of the normative framework I use in evaluating proposals to take money, property, time, or effort from some people to benefit others. To keep my conclusions as general as possible, I avoid choosing for the purpose of this Article from among the many liberal egalitarian theories of distributive justice that call for some redistribution from those with greater means and opportunities to those with less but that differ on when and how much the more fortunate are 4 obligated to share. A large portion of my analysis should be acceptable to libertarians as well. Nevertheless, my argument cannot accommodate every view about what justice demands. I therefore cannot claim to show that wealth taxes may never be levied indefinitely within a just social order, whatever one’s views of group justice might be. My analysis might not convince utilitarians and others who regard justice as the achievement of some pattern of resource holdings or individual well-being across a society’s members, without regard to the wise or silly choices that people make except insofar as the welfare-maximizing or preferred consequentialist rule attaches rewards or penalties to those choices. For partisans of these views, my analysis might not so much be false as irrelevant. Section III offers arguments. It considers in detail a number of possible justifications for wealth taxation that conceivably could be joined to the broadly nonconsequentialist premise I take for granted.