Some of the leading candidates for the 2020 Democratic presidential nomination have proposed radical measures to reduce inequality, such as a wealth tax. But there are many other progressive tax policies that would be both easier to enforce and more likely to get a Democratic candidate elected.
CAMBRIDGE – Three years ago, Donald Trump’s victory in the United States’ presidential election triggered a search for explanations of what is still a shocking outcome. One immediately came to dominate: his Democratic opponents had been insufficiently aware of the problem of income inequality, or had neglected to propose effective solutions.
That is presumably the logic behind the radical proposals to tackle inequality coming from some of the leading candidates for the 2020 Democratic presidential nomination. Senator Elizabeth Warren, for example, has proposed an annual tax (originally of 2%, but now up to 6%) on the richest Americans’ wealth.
The problem with the wealth tax is not that it is radical. Like many economists, I would support a high carbon tax – also a radical policy, but the most economically efficient way to respond to the global problem of climate change. A wealth tax, however, simply is not the most efficient way to address the problem of inequality.
In fact, there are at least six practical policy changes that could make the US tax system more progressive. They have all been proposed by mainstream Democrats such as President Barack Obama – who also advanced the Patient Protection and Affordable Care Act and other inequality-reducing policies – but in most cases were blocked by Republicans.
These proposals are practical in two senses. For starters, if adopted, they would be more enforceable than a wealth tax and less likely to have costly unintended side effects. Moreover, studies of recent US congressional elections have found that the traditional median-voter approach still holds. Although radical-left economic proposals do attract new voters on the left, they repel substantially more voters on the right. That suggests US political candidates are more likely to get elected by proposing moderate policies than by advocating radical measures.
The first policy proposal would be to reinforce the estate tax. The US might begin by restoring the tax on all estates worth, say, $5 million. More important, however, is to eliminate the “step-up” of the valuation of the assets in the estate, which currently allows generations to pass on capital gains without ever paying tax on them. It would be far easier for the Internal Revenue Service to place a dollar value on assets on a once-a-lifetime basis (that is, on the estate, before it passes to the heirs) than to try to do so every year under a wealth tax. And doing this would accomplish the same objective as the wealth tax: putting some friction into the inter-generational accumulation of dynastic wealth that, as it stands, never gets taxed.
Read the rest of the article at Project Syndicate
CAMBRIDGE – Three years ago, Donald Trump’s victory in the United States’ presidential election triggered a search for explanations of what is still a shocking outcome. One immediately came to dominate: his Democratic opponents had been insufficiently aware of the problem of income inequality, or had neglected to propose effective solutions.
That is presumably the logic behind the radical proposals to tackle inequality coming from some of the leading candidates for the 2020 Democratic presidential nomination. Senator Elizabeth Warren, for example, has proposed an annual tax (originally of 2%, but now up to 6%) on the richest Americans’ wealth.
The problem with the wealth tax is not that it is radical. Like many economists, I would support a high carbon tax – also a radical policy, but the most economically efficient way to respond to the global problem of climate change. A wealth tax, however, simply is not the most efficient way to address the problem of inequality.
In fact, there are at least six practical policy changes that could make the US tax system more progressive. They have all been proposed by mainstream Democrats such as President Barack Obama – who also advanced the Patient Protection and Affordable Care Act and other inequality-reducing policies – but in most cases were blocked by Republicans.
These proposals are practical in two senses. For starters, if adopted, they would be more enforceable than a wealth tax and less likely to have costly unintended side effects. Moreover, studies of recent US congressional elections have found that the traditional median-voter approach still holds. Although radical-left economic proposals do attract new voters on the left, they repel substantially more voters on the right. That suggests US political candidates are more likely to get elected by proposing moderate policies than by advocating radical measures.
The first policy proposal would be to reinforce the estate tax. The US might begin by restoring the tax on all estates worth, say, $5 million. More important, however, is to eliminate the “step-up” of the valuation of the assets in the estate, which currently allows generations to pass on capital gains without ever paying tax on them. It would be far easier for the Internal Revenue Service to place a dollar value on assets on a once-a-lifetime basis (that is, on the estate, before it passes to the heirs) than to try to do so every year under a wealth tax. And doing this would accomplish the same objective as the wealth tax: putting some friction into the inter-generational accumulation of dynastic wealth that, as it stands, never gets taxed.
Read the rest of the article at Project Syndicate