With America's large wealth gap and the United States government's need for revenue, new taxes need to be implemented to raise more money from the rich — and the way to do that is with a wealth tax, economists Joseph E. Stiglitz and Thomas Piketty said Thursday.
"Where we are today in the 21st century, a basic middle class life is not accessible to very large portions of America," Stiglitz, the recipient of a Nobel Prize in Economics and a professor at Columbia University, said during a talk organized by Columbia University and French publication Le Monde.
And at the same time, the wealthiest people in the world are growing exponentially richer, often at rates faster than the economy overall, said Piketty, who is an author and a professor at the Paris School of Economics and the The School for Advanced Studies in the Social Sciences. (Amazon CEO Jeff Bezos, for instance, saw his net worth surpass $200 billion in August.)
So it "makes sense to ask to this group" of wealthy people to contribute more "to the public good" via a wealth tax, Piketty said.
Beyond that, a wealth tax would raise more money for the government than the income tax does, Stiglitz said. (A wealth tax is a tax on the value of an individual's net worth, which is different from an income tax, which is based on a person's earned income.)
"The wealth tax often can get income that can be avoided or evaded through capital income tax ... sometimes you can organize ways of avoiding income tax so that the wealth tax can actually be a very effective tax," he said.
More revenue is something that is sorely needed, as the US government holds a tremendous amount of debt, said Stiglitz, and will have to spend even more to recover from the coronavirus pandemic, which has already decimated countless businesses and individuals' wallets.
"I think a wealth tax is a good idea because we have so much inequality in wealth, even a moderate rate like 3% on billionaires and 2% on those over $50 million, raises an enormous amount of revenue," Stiglitz said.
Still, adding a wealth tax "doesn't substitute for illuminating the deficiencies in our income tax systems," said Stiglitz.
For instance, Stigliltz points to the capital gains tax (levied on profit from the sale of a stock, business, land or art) as in need of reform. The maximum percentage a person can pay in capital gains tax is currently less than the maximum individual income tax rate (and mostly has been since the 1950s), according to the Tax Policy Center. That means that wealthy people, who have the resources to invest, are being taxed at a lower rate than those who are just earning an income.
Whether the rich should be subject to a wealth tax has been an issue in the run up to the 2020 presidential election.
"[A wealth tax] is something that with Joe Biden could make progress — not as much as maybe with Elizabeth Warren or with Bernie Sanders — but certainly a lot more than with Donald Trump," said Piketty (who is French).
Democratic nominee Joe Biden's tax proposal does not include a wealth tax. However, Biden's plan would raise taxes on the wealthy through higher income tax rates, capital gains taxes and corporate tax rates, CNBC previously reported.
While campaigning to be the Democratic nominee, Warren proposed a 6% tax on billionaires with her plan to pay for Medicare for All, according to the Tax Foundation. Sanders, who was also vying for the Democratic nomination, had a tiered wealth tax plan, with rates ranging from a 1% wealth tax on multimillionaires up to an 8% tax on some billionaires, according to the Tax Foundation.
Trump's tax plan for a second term is "light on detail," according to the Tax Foundation. But comments Trump made at the Israeli American Council National Summit in December give some insight — Trump inferred wealthy people would vote for him because they're "not going to vote for the wealth tax," he said. Interestingly, however, when Trump considered a run for president as part of a the Reform Party in 1999, he proposed a one-time wealth tax of 14.25% on those with a net worth of over $10 million, according to the Tax Foundation.
There are criticisms of a wealth tax. It would be a difficult tax to implement, according to Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute.
"As with capital gains, the levy raises issues about how to value privately held assets and creates incentives for taxpayers to understate and transfer their wealth, or to take advantage of any exemptions Congress is likely to include," Gleckman wrote in a post for The Tax Policy Center in 2019. "As Democrats are discovering, taxing the rich may be a great talking point for their base. But it is easier said than done."
Still, "if we don't stimulate the economy in the right way and have an adequate recovery, there will be long-term damage, and recovering from the economic aftermath of the pandemic will take years and years and years," said Stiglitz. "So it is really important to do something."