A wealth tax strikes at America’s constitutional and capitalist foundations like no other policy. More than a quantitative necessity to offset big spending, it is a qualitative one for a left eager to establish a broad new taxation precedent. They see it as an unparalleled opportunity to remake American society and the Democratic Party simultaneously.
Formal socialism has never advanced far on a presidential ballot. Over a century ago, Eugene Debs set its highwater mark when he won six percent of 1912’s popular vote. However, while it may not be explicitly on 2020’s ballot, its policies are making great strides in the Democrats’ contest.
Foremost among such policies is a wealth tax. Already several candidates vying for the Democratic Party nomination have flirted with the socialist label, while others have embraced a wealth tax in various forms. However, formal adoption by the nominee would mark an unprecedented advance for policy long thought unthinkable here.
Unquestionably, the left need revenue. Big government is already running big deficits and the left want a much bigger government. According to the Joint Committee on Taxation’s official congressional estimate, the government netted just $1.5 trillion in income tax revenues last year. That means, even on paper, doubling all payers’ income taxes would bring in just another $16 trillion over 10 years — and for the left, that is not enough.
However, the left also want a wealth tax even more for social reasons than fiscal ones. It would remove the tax separation between earning (taxed in a multiplicity of forms now) and owning (heretofore inviolable) in America. At its core, a wealth tax could, depending on design, allow for a reduction in wealth by targeting its totality, not just its marginal increase.
Such a targeting of wealth strikes at America’s very constitutional and capitalist foundations.
George Washington wrote during the 1787 Constitutional Convention: “Happy indeed would it be if the Convention shall be able to recommend such a firm and permanent Government for this Union, as all who live under it may be secure in their lives, liberty and property …” James Madison wrote regarding the final product: “In civilized communities, property as well as personal rights is an essential object of the laws …”
That the U.S. Constitution aimed to accomplish this is clear from its limitations on the government’s ability to tax. So rigorous were these that only war and a constitutional amendment (the Sixteenth, allowing for an income tax in 1913) could alter it.
That America implicitly embraces capitalism to the same extent it explicitly embraces its Constitution has long been recognized. Explaining over a century ago why socialism had made no advance in America, the German political scientist Werner Sombart began his book: “The United States of America is capitalism’s land of promise … In no other country is it possible to accumulate capital so rapidly.”
Of course, such accumulation comes first by accumulating individual wealth. And as Werner Sombart observed, the desire to do so extends across all classes. A wealth tax could go beyond wealth’s earning as capital, to whether (and what extent) it is accumulated at all. It is a momentous difference.
A wealth tax signals a fundamental economic change, too. It would mean a vast shift in resources from private to public sector. According to the Congressional Budget Office’s fiscal 2019 estimate, government spending already equals 21 percent of GDP. A wealth tax would greatly expand both the government’s potential tax take and spending, at the expense of the more productive private sector.
It has long been known that you get less of what you tax. Companion to this is that you get more of any tax — each growing larger over time. As evidence: The income tax. Once only an emergency measure and aimed at the rich, it now extends down the income ladder. And now the left find even this greatly expanded extent insufficient.
A wealth tax would extend the government’s theoretical ability to tax to its furthest limit. From there, this qualitative change would soon be followed by quantitative ones, as rate and reach inevitably grow.
Finally, accompanying this greatly expanded taxing potential’s break with America’s fundamental foundation is a political one, too. Fundamental concerns have barred any major political party even considering supporting a wealth tax.
In their left’s unchecked ascendancy, Democrats risk being rushed into uncharted political territory. It is one thing for a party’s individual elected officials and candidates to embrace so radical an idea. It is another entirely for a major party to nominate one as its candidate for president.
Insulated within their intra-party campaign, Democrats have not yet felt the broad fallout from their contest’s leftward direction. Taking a wealth tax to the general public would change that. Despite numerous risks the left pose to Democrats, none approaches this. While the left will not succeed in remaking American society with a wealth tax, they could easily remake the party, to Democrats’ long-term detriment, with one.
• J.T. Young served in the Office of Management and Budget and at the Treasury Department.
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