A WEALTH TAX TO PAY FOR THE U.S. MILITARY

This position paper is an extension of my 1996 discussion on wealth taxes, which in 1996 was a section in the file “y-taxes.txt”. Now this discussion is in a separate file. This is a work in progress, and I hope there isn’t too much redundancy or contradiction.

Along with this I recommend that we eliminate capital gains and inheritance taxes altogether. Along with a national sales tax gradually incremented over time to pay for a 100% US Government paid health insurance for everyone residing in the United states, I am advocating a major realignment of US tax policy.

With all this I don’t have the resources to add up all the numbers. I’m adding a significant standard deduction which will reduce taxes in all brackets, but would give those in the upper brackets a larger tax reduction than working class people and poor people.

Thinking about who benefits most from tax reductions, I think we need to observe who benefits from the huge tax cuts the Republican Congress has voted since they took over Congress in 1994. Unless you are already reasonably rich, you never saw very much of that money.

I have a challenge for Democrats (and right thinking Republicans) to take EVERY proposed tax cut the so-called conservative Republicans propose.

Number 1: What is the price tag?

Number 2: Apportion that cost of the proposed tax cut, and have a sliding scale so that people who make $100,000 per year get zero benefit from that, people who make $99,000 per year get a 1% share, $98,000 get a 2% share, people who make $20,000 get an 80% share, and people who make less than $1,000 get a 100% share.

Number 3: Add up all the shares for all the millions of people and divide the total tax reduction by the number of shares, and pay this amount of money on the sliding scale.

If the Democrats are not willing to make this a political issue, what makes them think they are any better for poor people and working-class people than the Republicans?

Sharing money with the poor people will be a great benefit for the local storefront businesses in the poor areas of the various cities. A lot of people with small businesses will have more customers with more money to spend -- and they will make more profits and pay more taxes. Sounds good to me!

For the wealth tax, I think for study purposes I would have a wealth tax of 0.1% for wealth in excess of $3-million and 0.3% in excess of $5-million. I don’t know exactly how that would balance against upper income people getting the larger tax reduction from my raising the standard deduction for all brackets.

I think it is in the national interest for more and more people accumulating more wealth, so a bit of a favorable tax attitude should be permitted in income tax rates so these people can accumulate more personal wealth.

In 1996 in my Internet files (www.libt-social-dem.org) I advocated a wealth tax modeled after the French wealth tax. This is in my position paper file called “y-taxes.txt”. The French have a sliding scale of 0.5% for wealth in excess of (approximately) $1-million up to 1.5% for wealth in excess of $10-million.

I agree with the “free marketeers” -- that paying capital gains taxes skews management and investment strategies that would be different -- and more efficient and profitable -- for those lucky enough to actually achieve capital gains.

The thing to remember is that capital gains taxes and especially inheritance taxes are large taxes in a single year -- and those large amounts of income may be achieved only once in an individual’s lifetime. If you frequently achieve large capital gains, your wealth tax will be going up. That seems fair to me.

I think we can calibrate this so that a wealth tax can achieve a similar amount of tax money for the government. I think we should consider this wealth tax to be a person’s return to the government and the society that has made their wealth and security possible.

The effect of the French wealth tax is that only after a person’s wealth passes $12-million does this tax pass 1% of actual wealth -- at $120,000.

I am inclined to add a bracket of 1.5% for wealth in excess of $100-million and perhaps 2% for wealth in excess of $1-billion. Of course, at some point the higher wealth tax may skew business decisions that would be better made more independently. However, we should remember that $1-billion is a very big deduction if that is where the 2% starts to apply.

In any case a small percentage each year will not so badly skew business decisions that should be made for business reasons -- decisions that should not be made for tax avoidance schemes that turn out to be worse from a business point of view.

I think the Congress or the Department of the Treasury should start to work on this kind of study. How many billionaires are there anyway?

There is one historical circumstance that needs to be considered. Currently, US interest rates are higher in real terms than they were before the Reagan-Bush quadrupling of the national debt from $1-trillion to $4-trillion.

The government had to raise interest rates in order to attract the huge amounts of capital required to finance that debt. If real interest rates become gradually lower, we might have “barely rich” retired people paying more taxes on conservative investments than I think they should.

I can’t give a formula ahead of time. My solution is for Congress to watch the historical trends, “and do the right thing!” This has to do with how the numbers turn out.

We have to expand our thinking on that process not only to determine marginal government revenues, but also how these policies affect different classes of individuals. We might also want to give a deduction against taxable wealth for nice homes for retired or soon to be retired people. I want rich people to pay more taxes, but let us “smooth the rough edges”!

Looking at inheritance taxes, the wealth tax could be crafted to achieve a similar amount of money over a long period of time -- without the trauma of losing so much of Mom and Dad’s lifetime of hard work all at once.

I see one big complication with how a wealthy family transfers wealth to their children. The French minimum amount for wealth taxes is about $1-million, and is a graduated scale. With a wealth tax, parents -- perhaps starting at age 50 -- who have more than $3-million could on paper transfer some specified amount of wealth to their children and the family would pay lower wealth taxes (or even none).

At the current time (1998) in the US, wealthy families are allowed to set up trust systems that diminish their children’s inheritance taxes. I would expect that the French have already come up with some kind of approximate solution to that problem.

There is also the problem of how to tax single people vs. married people. This is a big problem now in the regular income tax code. My inclination would be to count husbands and wives as two separate taxpayers with each paying wealth tax on 50% of shared wealth.

Whatever model is actually established it will be able to be manipulated. That is unavoidable. Idea #1 can be manipulated in one way, and Idea #2 can be manipulated in some other way. You folks in the Congress will have to work hard and figure out some kind of fair way. That’s why you get paid the big bucks!

Also, for the number crunchers, I think we should go back some reasonable number of years and count a percentage of “already paid capital gains and inheritance taxes” as credit for the new wealth tax. I think this should be some kind of sliding scale going back in history. Large taxes paid more recently should count for more credit.

--->>> What follows is a copy of the section in my 1996 file “y-taxes.txt” that advocates a wealth tax.

--->>>

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WEALTH TAXES -- 1996 -- The French Program

I think we should institute a yearly wealth tax like the one in France. Working people got increased Social Security taxes in the 1980’s -- greater than their income tax reductions; the wealthy got huge tax cuts, and the government borrowed $3-trillion for increased military spending for the Reagan-Bush Victory Over Communism Effort. This left the country with huge debts.

I’m not in favor of stealing peoples homes and businesses. However, wealthy people need to understand the long term social consequences of the divergence of the middle class.

A relatively small number of middle class people are doing very well, while most others of the middle class are seeing a real and dramatic lowering of their standard of living -- including most significantly, the loss of employer paid, and tax free, medical insurance.

We aren’t going to go back to Darwin’s jungle. Rich people need to understand that, and consider their own best interest in today’s society. I think rich people also suffer from Social Darwinism -- from the other side of course.

I think that greedy acquisitiveness was a life-saving strategy in Darwin’s jungle. I believe it is pretty well accepted by many scientists that many aspects of our psychological nature -- especially regarding individual survival and procreation -- are genetically determined. That, since the genetic pattern -- gene or set of genes -- that “caused” some particular psychology; and if that psychology were successful, that gene pattern was “naturally selected”.

We still have the same genetic pattern today -- and thus we still have the “greedy and acquisitiveness” genes. But our intelligence was also “naturally selected”, and we today must use that intelligence to understand how today’s society differs from the tough world of Darwin’s jungle.

Once we realize that we are no longer in that tough world, rich people should realize they don’t have to grab and keep everything they can.

A wealth tax will help limit the divergence of society into a small number of rich people and a much larger number of poor workers and welfare recipients who don’t have enough money. I believe a wealth tax IS THE BEST CONSERVATIVE SOCIAL POLICY.

I think rich people should ask themselves how much it’s worth for the government to protect them against communism -- AND THIS INCLUDES TAKING RESPONSIBILITY for the Reagan-Bush Victory Over Communism effort which raised the national debt by $3-trillion.

A modest wealth tax would take some of the burden off working people. My proposal for a wealth tax is a reasonably close approximation to the French tax:

Wealth under $1-million: tax= zero

part of the wealth from $1-m to $2-m: tax= 0.5%

part of the wealth from $2-m to $3-m: tax= 0.7%

part of the wealth from $3-m to $5-m: tax= 0.9%

part of the wealth from $5-m to $10-m: tax= 1.2%

part of the wealth over $10-m: tax= 1.5%

The way this comes out is that only after a person’s wealth passes $12-million does this tax pass 1% (at $120,000) and only very gradually does it begin to get close to 1.5%. I’m sure the idea of a wealth tax will be controversial, but I think we should consider it.

Also, I don’t know how wealth jointly owned by a husband and wife is counted in France. Before actually enacting such a tax we would need to see how other countries that have a wealth tax handle that and other possible complications -- and what their experience has been.

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<<<--- End section from y-taxes.txt -- 1996

A BRIEF DISCUSSION OF SIMPLE JUSTICE

Depending on how the numbers turn out, I would advocate that the wealth tax be used to pay for U.S. military spending. I think this is fair. During the struggle with the old Soviet Empire, wealthy people had the most to lose if communism took over the U.S.

Middle class people would have suffered from communism as well, but not nearly so much as the wealthy. The life of poor people in the U.S. would not be very much -- if any -- worse under communism than under the Mafia Secret Government currently in power in the United States.

Of course there may be other threats in the future, but if the wealthy and powerful want a war, THEY should pay for it.

Some wealthy people paid a small amount more taxes to finance the VietNam War. (Of course most wealthy people didn’t pay much taxes in the first place.) Upper middle class people who had high salaries and high taxes already, paid a marginally greater amount of taxes with the surcharge to help pay for the war.

But the greater tax that the wealthy and upper middle classes had to pay was only “a kind of tax”. They paid tuition fees to colleges and graduate schools -- and of course -- fees to lawyers, and all kinds of other avoidance schemes -- and of course some nice bribes as well. This enabled them to protect their sons from having to go kill and be killed.

Middle class and poor working people paid a personally greater tax than the higher classes -- their tax increase to pay for the war caused them much more personal financial discomfort. You had to be very poor indeed not to pay some income taxes.

If you have a war, everyone pays. But the real tax paid by poor and working class people WAS THE BLOOD AND TRAUMA OF THEIR SONS AND DAUGHTERS. There comes a time when we should and must do what is right.

Wealthy people have the greatest advantage of a secure society. I believe they should pay in reasonable proportion to what they have gained. How much is it worth TO YOU for the government to protect you from communism.

With all this moralizing, I should say that I too benefitted from my ability to avoid the draft during the VietNam War. My family were working class farmers, but I got a scholarship to an expensive private college. As events unfolded, I had much time to think about killing and dying. And so did my classmates.

I and most of my classmates spent a great deal of time and discussion trying to figure out how to beat the draft. There were many different ways, and I incorporated that kind of thinking into my own personal plans.

Ultimately I strung together various different kinds of deferments until I became 26 and no longer subject to the draft. Very few of my college classmates ever entered the military. The system was full of loopholes in great part so the wealthy and powerful would continue to support the war -- with other people -- poor people -- doing the fighting and dying.

All that said, I do think this kind of wealth tax I propose could actually be a good idea that MIGHT gain support from the wealthy and powerful.

Probably not of course, but the numbers might actually work out to their long-term advantage. We could have better business decisions without complicated tax considerations, and this would free people from losing such a big chunk of some fortunate windfall in a single year.