Decompiling Oppression #133
Sam McVeety
Here in the other Washington, outgoing Governor Inslee proposed a wealth tax as part of his overall budget, and I figured it's as good a time as any to dig into what this might mean. (Lest this seem unrelated to the national scene, I'd keep an eye on the people filling R+15 town halls demanding "tax the billionaires".) In state politics, this isn't a new idea: Sen. Noel Frame and Rep. My-Linh Thai have been working on proposals in this space for years. What is new is for it to receive attention from the executive, alongside a projected budget deficit that has everyone's attention.
Beyond Washington State, wealth taxes exist in a number of countries already (not to mention zakat in Islam), and while they differ in details, they share the fundamental idea of looking at the holdings/wealth (rather than income) of an individual. Structurally, there's a lot to like about this, especially given the ability of wealth to generate (a lot) more of it. The concept had a mainstreaming moment in the wake of Thomas Piketty's Capital in the 21st Century, which proposes a global tax on wealth. Rather than talk about wealth generating wealth in the abstract, though, let's be specific about it. The rate of return on investments can relatively easily average around 10% (granted, a bit less when accounting for inflation). Keep that number in mind, because we'll come back to it.
For the Washington proposal, we can look at the levels of wealth being considered. The 2023 proposal set $250 million as the threshold (taxing 1% of "financial intangible assets" beyond that threshold), while Inslee's proposal lowered it to $100 million. (Washington's wealth tax is notable in that it excludes tangible property, like real estate, while many others do not.) At the risk of stating the obvious: these are staggering amounts of money. Even at $50 million, you can imagine a household with three children and two parents where everyone has $10 million all to themselves. Living off the income from this alone could get you something approaching $1 million a year. (Yes, these are long-term averages, and yes, let's be real: when you have a huge amount of money to ride out short-term market fluctuations, you can achieve those averages, or better.)
Now, let's talk about the 1% number. Many people with "mere" millions will pay this much for a financial advisor. Private foundations are legally required to pay out 5% of their assets per year. This should tell us a few things: first, that this is not an unreasonable amount of money to assess. Second, if there is pushback against surrendering 1% of wealth to the public good, it seems suspect that an appreciable amount of that money would end up in a foundation where it was subject to the 5% rule. So the alternative is to just have it sit there, making more money for its owner.
As with the capital gains tax, critics of a wealth tax often express concern that it will cause wealthy people to depart the state. At a time when the malign influence of wealth on politics should be readily apparent, this frames up a fairly stark moral question. This "capital flight" risk is essentially an extortionary declaration: "let us stay here and we might give you some of our wealth, but don't tell us what to do with [1% of] it or we'll leave". On top of that, there's really no getting around the fundamentally undemocratic nature of extreme wealth. Even if it is being held by someone whose values happen to align with yours, there's no accountability beyond what comes voluntarily.
Another critique is the idea of a liquidity problem: that people have this money, but it is tied up in assets that are hard to exchange for cash (in order to pay the tax). This one doesn't really hold up for me, either. When we are talking about staggering amounts of money, all kinds of financial instruments are available for borrowing. It also doesn't seem to be a problem in practice, with prominent folks having no trouble achieving the liquidity to buy private islands (or elections). In more prosaic territory, is it too much to ask for people to also simply plan ahead? Either directly, or through the well-compensated financial advisor we discussed above. If you're really worried about retaining voting control of a company while liquidating shares, well, there are ways around that, too.
These arguments have all been made before. Other countries have gone back and forth on wealth taxes (fortunately for Washington; it can learn from them), but the primary objections tend to be capital flight, administrative difficulty, and low resulting revenue. We've discussed capital flight already. While not minimizing the problem, the Washington Department of Revenue projects that it would be able to administer such a tax. As for the final concern, no one is imagining that this will fix Washington's budget or tax structure (still 2nd most regressive in the country!) on its own. Complex problems require combinations of different approaches, and redistributing wealth from the top fraction of a percent of citizens seems like a very reasonable tool to deploy.
Here are this week's invitations:
Personal: The 2023 bill targets four areas for funding: education, housing, disability justice funding, and low-income tax credits. What public good can you imagine using progressive revenue to fund?
Communal: How can we promote a culture of generosity and abundance, rather than scarcity?
Solidarity: Support the Economic Opportunity Institute and their work to embed the values of fairness, care, and opportunity into the foundations of Washington State's economy.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FAQ
Can I share this newsletter with non-Googlers? Yes! Feel free to forward this note externally; it does not contain confidential information.
Is this an official Google newsletter? Nope. The views expressed in this newsletter are not the official position of Google, and we are not affiliated with any particular ERG.
I am leaving Google or transferring to another bet. Can I still receive this newsletter? Yes! You can join the external list here.