We need a wealth cap. It is what it sounds like. We put a “cap” on wealth. If you’ve never heard of such a policy, that’s probably because it’s a pretty new concept. Despite mentioning it on a few podcasts, I haven’t spoken much about it either. Today, Bernie Sanders mentioned a similar policy proposal, so it’s time I publish this piece from August 2022.
How much money is too much for one person to have? Effectively, a wealth cap is a 100% tax on wealth for every dollar above a certain threshold ($500 million, $1 billion, take your pick). As it becomes more widely understood that the exploitation of labor is not a flaw but a feature of our economic system, more people are focused on reducing wealth inequality. There’s a lot of work to be done to improve our economic system. The first step to correcting extreme inequality would be recovering and redistributing hoarded dollars. A wealth cap.
Simply pause and consider: is it good fiscal policy to allow massive sums of money to be hoarded by individuals? What are the implications? It is bad for our democracy, as the concentration of wealth in the hands of the few gives them immense power to influence elections by way of media, campaign contributions, and lobbying. It is also bad for the economy when such a small group of individuals direct labor, control resources, and effectively make decisions about how real productive capacity is put to use in our economy. The economic interests of 724 billionaires differs greatly from the rest of us 330 million Americans.
Based on Forbes' annual billionaire list in 2021, there are 724 billionaires in the United States, with a combined net worth of $4.4 trillion.1 If a 100% wealth tax on every dollar over $1 billion were applied to these individuals, it would generate approximately $3.68 trillion in revenue. “Why stop at $1 billion?” Is a valid question, to which I would answer, sure, the wealth cap could be at a lower threshold. Of course.
Those who will be impacted by, or are on the verge of being impacted by the wealth cap, have two choices:
Sell shares. Give the money to research and development. Increase pay for workers you employ. Donate it. Throw it out of a helicopter in Manhattan. I really don’t give a fuck to be honest. Get rid of the dollars. No one person needs one billion of them or can productively decide how one billion dollars should be used.
Cough it up. Pay the tax for all wealth exceeding the cap.
What will we do with all of that revenue? What a fun question. We build a better economy. Build a better society. We invest it in healthcare, education, skills/training, high speed rails, housing, food, sustainable energy infrastructure, rebuilding existing infrastructure, cancer research, etc. We could cancel student loan debt and guarantee a tax credit for those who already paid off their loans, without having too much debate about the balance sheet.
This is an unconventional way of putting it, but: we don’t need to outsource the decision-making surrounding how dollars enter the economy to the private sector (i.e. bank loans). Instead, Congress can use their existing constitutional authority (the power of the purse) to directly allocate dollars to fund programs or invest in developing our economy in areas that have been neglected. The neglect is precisely caused by decision-making being outsourced to banks, who dish out dollars based on estimated return on investment and projected risk.
We certainly value things that, in our current economy, are not profitable (elderly care, driving on roads, clean energy, etc.). If profit margins are lower than alternatives, investment will be lower in those sectors. Considering profitability makes sense for banks issuing loans, we don’t expect banks to consider what the masses want beyond what the masses will buy and for how much. Living in an economic system where the things we value are not invested in and therefore are not accessible, is miserable. Our economy should meet our material wants and needs. If it does not, it is dysfunctional. Plain and simple. Something here has got to give, we need Congress to use this power to fill the gaps—the gaps that, again, are not market failures, but the result of the system as designed.
It was never a function of the market to efficiently provide public goods, and we need to stop pretending it ever will be. We need a way to provide these necessary goods and services–providing things we really value having, but are denied thanks to the unnecessary constraints of our current economic set up. When wealth is hoarded, so are resources. This problem is exacerbated to the extreme. Dollars effectively represent things of value in our economy, recovering dollars hoarded allows us to put real productive capacity toward filling the gaps.
When I mentioned this policy to my friends and colleagues in August—the response was, “I think people should be allowed to keep what they work for.” I agree. That is why we need a wealth cap. No one works to earn $1 billion. Everyday, many Americans do go to work—they use their minds and bodies to provide goods and services. They often work for an hourly wage, selling their time to someone else, who owns a firm with land, tools, machinery, and resources necessary to be productive.
The extremely rich, who accumulate large sums of money, are not people doing exceptionally valuable labor. These are typically owners and shareholders of large companies. They accumulate massive sums of money thanks to the rate of return on capital. In other words, they make their dollars turn into more dollars. By magic? Surely not. The people who are laboring to produce valuable goods and services at the companies they invest in make them those dollars. The workers produce the value, owners extract the profit. Managing money is an important skill, but it is usually not even done by those who hold the dollars, they pay exports to manage it and invest on their behalf. If this isn’t clear or is new information, I cover the dynamics of labor exploitation in more detail in my TEDx talk.
Simply put: having over $1 billion is unnecessary. After a certain threshold, your quality of life does not increase as much with each new dollar that goes into your pocket. Economists call this the diminishing marginal utility of income. As income increases, the benefit of additional income to that individual eventually decreases. Many economists identify the plateau happens between $70-$100k. Latest figures are likely higher in big cities and considering current inflation. Still, with those adjustments, the plateau happens far before $1 billion.
A wealth cap seems pretty basic. Surely, policy professionals and researchers must have proposed a wealth cap before! Wrong. I came across zero scholarly articles or academic white papers on the subject. Economics and public policy are fields that are unfortunately not composed of those impacted most by extreme wealth inequality. However, I did find an online forum where a wealth cap was discussed. That restored my faith in humanity a bit.
As far as I am concerned, someone writing good ideas is all the same whether it’s on an online message board, or coming out of the Harvard Kennedy School. So, as Locke1689 on Hacker News says, a wealth cap, “is not such a ridiculous idea. Essentially, it's simply a progressive income tax with a tax bracket at 100%. If the bracket is high enough, e.g. $200 million, then it doesn't act as a disincentive and helps to balance the imperfectness of the market.”2 Well put. I’m a fan, Locke1689.
Let’s review the most progressive wealth tax proposals from the 2020 Democratic primary. Bernie and Warren, naturally. Here’s what Bernie Sanders had to say about his proposal:
This tax on extreme wealth would have a progressive rate structure that would only apply to the wealthiest 180,000 households in America who are in the top 0.1 percent. It would start with a 1 percent tax on net worth above $32 million for a married couple. That means a married couple with $32.5 million would pay a wealth tax of just $5,000. The tax rate would increase to 2 percent on net worth from $50 to $250 million, 3 percent from $250 to $500 million, 4 percent from $500 million to $1 billion, 5 percent from $1 to $2.5 billion, 6 percent from $2.5 to $5 billion, 7 percent from $5 to $10 billion, and 8 percent on wealth over $10 billion. These brackets are halved for singles.
Here’s what Warren’s plan was: “Households would pay an annual 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion.” Okay, so at most, 8% tax. We need 100% to be the percentage for the highest threshold. This does not go far enough, and still, it pissed people off.
The pearl-clutching by the Wall Street Journal:
Democratic presidential candidate Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%.3
If you already have over 1 billion dollars, your annual income would have to be $60 million dollars or more to be taxed at 100%. We’re not talking about working and middle class families here. The shock of the sentence “income tax above 100%” doesn’t hit the same when you consider who is subject to the tax and how. It also is laughable when you remember this piece is published in billionaire Rupert Murdoch’s Wall Street Journal.
Still, resistance from billionaires is expected. Any policy proposal is only as good as our ability to implement and enforce it. Thankfully, we’ve recently decided to invest a great deal in the IRS. Look at that enforcement funding bump! A 69% raise. Nice.
Check out all of those billions! Ted Cruz tried to convince the public that such a substantive investment in the IRS meant crackdowns on middle and working class taxpayers—Uncle Sam knocking at the door. I have a better idea. Let’s put those IRS agents to work examining the finances of the wealthiest people in our society.
Wealth should be self-reported to the IRS, any noncompliance with self-reporting, and failure to comply with audits should be criminalized, with significant penalties. Hoarding dollars has real consequences—people go hungry, lose their homes, and go without healthcare. The cost at best is suffering and exploitation, and at worst human lives. It should be a criminal offense.
If wealthy individuals were to fight the tax and respective audits in court (I bet they would), and a case were made to the Supreme Court, I would not expect this current court of 9 justices to rule in favor of a wealth cap. I would love to be wrong on that. The wealth cap should be introduced and passed as a constitutional amendment by Congress—a joint resolution requiring a two thirds vote. Imagine members of congress trying to explain to their constituents on CSPAN why they are voting against it. I cannot imagine a world where the majority of constituents in any district would oppose a wealth cap. Bring it on. Make a meal out of it. Make them explain why someone needs $1 billion dollars.
I cannot stress enough that a wealth cap is not meant to be a fix-all. It will take more than one policy proposal to correct the dysfunction of our economy and address the root causes and legal reinforcement of inequality in our society. To make a wealth cap truly effective, we would need to pass policies that make wealth accumulation possible in the first place—it would require putting the system on trial. This particular essay is about a wealth cap. Which is an important step to setting things right.
It is simply bad fiscal policy to allow dollars to be hoarded by individuals in our economic system. Sometimes the simple answer is the answer. Our perverse obsession with complexity–as my colleague Rohan Grey would put it–gets in the way of good policy making. Billionaires should not exist. Make it illegal to be one.
I would like to think word spreads from my mentioning of this policy proposal on podcasts, or that Bernie lurks in online forums and is also a fan of Locke1689 (or that his staff does either of these or both). In any case, however he arrived at this new conclusion, I’m glad he has changed his stance. I will work to ensure it will be better received than his and Warren’s proposals were in 2020. I am also happy I have had this piece written for some time now and can get it out to you all when people are thinking about it.
I hope to write a more detailed piece on this soon, and to collaborate with friends in the field with the ability to further project tax revenue and explore legal enforceability given the obvious international tax haven situation. Still, I’m happy this big policy idea that has been in my iPhone notes since August sees the light of day. Yes, this is what I get up to at 3-4am on summer nights.
Okay. Love you, bye.
Forbes Staff. (2021, April 6). Forbes Billionaires 2021: The Richest People in the World. Forbes. https://www.forbes.com/billionaires/
I live in Westland, Michigan. Any local billionaires feel free to fly over this way in your shiny helicopter.
Also, Elon is the best example of this wealth cap. He paid 44 billion dollars just to be the coolest kid on the block. And now he cries like a child when he gets his feelings hurt on Twitter.
A wealth cap of a billion dollars should be acceptable in anyone’s eyes. How can anyone justify complaining about having only a billion dollars? It’s all very maddening