Wealth tax

Given where we are with inequality in this country I think it is fair to say that the wealth tax is an idea whose time has come.  Hooray for Elizabeth Warren.  Of course, I’m under no illusions we’ll have one any time soon.  They wealthy have just a little bit of disproportionate political power.  And they also tend to suffer from the mass delusion that they deserve all their wealth.  But still, it is definitely good to be moving the political conversation in this direction.  The Overton Window is a thing.

Here’s John Cassidy on Warren’s wealth tax proposal:

Part of the problem is that other countries have shown that wealth taxes create incentives for rich people to evade them by sheltering or hiding assets, or, in extremis, by emigrating. France and Denmark both got rid of wealth taxes on investments and other non-property assets, partly because they didn’t raise as much money as was hoped. Gabriel Zucman and Emmanuel Saez, two Berkeley economists who provided a detailed assessment of the Warren tax plan, estimate it would raise $2.75 trillion over ten years, which is a very large sum. But Wojciech Kopczuk, an economist at Columbia University who has studied the estate tax extensively, told me that the $2.75 trillion figure is “wildly optimistic.” If Warren’s tax were enacted, Kopczuk said, many wealthy families would divide their wealth among themselves to stay under the fifty-million-dollar threshold, and they would also start shifting their wealth into assets that are hard to value, such as collectibles and privately held businesses. “I think that they”—Saez and Zucman—“are assuming that there is more wealth than there is, and they are underestimating the amount of tax planning that will take place,” Kopczuk said. “I am sure that the tax lawyers and tax accountants have ideas already.”

Economists who have looked into tax avoidance have reached differing conclusions. A recent study of Switzerland, which has long administered a wealth tax at the level of individual cantons, found that a “0.1 percentage-point increase in wealth taxes leads to 3.4% lower wealth holdings in the cross canton data.” That’s a big impact. “When you tax people’s wealth, they manage to somehow reduce their taxable wealth,” Jonathan Gruber, an M.I.T. economist who was one of the authors of the study, told NBC News. “We don’t know if it’s by saving less or by hiding it.” Gruber added, “Elizabeth Warren’s tax would raise money, it’s a question of how much.”

Lots of good analysis in the piece, but the short version is wealth tax means lots of tax avoidance.  That said, it might still be a good idea, especially combined with other taxes on wealth.

Noah Smith likewise thinks the wealth tax is a pretty decent idea, but what we really need to do is an inheritance tax:

Warren’s plan to tax some portion of this wealth has much to recommend it. Even though the number of people affected would be smaller than the crowd at some college football games, the revenue raised from the tax would be substantial — economists Emmanuel Saez and Gabriel Zucman, who study inequality, estimate that Warren’s plan would raise about $275 billion a year, almost four times as much as the most optimistic estimates for Ocasio-Cortez’s income tax. Even if you don’t believe that reducing inequality is a worthy goal in itself, that’s a decent amount of money — an 8.1 percent increase in federal revenues. Not enough to pay for universal health care, but more than enough to pay for both a major expansion in anti-poverty programs and a nationwide smart grid for clean energy, with plenty left over for housing subsidies to help relieve the country’s rent crisis.

Adding a wealth tax to the federal system, on top of income taxes, would also help cut down on avoidance. Rich people can afford to hire expensive accountants and lawyers to hide their income offshore, or keep it in assets whose value compounds while generating little income. By adding a second layer of taxation, wealth taxes would make hiding from the taxman more difficult.

So wealth taxes have a wide array of advantages. Still, there are downsides. Because much wealth isn’t traded in a liquid market, valuations have to be estimated from models opening the door for both unfairness and for avoidance. A whole cottage industry might spring up around undervaluing assets for the purpose of dodging taxes. There’s also the possibility of capital flight — wealthy people moving their money out of the country, straining the economy. It was partly because of capital flight that some European countries, such as Swedengot rid of their own wealth taxes in the 1990s and 2000s.

If these difficulties prove insurmountable, Warren and other egalitarian tax crusaders might consider an alternative — an inheritance tax, which would close many of the loopholes that now riddle the U.S. estate tax. Taxing all income from inheritances — including trusts, foundations, gifts, estates, and any other kind of family transfers — at a very high rate would yield a result similar to a small annual wealth tax, only its constitutionality would be less in doubt. And it would focus the tax on the rich people whose fortunes Americans are most likely to think of as being undeserved.

But whether it’s Warren’s plan or an alternative, a wealth tax seems like good idea for the modern U.S. One way or another, it seems like higher taxes are coming, and this tax seems better than most.

So, we probably don’t get Warren’s particular wealth tax or maybe even something all that close.  What we do get is a Democratic Party thinking about how best to tax wealth and advocating for it– which is already a super-popular idea (among pretty much everybody but those super-powerful ultra-wealthy).  So, it really seems like something we could move towards in the coming decade to actually make a meaningful policy step towards reducing the grossest inequalities.



Fair trial: American style

You probably know that thanks to Gideon v. Wainwright, criminal defendants have a right to an attorney even if they cannot afford one.  That’s a good thing.  Not only the “right to counsel” but the even more fundamental concept of a fair trial is wholly undermined if the state has competent legal representation but the defense does not.

But the reality is that this fundamental right is undermined every single day throughout the United States and our court system has largely failed to do anything about it.  What does it mean that the state is paying for you attorney if she only has 5 minutes to spend on your case because she’s got 200 other defendants that week?  Exactly.  A fair trial, it is not.  But, welcome to criminal justice for the poor in America.

Nowhere is this more abominable and absurd than the state of Louisiana.  Great photo essay on this in the NYT last week.  Definitely check it out.  Some highlights:

The numbers alone might seem to violate the Constitution. Poor defendants in the United States have the right to a competent lawyer, and hundreds of thousands of defendants rest their hopes on someone like Mr. Talaska.

But there has never been any guarantee that those lawyers would have enough time to handle their cases. That’s why the study cited above, which looked at the workloads of public defenders, is significant.

Right now, courts allow an individual to claim, after they lose, that they received an ineffective defense. But the bar is high. Some judges have ruled that taking illegal drugs, driving to court drunk or briefly falling asleep at the defense table — even during critical testimony — did not make a lawyer inadequate. [emphases mine]

It is even harder to make the argument that the sheer size of lawyers’ caseloads makes it impossible for them to provide what the Constitution requires: a reasonably effective defense. That is partly because there has never been a reliable standard for how much time is enough.

Now, reformers are using data in a novel attempt to create such a standard. The studies they have produced so far, in four states, say that public defenders have two to almost five times as many cases as they should…

“When obstetricians have five times as much work as they can handle competently, terrible things happen,” Mr. Hanlon said. “When public defenders have five times as much work as they can competently handle, terrible things happen, too.”

You don’t have to be a judge, lawyer, or even all that educated to recognize that the idea of a public defender with 400+ clients is hardly a “right to counsel” in any meaningful sense.  The current state of affairs is abominable and an embarrassment.  It’s great that some organizations are trying to do something about this.  And judges have been cowardly in side-stepping this obviously unconstitutional situation.  But shame on the legislators who put so many people in this situation in the first place.  This has to change.

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