Inequality is Weakening Social Security. Here’s How We Fix That.
When Congress set the cap on Social Security contributions in 1983, they didn’t anticipate forty years of rising inequality. And it’s cost us — a lot.
Austerity is spreading everywhere, but wealth, new data show, has become even more concentrated at the global economic summit. From Cairo to Palo Alto, even some conservatives are now talking wealth tax.
Forbes magazine started tracking America’s 400 richest on an annual basis back in 1982. Five years later Forbes started annually counting billionaires — on a global basis. Earlier this month, this global list celebrated its 25th anniversary.[pullquote]Americans now account for 35 percent of the global billionaire total.[/pullquote]
In one sense, not much has changed over those 25 years. On the first Forbes global billionaire list in 1987, the United States led the ultra-rich pack. That still remains the basic story. In fact, Americans now make up an even greater share of the world’s billionaire population than they did a quarter-century ago.
In 1987, 41 of the 140 billionaires that Forbes spotted — 29 percent of the deepest-pocket total — hailed from the United States. Americans now account for 35 percent of the global total. They make up 425 of the world’s richest 1,226.
These richest of the rich, the Forbes data also show, have never been richer. They now hold $4.6 trillion in combined net worth. The combined net worth of the global super rich in the original Forbes billionaires list: only $295 billion.
Forbes had 50 staffers working on this year’s billionaire tally. Those researchers totaled up individual super-rich holdings in publicly traded and privately held businesses, financial investments, real estate, yachts, art, and just plain cash.
But one wealth management company founded by former Forbes researchers, the Singapore-based Wealth-X, is charging that the new Forbes numbers actually understate the wealth of the world’s wealthiest. Wealth-X research puts the global billionaire total at nearly 2,500, twice the Forbes count.[pullquote]Governments, by and large, don’t keep track of how much wealth individual wealthy people hold.[/pullquote]
Researchers at Bloomberg Businessweek also believe that Forbes is missing a significant chunk of super-rich wealth. A limited investigation by the magazine has found eight billionaires who don’t appear on the new Forbes list.
Why such uncertainty over the wealth of the super wealthy? At the root of the counting confusion: Governments, by and large, don’t keep track of how much wealth individual wealthy people hold. They don’t keep official track of the wealth of the wealthy for one simple reason: They don’t tax it.
Governments, by contrast, do tax the wealth of the middle class. Most middle class wealth comes from home ownership. Homes face property taxes.
The super rich certainly do pay property taxes as well. But homes make up just a minor share of their net worth. The vast bulk of the assets the really rich hold — their investments, jewels, yachts — go tax-free. And these assets are going tax-free at the same time that governments worldwide are adopting austerity budgets that are destroying jobs and futures for families of modest means.
Hundreds of billions in untaxed wealth. Hundreds of billions in budget cuts. Perceptive people worldwide are beginning to notice. And they’re beginning, in one nation after another, to start pushing the notion of taxing wealth. All wealth.[pullquote]Several European countries have had wealth taxes on the books for years.[/pullquote]
Last week, for instance, former U.S. secretary of labor Robert Reich noted that America’s 400 richest “have more wealth than the bottom 150 million Americans put together” and called for a new tax levy on grand fortune.
“Let Santorum and Romney duke it out for who will cut taxes on the wealthy the most and shred the public services everyone else depends on,” Reich urged. “The rest of us ought to be having a serious discussion about a wealth tax.”
Wealth taxes do already exist on an isolated basis. Several European countries have had wealth taxes on the books for years. Norway levies a 1.1 percent tax on assessed assets over a basic threshold, and about 17 percent of Norway’s adult population currently has some wealth tax liability.
Most other existing wealth taxes run under 1 percent. The new push for wealth taxes now emerging is calling for higher rates. In the United States, Yale law profs Bruce Ackerman and Anne Alstott have proposedan annual 2 percent tax on the nation’s richest 0.5 percent, households worth over $7.2 million.
“Rather than draconian cuts to Medicaid or Medicare,” Ackerman and Alstott ask, “why not a wealth tax?”[pullquote]One top banking CEO is urging a one-time ‘global wealth tax’ of 10 to 20 percent on individuals with net worth over $10 million.[/pullquote]
From Stanford University, the conservative economist Ronald McKinnon is making a similar push. In a Wall Street Journal op-ed this past January, McKinnon called for an annual 3 percent tax on wealth over $3 million, a level that would touch less than 5 percent of the nation’s population.
Elsewhere in the world, wealth tax advocates are pointing to the global economic emergency all around us and demanding even more substantial action — in the form of a one-time, high-rate tax on assets.
Inequality, notes British income analyst Stewart Lansley, is choking off economic recovery. Average consumers in the United States, he notes, would have nearly $800 billion more in their pockets today if they were still earning the same share of the nation’s income they earned in the late 1970s.
“With the national cake so unevenly divided,” Lansley notes, “consumers have been denied the means to help revive the economy.”
A wealth tax, analysts like Lansley believe, would raise the revenue necessary to give stagnant economies the stimulus that consumers cannot. Just how high should a one-time, economic emergency tax on the assets of the wealthy go?
The CEO at EFG Hermes, the Middle East’s most important investment bank, last fall urged a one-time “global wealth tax” of 10 to 20 percent on individuals with net worth over $10 million. Receipts from this new levy, EFG Hermes exec Hassan Heikal proposes, would go to each wealth tax payer’s country of citizenship.
Such a levy, says EFG Hermes CEO Heikal, would touch less than 0.01 of the world’s population and raise — at a 10 percent rate level — about $5 trillion.
Europe, Heikal notes, would pocket from this wealth tax “more than enough to deal with the European public debt crisis.” Developing nations would be able to reduce their public debt and “reinvest in infrastructure, research, and other means of energizing labor markets.”
And the United States, he points out, would have budget “room to breathe” — and be better able to help fuel global economic recovery.
“If we are really serious about getting out of the current crisis,” concludes CEO Heikal, “the rich should pay their dues.”
This dues paying, adds Hofstra University legal scholar Leon Friedman, may have to continue for the next five to ten years, “until our financial health improves.” Friedman supports a simple 1 percent tax on America’s top 1 percent.
“In the face of the nation’s stark financial problems, our richest Americans can afford this modest diminution of their wealth,” he observes. “And they certainly would have no right to complain, since it was previous government actions that enabled them to accumulate it.”