Michael Meeropol: A One-Time Billionaires Tax Could Save Day | WAMC

Michael Meeropol: A One-Time Billionaires Tax Could Save Day

Feb 5, 2021

On January 26 Inequality.org released a report entitled “10 months into the crisis:  660 Billionaires see wealth rise 40%”.   The information contained in that report is quite dramatic.

An important distinction needs to be made before we dive into the substance of the report.   Wealth is different from income and wealth inequality is in many ways more significant than income inequality.

Wealth is the value of all your assets.  (It’s a stock concept – like the water sitting in a bathtub.)  Wealth can be ordinary, relatively small assets, like bank accounts --- even tiny ones of hundreds of dollars--, a car, a family home.  It also includes larger assets like sprawling estates, millions of dollars worth of stocks and bonds, valuable jewelry, $200,000 automobiles, NBA or Major League Baseball teams --- Hopefully, the difference is clear.  There’s wealth that ordinary people accumulate in retirement accounts and then there’s wealth that Mark Zuckerberg has because he owns a gigantic chunk of Facebook.

Unlike wealth, income is a flow.  (Back to the bathtub example -- income is the water coming out of the faucet.).  The reason wealth inequality is more significant than income inequality is that it isn’t all that easy to translate income into wealth.  Income can only be translated into wealth after buying food, clothing, shelter, entertainment, etc.   (Back to the bathtub again -- the expenditure of current income on current consumption items is like the drain being open in the tub --- you have to have MORE coming out of the faucet than is going down the drain in order to increase the volume of water in the tub.).  In the US, people whose incomes put them in the bottom 60% either have no savings or are net debtors.   Thus, most of the population cannot translate income into wealth.\

However, it is very easy to translate wealth into income.   First of all, many assets earn income.  If you own bonds, you get an interest payment regularly.  If you own stocks, you get dividends.   If you own an apartment building, you get rental payments.   If you need a quick infusion of cash, you can sell off some assets.   You can sell stock.  If you own six houses, you can sell one.  If you own six cars, you can sell one.  The ability to convert wealth instantaneously to income gives people with great wealth great power --- they can buy lots of things including political influence.

Every year, Forbes magazine identifies the wealth holdings of the billionaire class.   In January of this year, they checked out how these billionaires have fared since the COVID induced recession began last March.  While millions of Americans have lost their jobs, while one in four suffer food insecurity, the super-rich have made out like bandits.   The January report can be accessed here.

This is the famous ---better infamous -- K-shaped recovery.   The bottom leg of the “K” is represented by the fact that there are less people working today, than on the day Donald Trump was inaugurated.   (Data on jobs in the US can be accessed here.  When Trump was inaugurated there were 145.6 million jobs in the US.  It grew to a maximum of 152.5 in February of 2020 and then plummeted to 130.3 in April before bouncing back to 142.6 in December.).  This made Trump the first President since Herbert Hoover to leave office with less Americans working than four years before.   Continuing our description of the bottom leg of the “K,” there are more people in poverty today than when Trump was inaugurated and thousands of small businesses have just disappeared.  (almost 100,000 to be exact according to Yelp.com’s local economic impact report.)

The top upward sloping leg of the “K” is where most millionaires and billionaires have hardly missed a beat.  Yes, some industries --- entertainment, travel, resorts -- have taken a big hit.  Forget about the Cruise Ship industry – airlines and hotels have been hit very hard.  But anything utilizing computers, including delivery services like Amazon and UPS have seen their use skyrocket.   With all the on line communicating it is not surprising that Mark Zuckerberg’s assets have increased in value from $54.7 billion to $92.1 in the March to January period.  For 660 billionaires, the total increase in wealth went from $2.9 trillion to $4.1 trillion in that same short period.

More generally, the Dow Jones average stood at 29.2 thousand on February 18.  After falling to 18.6 thousand on March 23, it started to rise and reached 29.3 on November 11.  On February 2, it was a bit higher at 30.2 thousand.

Why am I making such a big deal about this?   The answer should be obvious.  There is a lot of talk about the fact that the government is spending scads of money to support workers, small businesses, and the unemployed --- and now that Republicans are no longer in control, they are trotting out the old familiar arguments that “we” cannot afford all this deficit spending.  Notice the incredibly low figure the ten Republican Senators presented to President Biden as a “counter offer” to his proposed $1.9 trillion relief bill.

Well, guess what?  If they were really concerned with deficit spending, there is an almost painless way to finance over half of the Biden $1.9 trillion.  A one-year tax assessment to raise $1.1 trillion dollars from just 660 billionaires would do the trick.   A one-time 25% tax on net wealth applied only to wealth holdings of $1 billion or more would raise $1 trillion dollars.  (25% of $4.1 trillion is actually a bit more than $1 trillion.) That would still leave these super wealthy individuals with what they had in March (actually even a bit more than $2.9 trillion) with --- as the old saying goes -- more money than God.

Now of course this idea is so simple, the people in Congress would never even consider it.   I doubt even Biden’s economists would risk proposing it.  But OH, wouldn’t it be great for someone to actually offer it as an amendment and see the contortions that the lap dogs of privilege twist themselves into attempting to explain how this tax increase would damage the “job creators”.  If nothing else, this would be a great opportunity of publicly force an answer to a serious question.  As these billionaires saw their wealth holdings increased over 40 percent since March, just how many jobs did they create?   (Hint – there has been no NET job creation!)

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies

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