Illustration by Mariam Diab.

Stop Vilifying the Rich, A Wealth Tax is not the Solution

The U.S. has a spending problem, not a revenue problem. The government sustains prolonged deficits because it spends too much, not because rich Americans are taxed too little.

Sep 26, 2021

Like every year, this year’s edition of the Met Gala stirred controversy. Ranging from Kim Kardashian’s bizarre all-black bodysuit to Whoopi Goldberg’s six-layered Valentino couture gown, eminent celebrities reveled in the attention they received around the globe. However, the highlight that unequivocally defined the gala this year was Congresswoman Alexandria Ocasio Cortez’s “Tax the Rich” gown. The dress triggered eye rolls across the political spectrum. While Republicans relished the political fodder, labeling her a “hypocrite” many from her camp did not remain silent either. Many progressive Democrats retorted that her attendance undermined the progressive movement by transforming it into an empty spectacle.
Nevertheless, the dress has reignited debate over the hot button issue of taxation. The “Tax the Rich” movement has been prevalent in the U.S. for quite a while but gained traction after Bernie Sanders' wealth tax proposal during the 2016 U.S. presidential election. There are three common justifications for a wealth tax: restoration of fiscal fairness, bridging wealth disparities and drawing in capital to resolve the issue of skyrocketing deficits. These seem like valid reasons. However, a wealth tax fails to attain any of these goals.
The foremost reason for this is the administrative inefficiency inherent in estimating wealth. With the advent of the 21st century, hiding financial assets by converting them into assets that are difficult to value is a piece of cake. Intra-family loans and the use of intentionally defective grantor trusts can be cited as plausible ways of circumnavigating a proposed wealth tax. By encouraging economic actors to evade taxes, the wealth tax has a perilous effect on the economy as it reduces the return on investment and capital accumulation, which in turn inhibits economic growth.
France can be epitomized as a stellar example of this phenomenon, which in the 1980s, under the left-wing government of Francois Mitterrand imposed a wealth tax known as the ISF(impôt sur la fortune). According to its provisions, tax rates of 0.5 percent and 1.5 percent were imposed on those with a net worth of more than €1.3 million and those with assets worth over €10 million respectively. The revenue generated was negligible, however, the tax led to a massive exodus of the wealthy. Subsequent governments have tweaked the structure of the tax over the years to try and address this capital flight. In 2012, President Francois Hollande implemented a “supertax” that imposed a levy of 75 percent for incomes of €1 million. This compelled Bernard Arnault, the richest man in France, to acquire Belgian citizenship and move the operations of Louis Vuitton to Brussels, Belgium. This effect can already be seen within the U.S. as wealthy Americans and Silicon Valley tech giants are sketching plans to migrate from California to tax lenient states like Texas and Tennessee. It is not astonishing that most European countries chose to repeal this tax, internalizing the lessons learned from the French. In the 1990s, there were 12 countries in Europe categorically levying a “wealth tax,” but as of today, that number has dropped to three.
Reducing marginal tax rates on income can encourage companies to invest domestically rather than abroad. Tax breaks for research can stimulate innovation which spills over to help the broader economy. Something that begins as a hobby for the rich, breeds a competitive culture causing it to become cheaper and cheaper until a middle-class existence is defined as being impossible without one. This attribute is part and parcel of a phenomenon known as “trickle-down economics” that subdued the effects of the 1980s recession during the Reagan administration.
According to the latest figures by the Tax Foundation, the top one percent paid a 25.4 percent average individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent. The income tax burden of the rich has never been higher, redistribution of wealth is [at its prime] ( and over 50 million Americans do not pay the income tax owing to deductions and subsidies. Despite this, Democrats persist in calling for higher taxes.
Currently, the U.S. is a breeding ground for economic malady due to punitive taxes on the rich and an environment that actively inhibits meritocracy. A wealth tax is an incendiary ploy that ends up being counterproductive. The issue of income inequality should unquestionably be tackled. However, implementing a wealth tax is the least efficient way to achieve this goal.
Anna Pryce is a Contributing Writer. Email her at
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