Is A Wealth Tax the Answer to Inequality in America?

One professor says the current levels of inequality amount to a new gilded age. But what proposals could actually lead to a solution?

With a presidential election on the horizon, 2020 is set to be a year full of political discussion and debate.

Detroit Today with Stephen Henderson is here to help define the key terms and unpack all the wonky policy proposals. In our new series, “Defining 2020,” Stephen will talk to experts about what you need to know to have an educated conversation about politics.   

The rich are getting richer and the poor are getting poorer. This has become a common refrain among certain politicians in recent years. While inequality has always existed, most experts agree economic disparity has become a pressing issue in America. 

Daniel Shaviro, Wayne Perry Professor of Taxation at New York University, and Timothy Smeeding, Lee Rainwater Distinguished Professor of Public Affairs and Economics at the University of Wisconsin- Madison join Stephen Henderson to talk about economic inequality, the wealth tax, and what can be done to remedy this growing problem of income inequality. 

Click the player above to hear the conversation about the wealth tax and income inequality, and see the definitions below.

Wealth Tax 

Fellow Senators and Democratic presidential candidates Elizabeth Warren and Bernie Sanders have both proposed the idea of a wealth tax as a means to address the disproportionate amount of wealth at the top of the economic spectrum. So what is a wealth tax? Danielle Kurtzleben of NPR says, “It’s an annual tax on the net wealth a person holds — so, their assets minus their debts. Not just the income they bring in each year.” What would a wealth tax do to remedy inequality? Shaviro says there are massive obstacles to getting such a policy enacted. He says it would take a big act of political will and would most likely be ruled unconstitutional due to do the current conservative-bent of the Supreme Court. Shaviro adds that what is happening at the top of the socio-economic ladder is distinct from the issues plaguing those at the bottom. While a wealth tax may address the excessive wealth concentrated at the top, it is not a simple antidote to inequality as a whole. 

Wealth vs. Income Inequality 

Timothy Smeeding asserts that when thinking about inequality it is important to understand wealth and income as two separate ideas. Wealth is key to the inequality discussion, Smeeding says, because it provides people with a cushion at consequential life moments- like when a parent covers college tuition or floats a child money for their first apartment in a new city. These crucial loans provide the privileged with unique opportunities to succeed and these transfers often aren’t captured in traditional economic assessments. Smeeding insists generational wealth is not necessarily about inheritance, but rather these consequential transfers of wealth. 

What’s Next? 

What can be done to diminish inequality? Shaviro and Smeeding both look beyond taxation and toward health care and education reform. Yes, a change to the tax codes could help in certain areas, but both experts say that accessible health care and higher education could radically change the lives of many working Americans. 

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