If you’d win $1 million every month and had every expense covered, it would still take you over 80 years to become a billionaire.
The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, 1st Edition.
by Emmanuel Saez & Gabriel Zucman
232 pages // W. W. Norton & Company
Buy on Amazon
After an evening of playing board games, as we were heading back home, I told one of my friends I’m reading an economics book.
“What’s it called,” he asked.
“Why the rich dodge taxes,” I said — to which he immediately started laughing.
“Why does the bear sh*t in the woods?”
The friend in case happens to be an economics professor, but most people would tell you something along the same lines. The rich dodge taxes because well, they can, and they have something to gain from it. We’ve grown so accustomed to the idea that the ultra-rich (people whose net worth is in the billions) dodge taxes that we don’t even bother with it. It’s the ‘natural’ course of things, just like the bear in the woods.
But many economists, including Emmanuel Saez and Gabriel Zucman, do bother with it.
They argue that the way we pay taxes is injust. Many different states and countries reap taxes in different ways, but it mostly boils down to three categories:
- Value-added taxes (VAT);
- Income tax;
- Wealth tax.
VATs are levied on products — either when it is produced, distributed, or on sale. Income taxes are, as the name implies, based on how much someone earns. But how about the people with a huge net worth that doesn’t come from income?
Take Elon Musk, for example. The CEO of Tesla is estimated to be worth over $40 billion, and his net worth is expected to skyrocket in the near future. There are even some estimates which put Musks’ unofficial net worth, as the owner of Tesla, at over $400 billion. Musk declines his salary — a minimum CEO wage of $56,000 per year. Therefore, he pays no income tax.
Musk, like most other billionaires, does pay some taxes, but those taxes are disproportionately low. His example is not necessarily striking in itself, but it is indicative of a bigger problem.
In the US, like in all other countries, you pay taxes on what you earn. The US tends to have a progressive taxation rate — meaning that the richer you are, the more you pay in taxes. That’s generally true for most social categories, but it breaks down when you get to the very, very rich.
The ultra-rich are the billionaires — not the ones who own a few houses and fancy cars, not even those making millions a month. It’s virtually impossible to become a billionaire by income alone. Take even the highest-paid athletes, the ultimate stars, and you’ll only find a handful hovering around the one-billion mark. Even the highest-paid actors almost never reach $1 billion.
Billionaires are, almost exclusively, businessmen. Their net worth is typically connected to how well the company (or companies) they lead is doing, and it’s not exactly a lump of cash — it’s an intricate and often hard to calculate value — but it is, nonetheless, a value, Zucman and Saez argue.
How could it be taxed? Through a marginal wealth tax — basically, taxing everything that goes over 1 billion.
The American tax rate has always been progressive, which means that the rich are, by default, supposed to pay more in taxes than the poor. However, the progressive tax employed by the American government covers income taxes. A wealth tax of, say, 1%, would account for all of that.
It’s easy to understand how some could interpret this as extreme.”Communism,” a one-star Amazon review of the book reads. “This is simply a book about communism.”
But surprisingly, the tax would barely make a dent in America’s billionaires; most would see their net worth increase nonetheless, though at a slower rate. Of course, this would require carefully-planned and coordinated implementation, but it would not harm economic competition or development. As the two authors explain, it would simply work to implement a rightful tax on assets that are largely untouchable. It would bring fairness, ensuring that America’s richest also pay their dues.
Such a tax would only affect a few hundred people in the US. But, as recent reports have shown, the world’s billionaires are worth more than the poorest 4.6 billion people on the globe (60% of the world’s population) combined. While it would only cause a minor dent in a few peoples’ net worths, it would raise considerable funds for education, healthcare, and economic development. It would do nothing to stifle progress, quite on the contrary: it would discourage unfair practices.
This is more than just a take on economics. Wealth is power, and an extreme concentration of wealth means an extreme concentration of power — the power to influence government policy, for instance. The power to eliminate competition, often at the expense of consumers and tax-payers. It is only natural that some people will be richer than others, and some will be very rich — but there is a point at which extreme inequality becomes a threat to democracy. Thankfully, a wealth taxing mechanism would also address that issue.
Of course, planning such a thing and actually doing it are two very different things. The book goes into great detail about how this could be done and how likely it is to happen. The arguments are presented in a clear and straightforward fashion which can be easily understood by people without a specialized background. This is not a book aimed at economists — it’s aimed at taxpayers.
I’d recommend the book to anyone with a slight interest in economics, or even with an interest in how the world functions. It’s an intriguing work that presents some challenging solutions, and it’s very timely at that. It’s no coincidence that two people with real chances of becoming US President (Elizabeth Warren and Bernie Sanders) have put forth plans for a wealth tax. Saez and Zucman present compelling arguments, and we’d be wise to at least consider them.