It is heartening to see a wide variety of economists and policy wonks declaring the end of neoliberal austerity based on Joe Biden’s actions during his first 100 days as President. With the $1.9 trillion American Rescue Plan and the proposed $2.3 trillion American Jobs Plan, it looks like the long, long Reagan Revolution may finally be over. Reagan became popular by criticizing “tax-and-spend liberals” for “throwing money at problems,” but now the Biden administration has turned that around. They are proudly claiming the “tax and spend” mantel and rejecting the Republicans habit of throwing money at rich people.
Reaganomics theorized that tax cuts for the rich would spur investment and generate jobs and faster economic growth, all while paying for themselves. It was clear that no part of that theory worked even before Trump’s 2017 tax cut for corporations and the wealthy proved it beyond a shadow of a doubt. What was probably the first tax cut in history to be unpopular produced almost no new investment, and the wealth of the super-wealthy again ballooned. The American public has had it with throwing money at rich people in hopes they will create some jobs. Why not have the government tax the rich more fairly and spend that money on creating jobs directly?
This simple reversal of economic logic fosters hope for a future that is utterly different from the past four decades of economic stagnation, decline, and misery for the vast majority of the American working class. But so far, while Biden has been creative and bold in the spending part of his agenda, he’s been pretty timid in his approach to raising government revenues by reforming our tax system.
The tax increases Biden promised while campaigning would raise some $300 billion a year. The American Rescue Plan relies completely on borrowed money, which is appropriate for a stimulus plan, and the American Jobs Plan would increase corporate taxes, providing about $150 billion a year (over 15 years). Biden plans to introduce another public investment plan that will be in the trillion or two range (over 10 years), and the tax increases he promised in his campaign, on personal incomes above $400,000, would provide an additional $150 billion a year. But even with these substantial tax increases on corporations and rich individuals, Biden’s plans would still fall about $300 to $500 billion a year short of the spending he has promised and proposed.
So far, Biden has refused to endorse a wealth tax as proposed by Senators Warren and Sanders, and without that, he is going to have a hard time paying for all the promises he has made. The Warren-Sanders wealth tax would impose a 2% tax on net wealth over $50 million and 3% on wealth over $1 billion, producing about $300 billion a year in federal revenue. It would affect fewer than 100,000 taxpayers, a small fraction of our infamous top one percent, and it would not hurt those taxpayers too much. Since wealth passively produces income, the world’s richest man, Jeff Bezos, for example, would pay a wealth tax of $5.3 billion on his $177 billion net worth, but if he made only a 5% return on his billions in investments (and he’s been doing a lot better than that recently), he would end up with $180 billion after paying his wealth tax. That’s right: Bezos would come out $3 billion ahead for doing nothing. He’d earn even more for whatever work he actually does.
Thus, the Warren-Sanders proposal is relatively modest, affecting very few people without harming their life prospects, but even such a modest proposal produces a lot of revenue. So why wouldn’t President Biden go for it? The arguments against a wealth tax are relatively insubstantial, and Biden has got to know that. My guess is that he also knows that any wealth tax, no matter how modest, will initiate an underground, one-sided class war that will divide his own party, flood Republicans with campaign money, and ultimately be fought out in a Supreme Court that is the mirror image of blatant ruling-class judgeship prior to the New Deal.
The most substantive argument against a wealth tax is that super-wealthy people will leave the country and/or move their money, but the Warren-Sanders bill has installed disincentives to make this less likely. The least substantive argument is that a wealth tax would be impossible to enforce and administer. But since so few people would be affected, we could have a half-dozen IRS auditors completely devoted to each ultra-millionaire and still generate $300 billion in revenue.
Some claim that a wealth tax would reduce economic growth and kill jobs, but that ignores the positive effects of government spending. The negative impact of a tax on the wealthy, and especially on the super-wealthy, is relatively small, while the positive impact on economic growth of almost all government spending, but especially that benefitting lower-income people, is from three to five times greater.
Finally, some argue that a wealth tax is unconstitutional. Senator Warren has strong scholarly support that such a tax poses no Constitutional problems, but a few arcane legal arguments on the other side may be strong enough to reach the Supreme Court. And even the strongest Constitutional arguments for a wealth tax are unlikely to move what is now the most business- and investor-friendly Supreme Court since the 1920s.
And that’s only the most visible part of the underground one-sided class struggle the rich and their allies would wage. At least some Democrats and many Republicans are dependent on rich donors who will oppose the tax on principle – either because they would have to pay it or, more importantly, because they fear it would inevitably be expanded. Behind-the-scenes politicking already makes it hard to get Congressional attention for the idea, despite Warren’s and Sanders’ efforts. But given its popularity among a large majority of the public, a presidentially proposed wealth tax to pay for a host of very popular programs could produce a two-sided, highly public class struggle that can change political dynamics, even for the Supreme Court.
I would not second guess Joe Biden’s political judgment in managing 2021’s vanishingly thin Congressional majorities. But neoliberalism will not die in the U.S. until we address our wealth inequality. Since the Reagan Revolution, corporate and personal income taxes have been severely jiggered to distribute money to the rich, and Biden clearly wants to reverse some of that. But 40 years of redistributing income to the top 1% has led to a juggernaut of wealth inequality that will proceed on its own even if we have fair and progressive corporate and income taxes. Wealth held by the super-rich is where the money is, and if we are unable to tap even a small portion of it, we will have to trim our promises and prospects or raise politically unpopular taxes on the rest of us. In the absence of a devastating pandemic and economic depression, the power of wealth will eventually be able to nudge, push, and march us back into neoliberal austerity. If Joe Biden really wants to be a transformational president, he will include the Warren-Sanders wealth tax among his pay-fors, if not this year, then next.
Jack Metzgar is a professor emeritus of Humanities at Roosevelt University in Chicago. A former president of the Working-Class Studies Association, he is the author of a forthcoming book from Cornell University Press, Bridging the Divide: Working-Class Culture in a Middle-Class Society.