In our video, our researchers suggest one possible solution to bridge the gap between the wealthiest 10 percent of Americans and the average American family. There are many other solutions – what’s yours?
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Would Wealth Taxation be Sufficient? Evidence from a Dynamic Counterfactual Historical Simulation
Wealth stratification in the United States has risen to heights not seen since the Great Depression. Since 1989, the share of total wealth owned by the top 1 and 10 percent has risen by roughly 10 percentage points. As stratification has grown, policy proposals to address it have multiplied, with a principal proposal being the introduction of a highly progressive wealth tax. During their 2020 presidential campaigns, both Senators Bernie Sanders and Elizabeth Warren called for the introduction of a wealth tax of on average 2.5 and 4.5 percent on the top 99.8th and 99.9th percentiles, respectively, of the wealth distribution.
Via counterfactual historical simulation, this paper asks whether these wealth tax proposals would have been sufficient to
- curb rising stratification since 1989 and
- bring levels of wealth inequality in line with peer high-income countries (using France as the reference country).
To both of these questions, this simulation answers with a resounding ‘no.’ Rather, this paper shows that a much more aggressive wealth tax since 1989 – in terms of both tax rate and share of the distribution taxed – would have been required to stymie wealth concentration at the top and an even more radical wealth tax regime would have been required to bring wealth inequality close to levels seen in France, i.e., the peer country referent. These results strongly suggests that for the US to tend towards greater equality in the future, a much more radical wealth tax would be needed than the leading programs called for thus far.
Check out the list of recommended readings to learn more about possible solutions and approaches to addressing wealth inequality.
Wealth Inequality and its Consequences
- Emmanuel Saez and Gabriel Zucman. “The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts.” Journal of Economic Perspectives, 2020.
- Thomas Piketty. “A Brief History of Equality.” Harvard University Press, 2022.
- Fabian Pfeffer and Asher Dvir-Djerassj. “The U.S. Wealth Distribution: Off the Charts“. Socius, December 2022.
- Fabian Pfeffer and Robert Schoeni. “How Wealth Inequality Shapes our Future..” The Russell Sage Foundation Journal of the Social Sciences. 2016.
Wealth Redistribution Schemes: Wealth Taxation
- Asher Dvir-Djarassi. Would Wealth Taxation be Sufficient? Poster Presentation, 2023.
- Emmanuel Saez and Gabriel Zucman: The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay. W.W. Norton & Company, 2019.
Explore how a wealth tax would erode the wealth of the richest Americans (had it existed since 1982) through the Wealth Tax Simulator: https://taxjusticenow.org/wealthtax.
- Emmanuel Saez and Gabriel Zucman. Progressive wealth taxation. Brookings Papers on Economic Activity, 2019.
Wealth Redistribution Schemes: Inheritance Taxation
- Tax Policy Center’s Briefing Book. Who Pays Estate Tax? 2020.
- Larry M. Bartels. “Homer Gets a Tax Cut: Inequality and Public Policy in the American Mind.” Perspectives on Politics 2005.
Wealth Redistribution Schemes: Universal Capital Endowment
- Thomas Piketty. From Basic Income to Inheritance for All. Le Monde.fr. 2021.
- Bruce A. Ackerman and Anne Alstot. The Stakeholder Society. Yale University Press, 2000.
- Bruce Ackerman, Anne Alstott, et al. Redesigning Distribution: basic income and stakeholder grants as alternative cornerstones for a more egalitarian capitalism. Verso, 2003.
Wealth Redistribution Schemes: Baby Bonds
- Darrick Hamilton and William Darity. Can ‘Baby Bonds’ Eliminate the Racial Wealth Gap in Putative Post-Racial America? Review of Black Political Economy, 2010.
- Naomi Zewde. Universal Baby Bonds Reduce Black-White Wealth Inequality, Progressively Raise Net Worth of All Young Adults. The Review of Black Political Economy, 2020.
Wealth Redistribution Schemes: Reparations
- William A. Darity Jr. and A. Kirsten Mullen. From Here to Equality. University of North Carolina Press, 2020.
- Ta-Nehisi Coates. The Case for Reparations, the Atlantic. 2014.
- Naomi Zewde’s work, reports, and media
- Jasmine Simington and Erykah Benson. Reparations Brief. Collective Remembrance and Detroiters’ views Toward Racial Inequity. University of Michigan Center for Racial Justice, Detroit Metro Area Communities Study. March 2023.
If you have any questions or comments, please contact WealthInequality@umich.edu.