Inequality of income and wealth

Inequality has become a hot topic in recent decades.

From the conclusion of WWII to the 1970s, the United States saw significant economic development and widespread prosperity. President Ronald Reagan, on the other hand, decreased taxes on the wealthy twice in the 1980s, lowering the top wage rate from 70% to 28%.

According to studies, the reduction in tax rates, when paired with other “trickle-down” policies like deregulation, resulted in increased income and wealth disparity.

In 2016, the richest 1% of the population controlled 39% of all wealth, up from less than 30% in 1989. At the same time, the bottom 90% of the population owned less than a quarter of the country’s wealth, down from more than a third in 1989.

The issue with a wealth tax is that it is regressive.

Warren’s proposed wealth tax tries to correct this. According to University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman, her tax on estates worth more than $50 million would affect an estimated 100,000 families, or less than 1 in 1,000. The tax would not go into effect until 2023.

A wealth tax, unlike an income tax, gets to the source of both wealth and income disparity.

There’s just one problem: some argue that a federal wealth tax is unconstitutional. Wealth taxes are in violation of the United States Constitution’s Article I, Section 2, Clause 3, which prohibits the federal government from levying “direct taxes” that are not distributed equally among the states.

A direct tax is a tax imposed on a specific item, such as property or income. A tax on a transaction, such as a sale or a gift, is known as an indirect tax.

The income tax is a direct tax that is constitutional due to the 16th Amendment, which permits income taxes to be levied without regard to apportionment. When it comes to property, you’ll find that real estate taxes are solely imposed by states. The federal government cannot tax real estate or any other form of wealth in almost all cases unless there is a transaction.

There are two more proposals.

In 2019, two more proposals to tax the wealthy surfaced. Rep. Alexandria Ocasio-Cortez of New York proposed a new “60 percent to 70%” tax band on income over $10 million obtained from labour. Her strategy, she claimed, would catch 4,000 people and raise $720 billion over ten years.

One flaw in that theory is that the wealthy can avoid or reduce the tax by deciding when they receive their money. The second reason is that the wealthy make the majority of their money from capital gains, which are taxed at a far lower rate than wages.

Vermont Senator Bernie Sanders, who has now joined on to Warren’s idea, recommended going after wealth in 2019 but only when it was transferred to another person – which is what makes it lawful. He sought to cut the inheritance tax threshold from $11 million – which affects only 1,000 estates per year – to $3.5 million, which was the level in 2009. He’d also impose a new 77 percent tariff on estates worth more over $1 billion. Sanders estimates that his plan will generate $315 billion in revenue over the next ten years.

Despite the fact that it would raise substantially less money than his colleagues’ suggestions, it is far preferable since it addresses the basis of the problem – wealth disparities – and can be implemented right away. It also wouldn’t be a constitutional issue.