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The Simple Solution to Fixing Inequality

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The vast inequality in wealth among Americans is one of the most serious economic problems facing the country, but there is a very simple solution: a wealth tax.

The top 1 percent of Americans have more wealth than the bottom 95 percent, and that gulf is growing. Those in the top 0.1 percent have doubled their share of the country’s wealth over the past four decades, from about 10 to 20 percent of all wealth. A wealth tax could blunt this inequality and fund a more just and humane society.

In the eyes of the government, the wealthy are not like us. The vast majority of Americans earn their income by slogging through jobs. According to tax law experts Lily Batchelder and David Kamin, the bottom 95 percent of income earners make 80 percent of their income from wages and salaries. In contrast, the top 1 percent earn just over half their income this way, and that number drops rapidly as you go up the ladder. For those making over $53 million a year, or the top 0.001 percent, only 10 percent of their income comes from jobs. For these high-​income individuals, their money comes overwhelmingly from capital gains and dividends. That means they also face a lower top tax rate than high-end wage earners.

In order to avoid paying taxes, the rich are able to claim how, when, and where to declare their income. They can hide their wages as corporate profits or financially engineer them into dividends or other types of capital income, which are taxed at lower rates. This alchemy of turning one kind of income into another has been turbocharged by the Trump tax cuts, which are very generous to people who claim to make their income from their own business rather than from a salary. By choosing when and where to declare their income, the wealthy can also manipulate profits and losses across different kinds of investments or squirrel their fortune across various tax havens. Batchelder and Kamin found that millionaires face a tax rate between 0 and 40 percent, depending on how they classify their income.

Senators Elizabeth Warren and Bernie Sanders have proposed wealth taxes, with Warren’s taxing 2 percent of wealth for those worth over $50 million and 3 percent after the first $1 billion. Sanders’s plan would levy a 1 percent tax on households worth more than $32 million, with higher tax rates for the wealthiest—up to 8 percent for those with fortunes in excess of $10 billion.

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