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If governments do raise taxes on wealth, what should be done with the revenues?

January 18, 2018   3 mins

Are the rich getting richer? They certainly are in America, according to Matt Bruenig in the  New York Times:

“The wealth of the top 1 percent increased by an average of $4.9 million over the past decade, while the average holdings of the bottom 99 percent declined by about $4,500. Wealth inequality is now the highest it has been since the Federal Reserve began collecting this kind of data in 1983.”

Breunig, however, has a solution – a sort of sovereign wealth fund that he calls a “social wealth fund”:

“Here’s how it could work. The federal government would create and run a new investment fund, and issue every adult citizen one share of ownership. The fund would gradually come to own a substantial and diverse portfolio of stocks, bonds and real estate. The investment return that the fund generates would be paid out to each citizen in the form of a universal basic dividend, and the shares would be nontransferable to preserve the institution’s egalitarian purpose.”

I’m sure we’d all like a piece of that, but how much would it be worth?

“If, over time, the social wealth fund came to own one-third of the country’s wealth, that would allow it to distribute an annual dividend equivalent to about a third of the total returns on invested capital each year, which represents about a tenth of net national income. In 2016, based on the latest available census population figures, that would have meant around $6,400 paid to all adults or $8,000 paid to every person between the ages of 18 and 64.”

That’s not nearly enough to live on (and why exclude children?), but nevertheless a substantial sum – one that might provide people with greater confidence to come off welfare, switch jobs or start their own business.

It might also give governments a new way of managing the economy – by upping the “universal basic dividend” at times of low consumer confidence, and dialling it down when the economy shows signs of overheating.

Breunig notes that the “key challenge in building a social wealth fund is not how to run it once it has been created, but how to bring assets into the fund in the first place.” Well, yes.

His ideas for capitalising the fund include the following:

“…the transfer of existing federal assets like land, buildings and portions of the wireless spectrum into the new fund… increases in taxes on capital that affect mostly the wealthy such as estate, dividend and financial transaction taxes and the creation of a new type of corporate tax that requires companies to directly issue new shares to the social wealth fund on an annual basis and during certain corporate moves such as initial public offerings, mergers and acquisitions.”

In other words, he wants to tax the wealth of the individuals and corporations that have already got a lot of it. If we are to introduce or increase wealth taxes, then a social wealth fund might be the best way to deploy the revenues.

There’s always something a bit iffy about liquidating assets to pay for current expenditure (retirement being an obvious exception, though one that applies to individuals not nations). There may be a case for greater redistribution of wealth, but it ought stay as wealth.

One could argue that using the proceeds of wealth taxation to reduce national debt would be a better and simpler option. After all, getting rid of a liability is equivalent to acquiring an asset – and a lot less fiddly.

Unfortunately, the hard work of debt reduction is easily undone. A government that pays the political price of spending restraint may be replaced by one that pushes debt back up again to pay for bribes to the electorate.

A social wealth fund, based on an equal share for every citizen, would be much harder for governments to raid – both politically and, if properly established, legally.

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.


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