In many parts of the world, inequality is spiraling out of control. The basic facts have become depressingly familiar.
In the United States, the top 0.1 percent now control about the same amount of wealth as the bottom 90 percent of the entire population. Globally, the richest eight individuals possess as much wealth as half the entire planet.
The United States could completely eradicate homelessness by taxing away just 2 percent of the wealth of a mere two billionaires, Jeff Bezos and Bill Gates. If we redistributed 2 percent of the wealth of all the world’s billionaires, leaving completely untouched the wealth of well over 99.9 percent of the world’s population, we could eliminate extreme poverty entirely. Billionaires, meanwhile, would likely not even lose any money in the process since they typically earn more than 2 percent annually off their wealth.
Despite stats like these, the same old objections resurface again and again, like ideological zombies, whenever anyone dares suggest a redistribution of grand fortunes.
The first of these objections: Reducing inequality remains simply impossible because the rich will always be able to avoid paying any new taxes levied upon them. The second: Even if we could raise taxes on the rich, we shouldn’t — because the costs to society always outweigh any benefits. And the third objection: The rich, morally speaking, deserve their good fortune.
I’ve been hearing these arguments my whole life. Does any evidence stand behind them? To find out, I spent over five years sifting through mountains of research, determined to keep an open mind and a non-dogmatic attitude. The result: a just-published book, Against Inequality: The Practical and Ethical Case for Abolishing the Superrich.
What did I find?
First, the rich regularly do maneuver to avoid paying their taxes. But any government serious about making them pay their fair tax
share can effectively tax them. Governments have a wide array of viable measures they can readily implement. Governments can, for instance, close loopholes and hire more auditors. They can require banks to immediately report major income spurts to tax authorities.
Governments can also increase the severity of the penalties for tax evasion. Rich people currently face little more than a slap on the wrist when they shortchange Uncle Sam. Poor people, by contrast, go to jail for stealing far less money.
If we reversed that reality and had the rich actually face the prospect of real jail time, you can bet we would almost certainly see far less tax evasion in America’s corporate boardrooms.
And all those accountants and lawyers who actually do the tax avoiding for their rich clients? We could begin a serious effort to also hold them criminally liable for helping rich people use tax havens to avoid paying their fair tax share.
All of this could be possible. Many countries, the historical record shows, have successfully implemented stiff tax rates, with the United States one of them. During World War II, the U.S. federal tax rate on income in the top tax bracket hit an astonishing 94 percent. Top tax rates in nations like the UK, Sweden, and Denmark surpassed 90 percent into the 1970s. Overall, the top U.S. tax rate averaged 81 percent for nearly half a century, from 1932 through 1980.
What about the claim that the costs of taxing the rich outweigh any benefits? The evidence shows the exact opposite: The benefits from high taxes on the rich — and low levels of inequality — run far greater than the costs, a different order of magnitude altogether.
High taxes do, to be sure, come with some costs. But these seldom amount to much. Take, for instance, the argument that rich people will respond to high taxes by working less. Precious little evidence supports this contention. Does anyone really believe that, say, Lebron James would quit playing basketball if he faced a higher tax rate? Many high-earners do not work simply for the money. They find motivation in status, power, and prestige — and even sometimes in a love of what they do.
The most serious argument against high taxes on the rich may well be that they reduce private investment. But seriously taxing the rich doesn’t necessarily reduce investment. In many cases, high tax rates simply re-arrange investment. If the state collects taxes and then spends that money in productive ways, the economy will grow. Indeed, the state-of-the-art evidence shows that high inequality, all things considered, actually tends to reduce an economy’s overall growth rate.
So much for the costs of significantly taxing the richest among us. What about the benefits? Five stand out.
Our environment. The richest 20 individuals emit 8,000-times more carbon than our Earth’s poorest billion people combined. Redistributing a portion of top wealth to invest in things like public transit would directly reduce emissions and help build a desperately needed low-carbon infrastructure.
Our democracy. Inequality erodes democracy. In the United States, as the political scientists Martin Gilens and Benjamin Page have noted, the majority “does not rule – at least not in the causal sense of actually determining policy outcomes.” Democracy has disintegrated into oligarchy.
Opportunity for all. Inequality makes a mockery of the equal opportunity we claim to value. The poorest residents of Chicago today face a life expectancy fully thirty years shorter than the richest. High redistributive taxes could reverse this most brutal of disparities.
Reduced xenophobia and racism. Right-wing populism typically grows hand-in-hand with economic insecurity. We can reduce that insecurity by taxing the rich to fund free public services, a stronger safety net, and perhaps even a guaranteed basic income.
Reduced social friction. Reducing inequality, the evidence also shows, builds community health and cohesion. Reducing inequality encourages greater levels of trust and tolerance, better mental health, and less crime. That said, I did find one area where my initial suspicions didn’t hold up. The jury remains out whether inequality clearly shortens life expectancy.
One final issue: meritocracy. Do the rich genuinely deserve their immense fortunes?
The standard answer from the left: We have nothing close to a level playing field. Inheritances, well-endowed private schools, and all sorts of other advantages give the rich a huge and unfair head start. The poor inherit all kinds of disadvantages, from poverty to sexism and racism.
True enough, but the most basic problem with meritocracy goes even deeper. High levels of economic performance never come from solo efforts. All production, at root, rests on a fundamentally social and collaborative process. We’re always standing on the shoulders of the people who have come before us.
All market production relies on what I call the understructure, the background human and environmental labor and care that make it possible for production to happen in the first place.
Microsoft’s Bill Gates benefited from a network of parents and teachers who cared for and socialized him. He benefited from the safe, clean, and peaceful communities that he lived in, from the generations of scientists and computer engineers who created the vast intellectual edifice that he built upon, as well as the countless ancillary workers and caregivers who supported those scientists and engineers.
Gates also personally benefited from a legal infrastructure making possible copyright protection as well as “shareholder primacy” laws that let him appropriate the bulk of the value his workers created while simultaneously depriving those same workers of any say in firm governance. Gates did not create the vast and productive understructure of the American economy and so doesn’t deserve the rewards that flow from it.
Overall, I calculate that approximately 99 percent of the income of the top 1 percent cannot actually be attributed to the individual effort or talent of rich individuals. The true source of 99 percent of their wealth: other people’s labor, a reality that makes their wealth overwhelmingly undeserved.
“Meritocracy” has within it a still deeper problem. All our talents and efforts reflect forces beyond our control. We don’t choose to have the bodies that we have. We don’t choose our own personality or intelligence or disabilities. Yet such things massively impact our capacities. Meritocracy essentially declares that those who, by no fault of their own, have bodies and minds less strong and smart than others rightly deserve worse lives. This truly noxious assumption leads us to reward some and punish others for their random luck.
A good society should jettison talk of “deservingness.” The socialist historian Howard Zinn had it right: “Give people what they need: food, medicine, clean air, pure water, trees and grass, pleasant homes to live in, some hours of work, more hours of leisure. Don’t ask who deserves it. Every human being deserves it.”
We do not need the awesomely rich. In fact, we’d be far better off without them.
Tom Malleson is an associate professor at King’s University College at Canada’s Western University. He is the author of Against Inequality: The Practical and Ethical Case for Abolishing the Superrich (Oxford).