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A Painless Fix for America’s Budget Squeeze

An emergency 1 percent ‘wealth tax’ on the nation’s richest 1 percent could raise enough revenue to keep all our teachers on the job and libraries open. But our dysfunctional political system can’t even raise that possibility.

By Sam Pizzigati

Last year may have been the worst year, economically, that most Americans alive today have ever experienced. By the year’s end, one of every ten Americans couldn’t find work. Millions more, over the course of the year, lost wages and benefits — or both.

But some Americans, says an eye-opening global wealth survey released [1] last week, survived 2009 quite nicely. U.S. households that hold over $1 million in “assets under management” — a financial category that covers everything from stocks and bonds to money market savings — have essentially recovered almost all the ground they lost right after the 2008 meltdown.

Wealth shares [2]These millionaire households now hold over half of America’s wealth. In no other society outside the oil-rich Middle East, notes [2] a Los Angeles Times analysis, do millionaire households currently hold as large a share of their nation’s treasure.

Hard times for the vast majority of Americans, sweet times for an affluent few. We don’t need much more than these few words to rather aptly describe the state of our Great Recession nation.

These few words also sound like the makings for a ballot-box rebellion against America’s rich. Yet last week, in primary elections across the country, the enormously wealthy — and the politicians who carry their water — did just fine.

In California, two former excessively overpaid CEOs coasted to easy victories in the state’s GOP primaries for governor and U.S. Senate. In Arkansas, an incumbent Democrat who has consistently supported Bush-era tax giveaways to the super rich beat back an energetic labor-backed challenge.

So what gives? Do average Americans not care that the rich continue getting richer — at everyone else’s expense? Do Americans want the wealthy, come hell or high water, to stay on in the driver’s seat?

Maybe. But we certainly can’t draw that conclusion from last week’s balloting. In Tuesday’s primaries, precious few Americans bothered to vote. Polling day turnouts, from coast to coast, ran substantially below average.

That low turnout put actual voters at a premium. In California, the winner in the GOP gubernatorial primary, ex-eBay CEO Meg Whitman, spent [3] $71 million — of her own money — on her campaign. She paid, in effect, just under $59 for every vote [4] she received. Whitman’s prime competitor, mega millionaire Steve Poizner, spent just under $50 for each of his votes.

The U.S. Supreme Court appears to see nothing particularly unsettling about expenditures like these. Last week the high court suspended [5] an Arizona campaign finance law that attempts to level the playing field — with voluntary public financing — for candidates who come up against wealthy opponents.

This latest court ruling protecting the “rights” of the wealthy just compounds the cynicism that warps our democratic process. Many Americans, maybe even most, have come to believe that they have no real voice, that the rich and powerful, no matter what people of modest means may feel or do, will always prevail.

Against a fatalism this entrenched, history has taught us, only big and bold ideas ever generate real momentum for significant political and economic change. Back during the Great Depression, we had those big and bold ideas.

In 1933, for instance, a California doctor proposed that the government start sending $200 monthly checks to every American over age 60, with each check required to be spent within 30 days. The idea swept the nation and, by 1935, had created a political dynamic powerful enough to shove through Congress the original Social Security legislation.

Last week, amid headlines detailing the deepest state and local government budget cuts since the 1930s, a New York law school scholar offered up [6] a big and bold idea for our times. We need, says Hofstra University’s Leon Friedman, an emergency “wealth tax.”

In the United States today, we only tax one category of wealth, real estate. These “property taxes” subject the vast bulk of middle class wealth to annual taxation. Rich Americans hold the vast bulk of their fortunes in financial instruments of various sorts. This financial wealth, year after year, goes untaxed.

Hofstra’s Friedman, a distinguished [7] national authority on civil liberties, wants to change our current tax law — and subject the total wealth of the wealthy to an annual 1 percent tax levy by state and federal governments.

“Taxing the wealth of the very rich can reduce or even eliminate the large deficits facing the states and the federal government,” notes Friedman, “and thus insure that vital government services are not eliminated or cut during the current emergency.”

America’s wealthiest 1 percent entered 2010 with a combined net worth of nearly $20 trillion. If lawmakers in Sacramento subjected the California resident share of that net worth to a 1 percent wealth tax, the state would collect enough new revenue to offset the state’s current public service-killer budget shortfall.

signup [8]A comprehensive wealth tax already exists in other nations. In France, wealth over €790,000, the equivalent of close to $1 million, faces a graduated tax that rises to 1.8 percent on wealth in the top wealth tax bracket.

Friedman’s proposal would fix in place a U.S. version of the wealth tax for the next two years.  

“In the face of the stark financial problems facing the nation,” sums up Friedman, “our richest Americans can afford this modest demand on their wealth, since it was previous government programs that contributed to that wealth.”

Wealth tax proposals have, over recent years, popped up before [9]. But the small fortunes the rich plow into politics have so far kept these sorts of proposals totally marginalized and far off the nation’s mainstream political radar screen.

That could change — if big thinkers like Leon Friedman keep thinking. The hard times of the Great Depression opened eyes to proposals big and bold enough to give voters hope. Our Great Recession may yet have the same impact.

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue [10] or sign up [8] to receive Too Much in your email inbox.