Property-Owning Democracy

More on the idea of a Property-Owning Democracy from Thad Williamson and Martin O’Neill.

The focus on assets rather than income is, I think, misplaced. First of all, unless the rich have a much larger marginal propensity to consume than the poor, income inequality will always lead to wealth inequality. If I make $10 million and you make $100,000 and we both spend 80% of our income, then I have $2 million dollars in assets at the end of the year and you have $20,000. In fact, the MPC is likely to be lower for the rich than the poor, so that income inequality leads to higher wealth inequality.

So why tax income rather than wealth? Mainly I think it has to do with expectations. I own my wealth (if I had any) and I don’t expect it to be taken away. If it is likely to be expropriated, I will reduce my savings which may have bad long-run macroeconomic consequences. And while an estate tax, at the end of life, will go some ways towards reducing wealth inequality, I don’t believe that is our main problem. As I said in the last post, most of the richest, most influential people are not the Rockefeller and Morgan heirs, but the people who have made most of their money in their lifetime.

Better to treat all income equally and have a high marginal tax rate at the top. If you have a fortune of $100 million that produces $8 million a year, you are going to face marginal tax rates on the last $3, $4, or $5 million of 60-70% (or more). That, in and of itself, should reduce the incentive to accumulate too large an estate.

Outside of the wealth-income dichotomy, there seems to be a lot of support in Rawls and others who espouse similar ideas, for large-scale campaign finance reform.


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