Powers to Destroy
There is no clearer evidence of the urgent need for a Wealth Tax than the attempt by mega-donors to sway Kamala Harris away from progressive tax reforms.
Donors Quietly Push Harris to Drop Tax on Ultrawealthy. That was the headline that the New York Times ran a few hours after I posted last week's piece about the need for Democrats to promote a 28th Amendment if they are serious about a Wealth Tax. “Donors to Vice President Kamala Harris’s campaign are pushing her to reconsider supporting a proposed tax on the wealthiest Americans, as some Wall Street and Silicon Valley executives try to reshape the Democratic nominee’s governing agenda,” the Times reported. Disappointing? Yes. Surprising? Not really. Days before the New York Times story hit, Politico ran a similar article on Harris’ anti-price gouging plan, claiming that behind closed doors Democrats were reassuring food executives that the plan was just a bit of election season grandstanding with no hope of passing in Congress. Considering the even higher Constitutional hurdles to be cleared by a tax on unrealized capital gains, no one will be shocked if Kamala’s “Billionaire Tax” is little more than a convenient populist talking point that will fade from memory after November 5th. Still, the back channel negotiations swaying the Harris campaign away from the Billionaire Tax provide a glimpse into the very meaning of wealth in the 21st century and its unhealthy relationship with those seeking the highest heights of political power.
To better understand the impact of a Wealth Tax let’s indulge for a moment in a flight of right-wing fantasy. The year is 2029 and Kamala Harris has been reelected with a Democratic House majority and filibuster-proof 64-seat majority in the Senate. In a matter of months, packing of the Supreme Court is complete, with nine of the fifteen justices now aligned with President Harris’s hard-left second-term agenda. To pay for ambitious social programs and punish billionaire critics of the regime, the Democrats pass a one-time People's Tax, a 99% percent Wealth Tax levied on a handful of the wealthiest “enemies of the people.” Public Enemy #1 is Elon Musk, who finds the federal government delivering a tax bill of $198 billion levied against his $200 billion fortune. To pay his tax debt, Musk relinquishes control of X (with the “everything app” becoming a state-controlled public utility). The assets of Space X are seized and transferred to NASA. Unfortunately, news of the impending People's Tax sends Tesla’s stock price tumbling, and the liquidation of Musk's 20% stake in the company barely raises $50 billion after he pays off creditors who provided a line of credit secured by shares in the company. Given his relatively spartan lifestyle, Musk has few other hard assets to sell. With his $198 billion tax bill unpayable, even after liquidating all assets, the government presents an offer-in-compromise allowing Musk to keep his Austin home and a U.S. Treasury account holding $1 billion in central bank digital dollars.
This extreme example is nothing but pure fiction. Any sane person knows the Democrats are not the secret Marxists the Republicans have been warning us about for decades. Even if some Democrats were closet left-wing extremists, the reassurances to big donors over Kamala's Billionaire Tax and the proposed Price-Gouging crackdown proves the impossibility of even moderately progressive policy advancing in a time when money is a form of protected speech, corporations enjoy all the rights of citizens and both parties track quarterly donations more fervently than election polling.
Harris’s Billionaire Tax or even the more ambitious 28th Amendment Wealth Tax we sketched out in last week’s column would come nowhere close to the 99% People's Tax scenario in impacting ultrawealthy elites like Elon Musk. The point of this extreme example is to illustrate both the potential and the limits of a Wealth Tax in reshaping our economy and society. Here are a few quick observations gleaned from this extreme theoretical exercise.
Value of Assets and Wealth Destruction
At first glance, there is a lot to like in this example for critics of the Wealth Tax. A forced sale of Musk's Tesla stock initiated by the People's Tax would trigger a dramatic drop in shareholder value. Musk will lose more than $120 billion, but the impact is not only felt by the billionaire. The consequent drop in Tesla’s share price will also vaporize tens of billions of dollars in the pension funds, 401(k)s, IRAs, and individual investment accounts of everyday Americans. To make matters worse, although the government gained some hard assets and valuable IP from seizing X (formerly Twitter) and Space X, the Tesla stock sale netted only $50 billion for the U.S. Treasury. If the government directly distributed this money to the general population each American would receive little more than $150. If the government used the money to rein in deficit spending it would not even cover a month of interest payments, let alone put a dent in the national debt. From a superficial perspective, the People’s Tax is a case of wealth destruction on a grand scale, with little to show for it in terms of public benefit.
Impact on Material Conditions
Criticism of the Wealth Tax based on wealth destruction relies on the assumption that this wealth was real in the first place. Before we wade into the murkier, philosophical question of “what is wealth” let’s take a moment to ponder the impact on the material world caused by imposing the People’s Tax on Musk. In 2020, Musk announced he was “selling almost all physical possessions.” Even if hit by our fictional Peoples Tax, Musk would be left with $1 billion in liquid assets, way more than it would take to maintain his current standard of living and pamper his 11 offspring (at least those he hasn’t declared dead and presumably disinherited).
While Musk and his progeny will still be lavishly well off, those who would face the most material harm are the average Americans whose retirement savings could be decimated by a collapse in the price of the “Magnificent Seven” tech stocks (including Tesla) that now account for 30% of the entire value of S&P 500. Any government advancing this People Tax would be smart to use its proceeds to make whole those close to retirement with little hope of seeing the value of their savings recover. But for the rest of Americans, liquidating the tech oligarchs from their enormous ownership positions in companies like Meta, Nvidia, and Alphabet would provide a buying opportunity for those who feel they have missed the boat on a chance to build wealth through stock ownership. Also, given the underwhelming performance of a stock like Tesla under Musk’s increasingly erratic leadership, liquidating his ownership and ousting him as CEO might prove a positive for the company’s valuation in the long run.
As for the broader American economy and society, the question of how the People’s Tax would materially affect the country depends on what the government decides to do with the cash and assets it seized from Musk. Most of Musk’s wealth is immaterial, so unlike left-wing expropriations of the 20th century, there are no manorial estates to divide up into collective farms or large seaside villas to divide into proletarian apartments. There is mainly just cash to be used by the government. As we said earlier, $50 billion is not much when divided equally between all American citizens. But $50 billion is on par with the amount spent to incentivize the onshoring of semiconductor manufacturing through the CHIPs Act and more than the $40 billion Kamala Harris has pledged to encourage the construction of 3 million new homes. So the question is ultimately whether our material well-being would be better served by Musk or our government deciding how this money will guide economic development. Free enterprise fundamentalists would say that Musk would always outperform our government in economic planning decisions. But the current status of Tesla's Cybertruck, the website formerly known as Twitter, Dogecoin, and the Hyperloop suggests otherwise.
Control, Influence, and Power
The fact that a 99% People’s Tax would have a minimal impact on Musk’s material existence brings us closer to understanding the issues that matter most in the Wealth Tax debate: control, influence, and power. It speaks volumes that when Musk owned the world's largest fortune his greatest splurge was the purchase of Twitter for $44 billion. Ownership of Twitter gave Musk power and control over a website that influences the behaviors, opinions, and political persuasions of millions of daily users. For the 21st-century billionaire class, money is not a tool for satisfying their material wants or even reshaping the material world around them, it is about controlling and influencing other human beings.
Over a certain threshold of say $25 million or $50 million, every additional dollar earned becomes less an economic asset and more a weapon of political power. The grand deception at the heart of the Reagan Revolution was the "supply-side" lie promising massive tax breaks would inspire the rich to invest their enlarged savings in building a better country for all Americans. Instead over the past 40 years, our economic growth rate has stagnated and economic inequality has skyrocketed. We have seen our food become more tainted, our homes more shoddily built, our infrastructure crumble and our healthcare system become an overpriced disgrace. Rather than invest their Reagan Tax windfall in improved goods and services, the rich used it to build institutional walls and moats around their fortunes: campaign donations to buy influence over political candidates, armies of lawyers to crush less well-off adversaries, swarms of lobbyists to win goodies and protections from government, think tanks to advance self-serving economic and political theories, non-profits to sanitize their public image, etc. To the extent that the rich have backed any innovation in the past 40 years, it has been the development of devices and digital platforms that make our jobs more precarious, our love lives less satisfying, our teens more depressed and our politics more polarized. In short, the rich have defaulted on their end of the Reagan Era social contract to use greater private wealth to promote the well-being of the public and the strength of the nation.
A Wealth Tax is a way to mitigate unaccountable power wielded by the billionaire class and a form of damages paid back to the people for the ultrawealthy's breach of the social contract executed during the Reagan Era. The Wealth Tax is not so much a means to pay for ambitious social programs like Medicare For All or the Green New Deal but rather a means of removing the malignant masses of entrenched wealth that stand in the way of making those proposed policies a reality. When Kamala Harris's wealthiest donors express concern about her relatively tame Billionaire Tax they are not worried about their ability to fulfill all their material desires or the damage such a tax might inflict on the material economy. They are concerned about losing power, influence, and control over other human beings, especially the unique privilege of being able to tell a woman poised to become the most powerful person on earth what she should and shouldn’t do in her administration.
While Kamala may be tempted by the sweet words of the "benevolent" oligarchs who fill her campaign coffers with donations, she must not lose sight of the fact that the "threats to democracy" the Democrats warn us about have come primarily from the billionaire class and their undue influence over the economically vulnerable masses. The toxic impact billionaires like Trump, Musk, and Peter Thiel have had on our electoral system suggests that we are rapidly approaching a “kill or be killed" standoff between democracy and unchecked wealth accumulation. Chief Justice John Marshall famously declared in 1819 that "the power to tax involves the power to destroy." A Wealth Tax remains Americans' last best hope to destroy the unaccountable power of the ultrawealthy before it destroys democracy first.