Over the next two decades, $30 trillion of wealth is expected to be transferred from Baby Boomers to their heirs. Journalists and financial experts have been referring to this event as the “Great Wealth Transfer,” and it’s important that we understand the policies that make such a monumental transferral of generational wealth possible—not to mention the tremendous economic and societal implications of this unprecedented economic activity. In this episode, we have the privilege of speaking with David Stasavage, a renowned expert in taxation, inequality, and political economy, to help us unpack the origins and rationale behind the creation of the inheritance tax, and to explore the policies we can use to lessen economic inequality and put some of the Great Wealth Transfer to work for all Americans—not just the children of the wealthy few.
David Stasavage is a prominent political scientist known for his expertise in taxation, inequality, and political economy. He is currently the Julius Silver Professor of Politics at New York University and a Fellow at the Center for Advanced Study in the Behavioral Sciences at Stanford University. He has conducted extensive research on taxation, particularly on the taxation of the wealthy and the role of inheritance taxes in addressing income inequality. His collaboration with Kenneth Scheve on inheritance taxes has shed light on public opinion and the potential effectiveness of these taxes in promoting economic fairness. He’s also the author of several books, including “States of Credit: Size, Power, and the Development of European Polities,” “Taxing the Rich: A History of Fiscal Fairness in the United States and Europe,” and “The Decline and Rise of Democracy.”
Twitter: @stasavage
Democracy, War, and Wealth: Lessons from Two Centuries of Inheritance Taxation https://kfscheve.files.wordpress.com/2020/09/schevestasavage_twocenturies_apsr_2012.pdf
States of Credit: Size, Power, and the Development of European Polities https://bookshop.org/book/9780691166735
Taxing the Rich: A History of Fiscal Fairness in the United States and Europe https://bookshop.org/book/9780691165455
The Decline and Rise of Democracy https://bookshop.org/book/9780691228976
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Speaker 2:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle out economics is the answer.
Speaker 2:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Intro:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Goldy:
One thing that you and I have in common, Nick, is that we both love our children.
Nick Hanauer:
That’s true. Well, sort of. I think I love my children millions of times more than you do.
Goldy:
Yeah, that’s what I was getting at, because as a parent, you want to give your children everything. And of course, in your case, you can.
Nick Hanauer:
That’s right.
Goldy:
Because you own everything.
Nick Hanauer:
Yep, yep.
Goldy:
And so, a subject I’m sure you’ve spent some time thinking about is, well, not to get too morbid here, but none of us live forever, and what you’re going to leave your children and how they might inherit it.
Nick Hanauer:
Yep. The old inheritance tax conundrum.
Goldy:
That’s right. And it puts you in a strange place, because of course, you want to leave your children very comfortable. I don’t know if comfortable is the right word to what they should be expecting. But you also, clearly anybody who’s listened to this podcast knows that you are very concerned about income and wealth inequality and how it’s not just destroying the ability of our economy to solve our everyday problems, but it’s also undermining our democracy.
Nick Hanauer:
Yeah. So I have obviously, lots of people have mixed feelings about the inheritance tax, which is an important feature or it should be an important feature of our economy. And today, we’re going to talk to David Stasavage, who’s a prominent political scientist known for his expertise in taxation and inequality about the estate tax because Goldy, as you know, we’re going into this, the boomers who have a lot of dough are growing older and dying, and I can’t remember exactly what the number is, but something like a 30 trillion transfer of wealth from boomers to their hairs, to their heirs, not hairs, hairs and heirs, probably.
Goldy:
Well, some of them are spending a lot on hair plugs. I’m guessing. Not me. My hairs are inheriting nothing and my daughter will inherit none of my hairs.
Nick Hanauer:
Yeah, exactly. But over the next couple of decades, that’s going to take place. And that’s an extraordinary wealth transfer that will be convenient for some, but ultimately, potentially really bad for the democracy because as we’ve said many times, the more concentrated the wealth in this society is, the more unlikely it is that the society will function highly to the benefit of the majority of citizens. And so anyway, it’s a really interesting problem and I’m excited to find out what David thinks about it.
David Stasavage:
My name is David Stasavage. I’m a press professor of political science at New York University. I’ve written several books related to inequality, one of which is Taxing the Rich: A History of Fiscal Fairness, with my co-author Ken Scheve, who’s at Yale. And the second one is the The Decline and Rise of Democracy. Both of those are published by Princeton, and the Taxing the Rich book was 2016, and The Decline and Rise of Democracy came out in 2020.
Goldy:
I’m guessing those two theses are related.
David Stasavage:
Everything is related. When you get to be an academic of this age, it’s all the same thing.
Nick Hanauer:
That’s great. So today we get to talk to you about the inheritance tax. So for our listeners, why don’t you create some context and tell us about the history of the inheritance tax, what its purpose was, and how that’s changed over time?
David Stasavage:
Sure. And just let me preface that by saying that we’re a little bit different in the US than that we call it the estate tax, whereas everybody in any other country calls it inheritance. So if you’re fine with that, I’ll just say inheritance tax.
Nick Hanauer:
Oh, yeah, yeah, yeah, of course. That’s fine. That distinction is very interesting.
David Stasavage:
Yeah. The interesting thing about the inheritance tax is that inheritance taxes actually predate income taxes. And that is because back in the 19th century when a lot of European and Western countries were establishing inheritance taxes, they had a somewhat self-enforcing quality to them because if someone died and their heir wanted to get title or probate to whatever was left to them, then they wanted to go to some official authority to have that registered. You didn’t want to keep it under wraps and just say, ‘oh, this is mine.’
So automatically governments got in the habit of saying, okay, well if you need to do that with us, then we’ll charge you a stamp fee initially, or maybe we’ll charge you something higher than that. And eventually, we got full-blown inheritance taxes. And this was all before governments had the capacity to create anything resembling a modern income tax because you didn’t have well-developed banking systems or ways of tracking income or even a concept of what annual income was.
Nick Hanauer:
That’s so fascinating.
Goldy:
There’s a long-established history in English common law that goes back to.
David Stasavage:
Yes.
Nick Hanauer:
What’s changed over time?
David Stasavage:
Well, I think what’s changed over time is there were some people in the 19th century. Initially, it was used for raising revenue, and then there was a big debate about what should the role of the inheritance tax be in establishing equality of opportunity. And John Stuart Mill favored prominently in that. And what happened eventually was that the income tax became a much more important source of revenue and really supplanted the inheritance tax.
So if I remember correctly from our data, the UK was the country that was probably raised more of its revenue as a share of coming from inheritance taxes at any other time. And that would’ve been in the early 1900s, first decade of the 20th century, and it was still only about 10% of total revenue. Whereas of course, income taxes today make up a much larger share of revenue and inheritance taxes in a lot of countries have taken on an increasingly small share of revenue. There’s no really rich industrial country today that derives a substantial source of its revenues from inheritance taxation.
Nick Hanauer:
One of the strands that’s quite interesting to explore is the different justifications, whether it’s raising the practical challenge of raising revenue or the more political challenge of maintaining equality of opportunity and trying to avoid it, effectively in landed aristocracy.
Goldy:
The old Brandeis quote about we can either have democracy or wealth concentrated in the hands of the few, but we can’t have both.
Nick Hanauer:
Yeah. So my question is, in the United States, how has that ebbed and flowed? And tell us a little bit about the history of the tax in the US.
David Stasavage:
The history of the tax in the US, and certainly the debates in the progressive area of the early 20th century, they were also tied up with antitrust regulations and things like this. It was very commonly, people said, too much concentration of wealth or market power or what you have you is bad for democracy. If the initial rationale for the inheritance tax was revenue, that came to be a second rationale, is to say, we need to avoid having too high a concentration of wealth because inevitably, that’ll be bad for a democracy because if there’s so much wealth concentrated in the hands of so few people, they’ll be able to gain undue influence on the democratic process.
Nick Hanauer:
When did we first get an inheritance tax and what has happened over the years?
David Stasavage:
As a serious element of revenue raising, it has declined over time, because basically what happened is the threshold for inheritance has been pushed up progressively and the rates are not what they used to be. The inheritance tax rates in a lot of countries track, to some extent, income tax rates. So they went way up during the period of the two world wars, stayed up for a while, and then came way back down. And to the point today where a lot of countries have abolished their inheritance tax. Even the Swedes have abolished their inheritance tax.
Goldy:
But they have a wealth tax wealth.
David Stasavage:
Yes, they have a combined wealth and income tax. But it’s interesting, and there’s other countries that don’t have a wealth tax that we think of as being progressive that have abolished their inheritance tax.
Nick Hanauer:
Interesting. So who else has abolished an inheritance tax? I’m surprised to hear that.
Goldy:
Nick is interested, not that Nick’s going to have a huge fortune to leave to his heirs or anything.
David Stasavage:
Yeah, I’m having a hard time remember from our 2012 paper, but I think the Australians have certainly done it. There’s a number of countries that have done it that you wouldn’t necessarily think of as being right or right wing or something like that. And they’ve done away with it. And the other thing about inheritance taxation is, if you look at the US and the UK cases, it’s pretty unpopular. It doesn’t pull very well.
Goldy:
You mean the death tax?
David Stasavage:
Yeah. Well, it’s the death tax. I mean, it’s also, so people have done some sophisticated surveys where they refer to it either as inheritance or death, and it makes a small difference to how the respondents are. But people just for some reason, and we can talk about that in a minute, do not like an inheritance tax.
Goldy:
How about when we call it an estate tax?
David Stasavage:
No, that doesn’t-
Goldy:
Does make a difference.
David Stasavage:
No.
Goldy:
So we need to do some better branding here.
Nick Hanauer:
Yeah. I hate to put you on the spot, but do you remember the last 50 years or so of where the inheritance tax has been in the United States and how that’s evolved, at least since the beginning of the neoliberal era?
David Stasavage:
Well, it was already at the beginning of the neoliberal era, taking in a smaller share of revenue than it did previously. But it’s only come down over time as there’s been so many exemptions and as the ceiling has been raised, so it now touches very few people at all. There’s also, of course, lots of doing estate planning to try to avoid it. So it’s a curious thing that you would think if a tax really only burdens a very small section of the population, then why shouldn’t there be a large majority in favor?
Nick Hanauer:
Yeah, it’s super interesting. What do you think that is? Why do you think that is?
David Stasavage:
Well, I think a lot of people, particularly on the left, think about that situation. They scratch their heads and they say, ‘Jeez, this just doesn’t make sense.’ Why shouldn’t we be favorable to this? Most people aren’t going to pay it. It’ll do something to reduce inequalities of wealth, hopefully, which might just think of as just being fair. You might think of it as being something that’s good for preserving our democracy.
And I think that the problem that people sometimes don’t realize is that there are two fairness norms that are very strong ones and come into conflict here. So the way that John Stuart Mill thought about the inheritance tax was to say that we are individuals and individuals ought to be able to start out life without having endowments that are too radically different. So if you think that’s the case, then you really would be supportive of quite a steep inheritance tax because it’s going to help achieve that objective. Now, the other norm is that you think that people should be able to save for their children, and it’s unclear. Some would suggest, if we think of a society’s composed not of individuals, but of individual family dynasties, then it seems like a dynasty ought to be able to pass on things from one generation to the next, just as I ought to be able to fairly save for my retirement without having that taxed an extra amount just because I’m saving it for later on within my own lifespan.
Nick Hanauer:
David, you’ve said that the actual amount of tax receipts from the inheritance tax is relatively low, but if you just stipulate that the inheritance tax was what David wanted it to be, could it be a lot?
David Stasavage:
Well, I would think of an alternative tax that could raise money, and that pulls very well, and that is a net wealth tax, as some countries have implemented and as we’ve already discussed in the case of Sweden. Because if you look at polls on net wealth taxes, a small amount of your wealth taxed each year, rather than having some large chunk taken at the time of death, which seems like a particularly sensitive time, or at least I suspect it is, then when people run surveys asking individuals what they think about that, they’re much more favorable. They’re much more favorable to a net wealth tax than they are to the inheritance tax.
Nick Hanauer:
Okay, we’re going to come back to that, but I’m asking a more practical arithmetic question, which is-
Goldy:
What would it raise if we were at like 1970 rates?
David Stasavage:
It wouldn’t raise that much. It wouldn’t raise nearly as much as a net wealth tax was. That’s why I shifted over to talking about inheritance tax.
Nick Hanauer:
Okay, and why is that? Can you explain the arithmetic to us?
David Stasavage:
Because I think the arithmetic is that for one reason, you’d have to have a inheritance tax with really, really high rates to raise a lot of money.
Nick Hanauer:
Well, I mean, the rates for big estates is 50%, right? Which is a pretty high rate.
David Stasavage:
It’s a pretty high rate. But again, there are also so many ways to do estate planning to get out of this. And that’s not an area where I am expert, but for any person who’s really that wealthy, they’re going to be engaging in various strategies that are ways of getting around the inheritance tax. There are countries where in England, for example, the inheritance tax agricultural land is exempted. And you think of that as being, well, that’s to preserve small farmers, but it turns out a lot of the agricultural land in England is owned by very rich people who are formerly in the nobility. And so automatically-
Nick Hanauer:
We’re still in the nobility.
David Stasavage:
Yeah, still in the nobility. So automatically, a huge swath of their wealth is just totally not subject to the tax at all. So it seems like it’s unpopular, it’s difficult to administer, and it’s hard to think about it doing it in a way that would raise a lot of revenue. So this is why, again, I’m coming back to-
Nick Hanauer:
Yeah, I have some experience with this.
Goldy:
Yes.
Nick Hanauer:
I think that there are principally two ways of getting out from under paying lots of inheritance tax. The first is to set up a trust for your children before you die, where you transfer some of the money into the trust. But I mean, there’s a limit to that. And of course, one of the things that you’re doing is you’re giving up that money for your children during your life. .
And the second thing that I think is much more significant in terms of the avoidance of taxes, that you can donate it to charity, of course, you can create a big foundation, which is what many of the best known philanthropists in the country have done, both as a way to ideally generate some good, although that doesn’t always happen. But definitely it’s a great-
David Stasavage:
I think the problem is those things tend to go to… It’s very select sources. So part of Lincoln Center is now named after David Geffen. Most of the people that go to the Lincoln Center are pretty well-off already, right? It’s not like it’s supporting the poor.
Nick Hanauer:
But the Gates Foundation or whatever, the Ford Foundation, whatever it is-
David Stasavage:
That’s a different piece, the Gates Foundation, they’ve really done a tremendous amount.
The other thing, and it is certainly the case that a lot of these donations that are made, they’re often, it’s specified that they’ll remain as part of the estate. And so it stays as part of the estate until a person dies, it’s their wealth until they die. And then when they die, it goes to this other source rather than to the US treasury.
Nick Hanauer:
Yeah, correct.
Goldy:
I’d like to get to a little bit of the other justification for an estate tax, and that is addressing the concentration of inherited wealth. Concentrated inherited wealth is a pox on our democracy, and the founders understood that. We seem to have understood that through most of the country’s history, and we don’t seem to understand that now. How important is an estate tax simply to lessen that divide that has been increasing over the past 40 years?
David Stasavage:
Well, I mean, it’s incredibly important. And the thing, if you look at Thomas Piketty’s 2014 book, which was so influential. He did a lot of work to show how the share of total private income from inheritance is growing, and going to keep growing.
And so, we are in a world where it’s a little bit more like the Gilded age, where there were people who made most of their… They didn’t need to make any money. It was all inherited, and there was a substantial fraction of income that came from, at the time wealth. A lot of it was in government bonds, for example. And so our society is heading towards a division like that. And so you do wonder how healthy that is for our democracy.
Nick Hanauer:
You actually don’t wonder. You may wonder. We don’t wonder.
David Stasavage:
No, I mean, the reason I say that, of course, is that, and this is something I talk about in the 2020 book, is that like it or not, paradoxically, democracies have been able to survive with very high rates of inequality. And this is true for a lot of the late 19th and early 20th centuries, that maybe it’s good the democracy survives, but as I say in the last sentence of my 2020 book, we also have to be happy with a democracy that does survive and ask whether it’s delivering what people expect from it. And that’s where you fear that, yeah, it might survive, electoral competition might continue, but that policymaking is going to be very heavily influenced by the fact that wealth is heavily concentrated and high amounts of wealth held by a relatively narrow amount of the section of the population.
Nick Hanauer:
So let’s get to your affirmative case, which is what should we do? Where do think policymaking should go?
David Stasavage:
I think the next stage, and I don’t know when this will happen or if it will happen, is to follow along the lines of what Piketty suggested in his 2014 book where he advocated for an annual net wealth tax. He wasn’t calling for using the inheritance tax to deal with this issue. And so if it does poll better than the inheritance tax, why would one not think of that? And that as you have so much more wealth out there, I think particularly as governments, western governments have very high levels of debt, public debt, someone’s going to come along at some point, some political entrepreneur and say, ‘Hey, we have this huge source of private wealth. Let’s start taxing it to help solve some of our fiscal problems.’
Nick Hanauer:
Interesting. And what’s your best guess about how that would be structured?
David Stasavage:
My best guess is that it would be some small, I don’t know, I think Piketty suggested something like 2% of net wealth per year, which is actually quite high. If you think about, the thing about an inheritance tax is the rates are higher, but it happens only once, but this is every single year.
Goldy:
So it compounds.
David Stasavage:
Say you’re thinking that you are earning 5% per annum on average on wealth, that 2% tax means it’s 40% of your income from wealth. That’s huge.
Goldy:
Yeah, correct.
David Stasavage:
Now, I doubt politically that a 2% rate would be considered to be feasible, but something smaller might, and that’s to be debated. Now, the other thing to recognize about the net wealth tax, we do have to be careful. It does hold better than inheritance taxation, but it’s not entirely clear that most people know what a net wealth tax is. So when some of these surveys are presented, they don’t necessarily explain it in advance.
And my co-author from the 2016 book, Ken Scheve, and I did some surveys. One survey, I think it was where we asked about support for a net wealth tax. And then we gave people an open-ended opportunity to explain to us what a net wealth tax is. And most of them had no idea. The ideas were all over the place. So it’s possible that once that is explained in more detail, that support for it will dwindle. But it seems like I would just be willing to bet that if there’s going to be a new trend in wealth taxation, it’s not going to be via the inheritance tax. It’s going to be through something like a net wealth tax.
Goldy:
And to be fair, the majority of Americans already pay a net wealth tax of sorts. If you’re a homeowner, you pay a property tax, which is a pretty significant chunk of the value of your house, which by the way, is the typical American household’s largest asset. And even if you’re a renter, you’re indirectly paying the property tax as well, because the cost of that tax is passed on to you in rent.
David Stasavage:
That’s right. And so for states and localities in the 19th century, well today as well, it’s still a huge source of revenue, but it was a very important source of revenue in an era where we had not yet fully industrialized. We didn’t have a banking system that was good enough to track income annually. And so taxing wealth was the easier thing to do. Coming back to the main point, my guess is that if there is a new trend towards taxing wealth in one way or another, it’ll be through a net wealth tax or something similar and not through inheritance taxation.
Goldy:
So Nick, do you want to air why you’re uncomfortable with a wealth tax?
Nick Hanauer:
Oh, we’ve been over this before. I mean, the wealth taxes are complicated because it’s hard to say how much wealth many people have. And David, in my world, which has been in the tech entrepreneur world, one minute you’re worth a billion dollars and the next minute you’re bankrupt. Right? I could tell you 100 stories about that. So the idea that you’re going to pay a bunch of tax on paper, wealth, and then overnight have all of that wealth disappear, is somewhat terrifying. Because it’s happened to me. I’ve seen it happen to tons of my friends. Not to mention, those are public companies who are worth $100 a share one day and worth $1 a share the next. But to say nothing of private companies.
David Stasavage:
There’s the issue of the fluctuations from year to year, which could be tremendous. And the other issue you’ve alluded to there is it’s hard to track. And so this is true, this is fundamentally different from the 19th century where a much greater share of national wealth, national private wealth was held in land. It’s hard to hide land, right? It’s there. And so it was taxable. Whereas today, the composition of wealth is much more complicated. Wealth can be placed here, it can be placed abroad. There’s all sorts of issues involved that are just a greater degree of complexity, although a lot of those come to fore with the inheritance tax too. Right?
Nick Hanauer:
Yeah, but you only have to calculate that once. You have to bear down and figure it out and take a pass. But you don’t have to do it every year, right?
David Stasavage:
No. Well, the thing is, we haven’t even really tried. And so it would be interesting to see if there’s some experiments that get launched in this direction eventually. I’m a political scientist, I’m not an economist, so that’s my prediction about what I think might have more political sustainability. Now, would it be a giant mess, perhaps? Maybe, probably, I don’t know. I’m a little bit less qualified to judge on that front.
Goldy:
Yeah. I have more faith in the super rich to their ability to innovate, to figure out how to calculate their own net wealth on a regular basis, and to construct a wealth tax that actually works and takes into account all of these possibilities and eventualities in a way-
David Stasavage:
Well, yeah, absolutely. And the political commitment is not there.
Goldy:
Right.
David Stasavage:
So let me give an analogy from the income tax. In the 1960s, when Britain had a top marginal rate of income taxation of 95%, so when George Harrison wrote about one for me, and 19 for you, or whatever the line was, the tax man, the person who had headed the inland revenue, which is what they called their revenue agency at the time, wrote and explained how they collected the tax and explained how they dealt with issues like say, people being part owners of a company and not taking part of the company’s income as part of their own income in a given year, so as to basically not have to pay tax on it. And what the government did at the time was they just said, okay, you should have been taking this fraction of income that would’ve been the reasonable fraction that should have been declared as you’re owing income, and you owe us tax on the base of that, even if you haven’t officially deposited into your bank account. Now, that’s a different world.
Nick Hanauer:
That’s a tough one.
David Stasavage:
That’s the thing, you see. That’s a very, very different world, politically, from what you would have today with either the inheritance tax or the net wealth tax where there’s just not a very strong commit. That story that I just encountered, the idea that someone would propose doing that today, in that the US Congress would pass it, I mean, I’m more likely to get hit by a meteorite coming out of my office right after this podcast than is the probability of something like that actually being implemented.
Nick Hanauer:
Yeah, I suspect you’re right.
Goldy:
Again, I have faith in human ingenuity to figure out how all of civilization is about taxation.
David Stasavage:
Well, that’s true. We do need revenue. And the question is where it comes from. And one of the problems in this country right now, of course, is that we’re so focused on other issues. The idea of any big debate about taxation just can’t really happen. If you contrast us with the UK, the UK, well first of all, they still have a annual government budget, if you can believe that, instead of just this scatter shot, continuing resolutions or bills.
They have a budget speech in April where the Chancellor of the Exchequer explains what they propose to the Commons. It’s discussed in the newspapers. It’s a salient issue of public discussion. Taxes just aren’t really salient in American political discussion today. In part, I think because we’re debating much bigger issues, but also simply because our federal public finances are so not legible to most people, unless you make a profession of studying what’s going on with the budget and how we’re spending and how we’re raising money. The average voter doesn’t have the time to do that. And we don’t have an annual budget speech where everything is laid out. We have presidents of continuously for decades come up with budgets that are wish lists, and eventually things get decided in a different way. And there’s certainly no general budget speech that everybody listens to.
Nick Hanauer:
So a couple of final questions, David, the first, and you’ve hinted at this, which is, our benevolent dictator question. If you were in charge, and just political constraints aside, what would you do? What do you think the best thing for the United States would be?
David Stasavage:
Here’s what I’d do. It’s an easy way to answer this. I’d establish a commission.
Nick Hanauer:
Come on. No, no, no, no. Well, he is a political scientist.
David Stasavage:
I’d establish a commission to think about the feasibility of a wealth tax and a net wealth tax. And I would consult, have some top tax law people. We have some of them here at NYU’s School of Law, and ask them to think about if there’s a feasibility of it and how a law could be written in such a way that this thing could actually be implemented. That’s probably the way I’d go. Just because I think the various barriers against inheritance taxation are just too-
Nick Hanauer:
You’re dodging our question. Forget the politics.
Goldy:
You said benevolent dictator. He’s being benevolent.
Nick Hanauer:
Yeah, I know.
Goldy:
How about if you were, forget the benevolence, you were just a dictator.
Nick Hanauer:
Yeah. And you could just impose your will.
David Stasavage:
Well, well, okay. It depends what my will is. If my will is to even maximize my own revenue at the expense of everybody else, that would be one thing. But that wouldn’t be the goal. No, I just think we have to go out and make the case for rethinking taxation of wealth, in one way or another. And people aren’t really making the case out there out there now, and it needs to be done in a reasonable way that explains in a way that is compelling and simple.
And maybe, coming back to that issue, do most people even have even the faintest idea of what a wealth tax is? Maybe see if one could establish discussion about that such that it might become more of a wealth cemented idea in people’s minds. And then start off, think about a wealth tax that’s not too high, but that would raise some more revenue. And God knows, we are at a point where it’s not only that inequality that we have to worry about. We do have to worry about our federal debt and how to manage that.
Goldy:
So essentially, you’re saying Piketty was right. Wealth tax.
David Stasavage:
I think Piketty is right, but I think he proposes solutions that are… He wanted to have a top marginal income tax rate he proposed of 70% or something like 70% or 75%. That’s not going to happen. That happened in cases, as we write in our book, where there was a world war, you needed revenue, an argument was made that everybody else is out there fighting, maybe losing their lives. People who are above conscription age who have higher wealth are sitting at home. We ought to have a conscription of wealth as well. That was an incredibly powerful argument made at the time of World War I, and again in World War II. And that’s what gets you rates up to that level. But it’s really only when you have those moments, severe moments of crises like that, where you have this sense that some people are sacrificing and others are not, that you get major policy moves like that, I think.
Goldy:
Like maybe, I don’t know, a existential level, climate crisis, impending climate crisis, where we’ve got 10 years to transform our economy or else civilization ending events.
David Stasavage:
Yeah, I’m generally an optimistic person, but I’m not sure how optimistic I am on that front. Just because it seems like we’ve had a lot of really bad climate crises already if you look at what’s happening. But they just seem to happen in this slow fashion. Well, they happen for a while and then they go away, and that’s the scary thing. But yes, potentially, I think you’re right. Maybe there could be something really big that happens.
Some people thought that COVID would have done it in part. So if you think of the effect of lockdowns, some people could just sit at home and do their work, whereas other people, their businesses had to shut. They had no income, and maybe that would’ve brought a differential, but it really didn’t. We ran a survey actually, prompting people about the unequal effects of COVID during the lockdown era did prompt people to prefer a slightly higher top tax rate on income in the UK. But the effect was small. It wasn’t anything like the effects of World War I or World War II on the tax system.
Nick Hanauer:
One final question, David, why do you do this work?
David Stasavage:
I don’t know. It’s just, I’ve always been interested in history. I’ve been interested in politics. I’m interested in using history to think about where we are today. I do find that I’d like to hope that people think out there that we need to continue studying democracy and inequality because we want to preserve our democracy. And we acknowledge that some inequality may be justified by some people being more talented or exerting more effort or whatever. But we also recognize that some inequalities occur, a lot of them occur for unfair reasons, and that ultimately, too much inequality is unhealthy for democracy, either in that it can lead to the end of it, or it leads to a form of democracy that gets really hollowed out.
Nick Hanauer:
Yeah. Well, thank you so much for being with us. Fascinating stuff.
Yeah, Goldy, the most surprising thing to me about that conversation was David’s lack of optimism, I suppose, around the inheritance tax itself. I must say I was anticipating him, when we were trying to put him on the spot on what he would do. I just assumed he would say, close all the loopholes and raise the rate to 70%. Right?
Goldy:
I’m all for that.
Nick Hanauer:
Yeah. I guess I would’ve thought that’s where he was going to go. That’s where my head would go if I was going to address this. But he obviously has a lot of expertise around this. And as a political scientist, he’s deeply attuned to what’s politically viable, which, it’s a fair starting point, right?
Goldy:
Right.
Nick Hanauer:
What did you think?
Goldy:
Yeah, I mean, obviously right now in this moment, it would be very difficult to get back to 1950s, 1960s level of taxation, inheritances, on income, et cetera. But it had been difficult before we got there. As he pointed out, yes, it took World War and the Cold War to get at those top marginal rates, and they’ve been declining ever since. But we did get at those. So politics change, and it’s not something you ever expect. Look, you and I have been working together on changing the political narrative for almost a decade now. You, a bit longer. And it’s slow in coming. Oh my God. It is slow in coming, but it’s been coming. We’ve made progress. So while we may not be able to do the things we want with the tax code now, the things that we need to do, we may be able to do it in another 10 years.
Nick Hanauer:
It’s possible.
Goldy:
If we continue to work at it. Maybe I feel a bit more strongly about inherited wealth as somebody who won’t inherit a lot of wealth and who won’t pass a lot of wealth on. So it’s not my ox being gored, but I mentioned in our conversation that Brandeis quote, which I think is true, that you can have democracy or you can have concentrated wealth in the hands of the few, but you can have both. And even worse, is not just concentrated wealth, but inherited, concentrated, inherited wealth. And understand, when you go back to Piketty and you look what he’s talking about, the era that we’re returning to, that wealth, the way that earns income for the heirs, it’s pure rent seeking. You are essentially making money on your money by renting out your money or by purchasing things that people pay rent on.
This is a recipe for a rent seeking inherited elite, which is what Europe was for hundreds of years. So would I take a 2% wealth tax, annual net wealth tax over a 60%, 70% inheritance tax? Sure. Why not? It produces the the revenue in a more steady and reliable fashion. It actually raises more money over the long run. It’s probably a more efficient tax in the long run. So I would take that, but I wouldn’t give up on taxing large estates because it’s un-American to establish these elites. And one of the things, the word we didn’t use in this, we talk about money and wealth, what we haven’t been talking about, power in this episode. And money buys power. Wealth and power go together, not just in a market economy, in all economies, not just in a democracy, but in all political systems.
Money and power go together. And you can’t run a democracy when you have this small, extremely powerful elite who can basically overturn the will of the voters at their whim or deny the will of the voters, which we see. Or fund a minority party like the Republican Party, fund these minority control where they don’t have to honor the will of the voters because they’re just going to hold onto their seats through gerrymandering and the screwed up anti-democratic mechanisms of the US Senate and the Electoral College. I don’t want to sound too dark, but I think we’re at a very dangerous moment for a lot of reasons, and one of which is our democracy is at risk. And part of it is Trump, who by the way, is this rich, powerful, inherited a lot of his wealth to start with, would be dictator.
And that’s what happens when you allow wealth and power to concentrate in the hands of the few. They’re not all benevolent billionaires like you, Nick.
Nick Hanauer:
Yeah, it’s complicated. Complicated.
Goldy:
It’s complicated. Again, I want to get back to, I know we’ve talked about this. I just want to assure you, Nick, that if we did a 1%, 2% wealth tax and net wealth tax, I know it will be difficult on you, or rather on the people you hire to figure out how much you own and how much you have to pay tax on. And I also understand, by the way, that some of your buddies are going to cheat, right? There’s going to be a lot of evasion going on as if there isn’t already.
But neither of those are reasons not to do it. If you’re going to make the tax code difficult on anybody, it should be the super wealthy because they don’t do their own taxes.
Nick Hanauer:
That’s true.
Goldy:
Look at this way, Nick. You’re making jobs. You’re going to be a job creator. From all the accountants you’re going to have to hire to be able to figure out your taxes.
Nick Hanauer:
And I can feel great about that?
Goldy:
Uh huh.
Nick Hanauer:
There you go.
Goldy:
And of course, if you want to read more from David Stasavage, there will be links in the show notes.
Outro:
Pitch Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.