Most Effective Way to Tax the Super Rich: the IN-KIND Method
I hope it is clear for everyone by now that we have to tax the super rich, until we no longer have billionaires and multi millionaires. What makes someone super rich? Being in the top 1% of humans by wealth. That’s about having wealth worth five million dollars. In this video we will do a thought experiment. I won’t talk about why we have to do it, but more specifically how to do it, because the how part always seems to be the most difficult.
Taxing wealth appears to be difficult because these top reasons: (1) the liquidity problem: most wealth is not cash sitting in a bank account, but rather it’s comprised of non-cash assets: stocks, bonds, real estate; (2) the undervaluation problem: mansions, yachts, jewellery, artwork are not valued at their true value by the super rich; (3) the problem of large-scale avoidance through loopholes and deductions: this is the legal way in which the super rich reduce their taxes; (4) the problem of high levels of evasion, aka “capital flight”, to tax havens: this is the legal and illegal way in which the super rich just move money to countries where they don’t have to pay taxes.
In addition to this, most wealth of the super rich, roughly 50% sits in stocks and mutual fund shares. About 93% of U.S. households' stock market wealth is held by the top 10%. And for those with wealth of more than $100 million and into the billions, most wealth sits in business interests.
The solution is to tax stocks and bonds in-kind. Instead of the super rich having to sell their shares to pay a wealth tax on them, the tax should be paid with the shares themselves into a Public Trust, owned by the citizens of the country. Instead of billionaire X paying 5% tax on all their wealth, that billionaire will transfer the ownership of a percentage, let’s say 5% of all their shares, into the Public Trust.
By some sources, people with a net worth of $30 million or more, keep on average 32% of their total wealth in primary and secondary homes. How do we tax that? In the same way. Since we cannot tax 5% of a mansion, we would take the cash instead or we expropriate the mansion, and the Public Trust takes over the ownership. What happens to the mansion after? Let the people decide: a community centre, a fancy library, a concert hall, a school, a hospital, public housing, summer camp for the underprivileged. Paid-for by the Public Trust with proceeds from its revenues. In fact, we can go even further and ban the ownership of multiple houses. Nobody needs more than one house to live in, nobody needs 3 or 10 luxury homes, nobody needs houses as investment. Housing should be a human right. When the super rich go out and buy up all the assets on the market, it makes them more expensive for the rest of us. It is time we took them back.
What about stock options? Stock options are the right to buy stock at a fixed price. Most top CEO are paid in this way, instead of taking a paycheque. We can deal with them in 2 says: we either ban them, or we tax in the same way, by transferring a percentage of them, for each individual, into the Public Trust.
What about other forms of wealth such as yachts, jewellery, artwork? The Public Trust would have independent auditors that would assess the market value value of the things, and apply a percentage of wealth tax on their value. Of course, we can do even progressive taxation if we wanted: the higher the value, the higher the percentage of tax. When the super rich would run out of cash to pay for this kind of tax, the obvious next step is... expropriation. We have done in the past. We can do it again.
The Public Trust becomes, in this way, a de facto shareholder in all companies that issue shares. Since this ownership comes with rights and obligations, the Public Trust would be entitled to participate in the profits of those companies and appoint members to the board of directors. These appointments could be done by lottery, by selecting at random regular citizens. In addition to this, the Public Trust may gain the power to force the companies to become democratic institutions, by allowing both the employees and the citizens to participate in the decisions taken by the company, as a precursor for participatory economy.
This method of in-kind wealth tax would solve several problems: (1) reduce the staggering levels of wealth inequality we experience today; (2) socialize the ownership of the economy, by putting companies into the hands of the people, and not the government; and (3) democratize the economy by decentralizing and sharing economic power. The Public Trust itself can be an institution that is completely independent from the state, with its own parliament selected by lottery (aka sortition) from all eligible citizens.
The Public Trust will then distribute a citizens dividend, or a universal basic income, on a monthly basis, from all the proceeds it collects from owning shares. There is no other method, less direct than this, in which all citizens can participate in the wealth created by the economic activity within a country.
The are many details to unpack about how the in-kind method of wealth tax would work, such as what is the right percentage for the wealth tax, what are the upper limits for wealth accumulation, how is entrepreneurship incentivized, how much should the citizen divided be, how much power should the government have over the Public Trust if any, how to track the personal holdings of all individual investors, whether super rich or not, how would pension funds transfer their holdings into the Public Trust, etc. I invite you all to start this conversation.
Just to be clear, this method applies to super rich individuals. I have not addressed institutional owners who do not have individual humans as beneficiaries. Most companies operating in a capitalist market economy ultimately have individuals listed as owners of shares, even if sometimes many of them try to hide their ownership behind many layers of investment funds, assent management funds, trusts, and foundations.
Some of you may say, give me a break, this would never happen, the super rich would never agree to this. Of course they wouldn’t. Many of them are psychopaths. Who gives up wealth and power, at will? If Burkina Faso can nationalize all its land, so can we socialize the wealth of billionaires and multi millionaires. We have done in the past. We can do it again.