A better way to tax the rich

There’s one simple reason it’s so hard to visualize wealth inequality: The wealthiest people in the world are too wealthy.

Once you draw a bar representing the wealth of the superrich, it’s impossible to see the wealth of everyone else. It’s like trying to see both the Empire State Building and an ant in the same picture.

But here’s something most of us don’t think about: These huge sums of wealth, stuck at the very top, aren’t taxed by the federal government. That’s because most of the taxes we pay only happen when money changes hands — when we earn or spend money.

This is what a recent proposal from Sen. Elizabeth Warren (D-MA) tries to fix.

Her plan is to tax fortunes greater than $50 million at 2 percent each year, and fortunes greater than $1 billion at 3 percent. And these tiny slivers of massive fortunes would raise enough revenue to pay for programs that benefit everyone else. (If you want to see what it could pay for, I made a wealth tax calculator that lets you design your own plan.)

As my colleague Matt Yglesias writes, “The operation of the tax would, however, exert a dramatic gravitational pull on large fortunes and tend to pull them down to the tax thresholds.”

Now, there are some clear challenges to imposing a wealth tax, as we’ve learned from other countries that have imposed wealth taxes. The main issue is that it’s hard to get rich people to pay this tax; they tend to evade taxes (like hiding money in offshore accounts) or avoid them (by legally lowering the amount that is taxed). Warren’s plan has some anti-avoidance measures, which include additional funding for the IRS.

But in these early stages, the general public has a favorable view of taxing these massive fortunes.

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