More deficit shrinking ideas
So there’s this guy, James Kwak, who is a former management consultant who has a Ph.D. in French intellectual history and is just finishing law school at Yale University.
In his spare time, he blogs about the economy at baselinescenario.com with a colleague, Simon Johnson, a former chief economist of the International Monetary Fund. Johnson and Kwak also wrote a book published last March called “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” which examines the influence of big banks on the U.S. government.
Enough with Kwak’s résumé. Here’s an idea he threw out last month:
“Here’s my solution to our national debt. We have a one-time, 100 percent tax on all wealth (net worth) of all United States residents, with a $10 million per-person exemption. With household wealth at around $60 trillion, that should be plenty to pay off the accumulated debt and shore up Social Security and Medicare for the next century. The government promises never to do it again. Since we only care about future behavior, a one-time wealth tax should have no impact on people’s incentives to work, and hence no distorting effect on the economy.”
How would this work? Unless your net worth is greater than $10 million (and at least 95 out of 100 of you don’t have to worry about this), you’d come out way ahead. The richest 20 percent of Americans own about 80 percent of all forms of wealth – houses, stocks, bonds, trusts, retirement accounts, etc. And even most of the top 20 percent aren’t worth $10 million.
Ah, but those people – let’s call them the super-rich – would really get hosed under this plan. Epically hosed.
Let’s take Bill Gates. Forbes magazine last year estimated his net worth at $54 billion. The Kwak Plan would cost him $53,990,000,000.
Closer to my home, let’s take St. Louis Rams owner Stan Kroenke. Forbes estimated his net worth at $2.7 billion. The Kwak Plan would cost him $2,690,000,000. Obviously he’s going to have to part with the Rams. Sadly, under the Kwak Plan, there won’t be any U.S. citizens who can afford to buy them – or any other NFL teams, for that matter.
Gates, Kroenke and the rest of the super-rich wouldn’t be out on the streets – remember, they’d get to keep $10 million. But they’d have to, let us say, make a major lifestyle adjustment.
But let’s look on the bright side. If Rush Limbaugh is correct and the rich got to be rich because they’re smarter and work harder than everyone else, then it won’t be long before they’re back on top. Gates can start another Microsoft. Kroenke can build another real estate empire.
True, as Kwak points out, a lot of super-rich people would leave the country because they don’t believe the government wouldn’t do it again. But America made it possible for them to be rich, so if they want to do business here, they’ll have to pay the price.
In the meantime, the sacrifices – admittedly great – of a relatively few super-wealthy Americans can fix the nation’s debt problems. Millions of Americans wouldn’t have to choose between – as they would under the House Republicans’ deficit reduction plan – eating cat food and getting health care when they reach retirement age.
Health care costs can continue to rise unabated. The Pentagon can continue to order every exotic weapons system it wants. The United States can continue to wage war whenever and wherever it wants.
Was James Kwak serious about the Kwak Plan? Sadly, no. Nor was he serious with a second deficit-fixing plan, one that would have the Fed creating $20 trillion in new money in a one-time deal and crediting it to the U.S. Treasury’s account instead of to large banks’ accounts.
“Yes,” Kwak wrote, “those are stupid ideas. They are stupid because no one would believe that the Treasury or the Fed would never do it again.”
The point of the exercise, Kwak wrote, was this: “So if no one could propose a one-time wealth tax with a straight face, how come people can propose a ‘one-time’ corporate tax amnesty with a straight face? Yet that’s just what multinational corporations are pushing for.”
The multinationals want Congress to allow them – just this once – to bring home, tax-free, the profits they’ve shifted to overseas operations to avoid the U.S. corporate tax rate of 35 percent. Their lobbyists argue that companies would then use the money to create new jobs.
Between them, U.S. banks and corporations already are sitting on $2 trillion in cash that they’re not investing in anything but their own bottom lines. The social contract behind capitalism – capital produces jobs that produce wealth for the common good – has been bent out of shape because Congress is for sale and people aren’t paying attention.