The Piketty Dilemma forms up as capital investments generate profits at a rate that is higher than the overall growth rate of an economy. You want growth, but the profits from growth are concentrated. Profits do not spread out. And this continues over decades without much in the way of limits. Capitalism has no internal restraints to stop it shy of a culture of dynasties and government by oligarchy.
The difference between return on capital and rate of growth is running about 2% annually. Put bluntly, this is the unbalanced excess that is driving America into oligarchy. It has already moved Wall Street's Masters of the Universe outside the reach of criminal law.
We need to dig in for the long, difficult process to get this constitutional amendment and take back 2% annually from the wealth of the billionaires:
Amendment XXVIIIThis amendment will not be easy to obtain. However it is essential, going forward into the 21st Century to halt further movement into oligarchy.
The Congress shall have power to lay and collect taxes on wealth in the form of intangible property, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
We can expect that it will take decades to push through a new amendment. There is nothing easy, politically, about this project.
Charles Murray documented societal destructions with his book Coming Apart: The State of White America, 1960-2010. "The Great Unraveling" by Krugman works the economics of this change. "The Unwinding" from George Packer covers these same social problems, the same coming, tumbling in harness, of this destruction of the middle and lower income classes in America. Thoughtful conservatives and liberals see the same things.
Now we have Thomas Piketty with Capital in the Twenty-First Century explaining how weakly taxed capitalism is on a roll to make this mess permanent.
California and Florida have Intangible Property statutes. But this has to be implemented federally to get the reach and access needed for effective implementation:
-- Set up non-punitive revenue yields. Start at IP Net Worth above $10,000,000 (at 1/10th of 1%.)
-- Set a maximum rate for IP Net Worth over $1-billion (at 2% per annum.) That 2% figure matches the ROI-to-growth excess. This is where you limit the effects of the Piketty Dilemma.
-- Holdings in offshore financial institutions are not exempted. Same for assets shielded in "family trust" accounts and other "financial planning" tools. Tax At Source is the rule, forcing identification of the beneficial owners of this wealth or else paying the full 2% by default.
Of course this change helps with federal deficit reduction. It also adds a factor to deter Big Bubble stock and real estate price explosions. The Federal Reserve Bank had been shoveling out $85-billion a month and then more recently $65-billion a month through the banks. You know that ended up disproportionately in the pockets of the .001%ers.
We need to use our democracy to do claw back. As soon as possible. We need a tax system that corrects flaws from the last 30 years, working steadily over time. If we are to have government "of the people, by the people, and for the people" then there is no choice.
We need to get at it.
Taxes on real estate and other physical property are applied by the states their municipalities. However, with this Amendment XXVIII as written, taxes on ownership of intangible property such as stocks and bonds can be implemented federally. This will not affect local revenues.
Restrictions on the taxation plan can be defined in the Bill that accompanies this proposal. You do not have to state every restraint in the text of the Amendment.
The big deal is to claw back the 2% at the top. The technique is to pull back 20% every decade from those holding more than $1-billion.
This is a game played in decades and centuries. Getting $115-billion a year is useful, certainly. A simple progressive tax -- an offset to deficits. The big aim is to hinder creation of mega-billion dynasties. Pulling back 20% a decade should hopefully be sufficient to preserve democracy.
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Alan "Big Bubbles" Greenspan pumped cheap money into the accounts of America's wealthy. He did this twice and with enormous flows of cash. First in 1998-2000 and then again 2003-2008 with help from Paul Bernanke.
The very rich then bid stock prices up to 200+% of GDP in 2000. And then again to 180+% of GDP by the start of 2008. The both of these Big Bubbles operated to the detriment of investments for industrial base and infrastructure. It got to be crazy money chasing stocks that really didn't have the fundamentals in place.
The traditional ratio for valuation of total-shares-to-Gross Domestic Product from 1931 to 1990 had been 55%.
By 2009 end-of-year, GDP stood at $14.27-trillion.
-- Apply the standard 55% ratio and shares would have totaled $7.85-trillion.
-- Instead, overhang from the second Greenspan Bubble had total shares running right at $20-trillion
The whole investments side of the economy had been blown up like a balloon. Same time, wages stayed flat.
What we observe with Thomas Piketty's work on normal investment patterns had been overwhelmed. Greenspan and Bernanke pumped out cash to the investment class that more than doubled the nominal value of their holdings.
Labor was no longer sufficiently valuable to enable workers to buy much in the way of stocks or bonds. Labor was out of the market more or less permanently.
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Recently the Top One Percent of wealthy Americans owned 43% of Total Financial Assets. A Wealth Tax levied on Intangible Property with a floor at the $10,000,000 level will affect only a part of the Top One Percent.
Apply to the Intangible Assets of the almost 500 individual American billionaires:
$2-trillion TIMES 2%Apply the lower rates to all the non-billionaires above the $10-million floor:
YIELDS$40-billion a year for Wealth Tax.
$20-trillion TIMES (rate table)
YIELDS roughly $75-billion a year.
Each year drops $115-billion into the Treasury.
Over a century you get a staggering difference to the billionaires' accumulation of wealth and power:
$40-billion a year TIMES 100 years EQUALS $4,000-billion out of pocket.
Hardly chump change. The $115-billion a year source of federal revenue by itself justifies going for this XXVIII Amendment. Removing $4-trillion from the billionaires over the next century could be the difference to avoid oligarchy.
Family trusts can conceal concentrated wealth from inheritance taxes. Various offshore schemes "sandwich" and "side" income away from taxation. There always seems to be loop holes that the wealthy bribe legislators to include in real estate tax laws.
Going at wealth directly is the right answer.
It is also feasible to include practical limits for the rate structure in the body of the bill that brings the Amendment to a floor vote -- it is not necessary to state every detail in the Amendment itself. SCOTUS has responded consistently to this tool.
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Discourage oligarchy. Reduce the federal deficit by about a fourth. Very strongly discourage formation of inherited financial empires.
All for getting Amendment XXVIII Wealth Tax passed, ratified, and implemented.
This is not Global Warming. It is not a hold over from the threats of nuclear war 50 years ago. Still, it should be on the table as a top priority for Progressives. Go at it head on !