The one theme that underpinned the last election cycle was the state of the economy. Slow economic growth has plagued the United States, and in fact many countries around the world, ever since the financial crisis and the global recession that followed. But why hasn’t a country as large and economically diverse as the US been able to pull itself out of this fiscal funk? One compelling argument, highlighted in this report form the IMF, claims that inequality is the reason. According to the CIA World Factbook, the US is ranked 42nd in the world in income distribution — worse than Burundi, Ivory Coast, and India. This ranking is not arbitrary and such a massively skewed distribution of income can have strong economic repercussions. According to the IMF report:
A 10 percentile decrease in inequality (represented by a change in the Gini coefficient from 40 to 37) increases the expected length of a growth spell by 50 percent.
That is a huge reaction to a small stimulus, and one that the US could use right about now. So, how do we go about solving our income distribution problem? Economist Daniel Altman has an idea: tax wealth, not income. In a recent oped for the NY Times, Altman laid out his plan repeal the federal income tax and replace it with a tax on overall wealth. According to Altman’s plan, families with less than $500,000 in total wealth would pay a rate of 0%; that rate would jump up to 1% for those in the $500,000 to $1 million range, and 2% for those with $1 million or more in total wealth. According to Altman, under such a plan:
[T]he majority of American families would receive an enormous tax cut. Some would owe only payroll taxes (for Social Security and Medicare) and state and local taxes every year, and others would pay less in wealth tax than they did in income tax. Taxes on earnings, capital gains, dividends and interest, all of which may distort decisions about working and investing, would disappear.
Altman readily admits that his plan is not without it’s complications, but nothing that could not be worked through with careful planning. At any rate, it is an interesting (if not entirely new) idea and Altman makes a good case for it. Read the article in its entirety here.