Wealth Taxes Will Barely Slow Inequality. So Why Do the Super-Rich Resist Them?

Zohran Mamdani’s historic victory for the working class in the financial capital of the world is a reflection of the growing appeal of bold platforms that attack extreme inequality and oligarchy and move toward a more equitable and just society. Inequality, to be sure, is one of the biggest social problems facing many countries across the globe. The gap between haves and have-nots has grown to such extreme levels that it threatens social stability by undermining both democratic governance and economic sustainability. And how could it be otherwise when the richest 1 percent own more wealth than 95 percent of humanity? In the United States, a country with wealth disparities greater than all other major developed nations, the richest 1 percent holds approximately 31 percent of the nation’s total wealth while the top 50 percent owns 98 percent of the total share of U.S. wealth.

In the light of this deeply disturbing data, it is hardly surprising that there is a proliferation of voices calling for the implementation of measures to reduce economic inequality. In France, the so-called Zucman tax proposal has become the hottest topic in the country, and although lawmakers in France’s lower house have just rejected multiple proposals for taxing the ultra-rich, the fight is not over. In the United States, a group of Democrats in Congress has recently introduced the Billionaires Income Tax Act, and labor and health groups in California have proposed a 5 percent wealth tax on the state’s billionaires to offset billions in federal funding cuts to healthcare. As further evidence of the political traction that the demand to tax the ultra-rich is gaining, Illinois lawmakers have proposed a one-time 4.95 percent tax on residents who hold paper assets with net worth exceeding $1 billion.

Be that as it may, and assuming that wealth tax proposals are politically viable and can withstand the challenges posed to them by the ruling and oligarch class and its various allies, are they sufficient enough to reduce the stunning levels of inequality in today’s world or do we need to abolish extreme wealth altogether? Moreover, what does the structure of the U.S. tax system reveal about class warfare and does it tell us anything about the current government shutdown? Renowned socialist and feminist economist Nancy Folbre shares her insights into these and other critical questions on the political efforts to tax the top and their economic ramifications. Folbre is professor emerita of economics and director of the Program on Gender and Care Work at the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst.

C.J. Polychroniou: Across the world, proposals to tax the ultra-rich in order to tackle soaring inequality are gaining momentum. Indeed, many options have been put on the table, ranging from new taxes on capital income and higher income tax rates to a global wealth tax. Why is taxing the ultra-rich considered to be of such critical importance given that inequality is part of the foundation of capitalist economies? Will it actually close the wealth gap?

Nancy Folbre: I’m not sure that such proposals are gaining momentum, but they’re certainly generating publicity, and in the process, raising awareness of the increasingly extreme concentration of income and wealth on every level. Global inequality is especially shocking, and economist Gabriel Zucman has explained how nations could collectively move toward a global tax of 2 percent on the wealth of billionaires. Brazil has been a key proponent, bringing it to table at international meetings. Given the current structure of global political institutions, feasibility seems pretty remote.

Could such a wealth tax actually lower wealth inequality? Probably not, even if implemented on a national level. At best it could slow the trend that Thomas Piketty, among others, has documented: the increasing concentration that results when wealth grows faster than the economy as a whole — as riches beget riches.

One can only wonder where and when this trend will come to an end. The Marxian vision of a declining rate of profit leading to capitalist crisis has been displaced by a more dystopian vision of relentless and endless accumulation of money and power. The anxiety this vision provokes — and the threat to democracy that it portends — explains why the words “wealth tax” cross more politicians’ lips than they have in the past.

However, inequality itself seems less a political concern than the difficulty of financing the social reproduction of the population in a period of increasing inequality and social division — or, in more everyday language — paying for the “welfare state.” In the current political environment, large deficits and ballooning public debt can only go so far before they run up against the need to either increase taxes or cut spending, and working-class voters who feel economically left-behind are furious at the thought of being asked to pay more or make do with less.

What do you think of the so-called Zucman tax which is causing quite a stir in France? It involves levying a 2 percent tax on households whose income exceeds 100 million euros. But let’s assume that this proposal was also going to be implemented in the United States and across the globe. Is a 2 percent tax on the ultra-rich sufficient to reduce inequality?

Widespread public support for a 2 percent wealth tax in France has been largely driven by such practical concerns — using the resulting revenues to avoid cuts in social spending and retirement benefits. A September poll showed support from 86 percent of respondents, partly because the proposal was designed to affect only about 1,800 households. It other words, it singles out the group you’ve described as the “ultra-rich.”

This hardly seems sufficient to significantly reduce overall inequality. You could think of it as shaving about 2 percent off the tall spire of a large cathedral of wealth. Yet the proposal has great symbolic valence, dramatizing inequality and raising fundamental questions about fairness — which is exactly why it faces fierce resistance.

Can you discuss a bit the nature of the overall structure of taxation in the U.S. and whether, in particular, it reflects who’s winning the capital-labor class struggle? Also, does it help to explain the government shutdown?

In the U.S., most attention gets focused on the federal income tax, because it is a major source of revenue, but also because Republicans have consistently pushed to reduce the tax rate on high incomes. Conservative advocates of supply-side economics have insistently claimed that this would promote economic growth, making everyone better off. No evidence supports this claim.

Policies that impose a higher tax rate on higher income individuals are labeled “progressive” and those that do the opposite, “regressive.” Both political parties have colluded in policies that have reduced progressivity steadily since the 1960s. The highest marginal tax rate (the rate on taxable income in the highest bracket) fell from about 91 percent to about 35 percent in the early 2000s. Also since the 1960s, corporate income taxes have fallen by about half even as payroll taxes increased.

Back in 2006, the famously successful investor Warren Buffet actually complained that his secretary faced a higher tax rate on her earnings than he did on increases in his wealth, which included capital gains that went completely untaxed. As he put it, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we are winning.”

Notice that this is a very different kind of class struggle than one over profits and wages at the point of production. It’s a struggle over the social wage, payment for health, retirement, and safety net benefits that are more efficiently provided through the state than by the private sector, benefits that have been won through a process of democratic political bargaining.

Employers have obvious economic incentives to oppose increases in the social wage, if they are forced to pay for them. However, public social spending can enable them to keep wages lower by shifting some of the costs of reproducing workers to the public as a whole. This is why the incidence of taxation really matters. Increases in the social wage, such as the expansion of health insurance benefits, have partially compensated for fifty years of stagnation in the inflation-adjusted earnings of the majority of employees in the U.S. In recent years, however, even this partial compensation has declined, and it is currently under direct attack.

The Trump administration has been doing everything in its power to cut taxes for the rich and cut social benefits for low- and middle-income families (see this dissection of the so-called Big Beautiful Bill passed last summer). The current shutdown of the U.S. government is a showdown, with Democrats reduced to rather desperate efforts to simply hold the line by insisting on the maintenance of health care subsidies for the Affordable Care Act.

Indignant taxpayers who believe they are paying more than their fair share point to federal income taxes, which are relatively progressive, partly because many Americans don’t even earn enough to pay them. But federal income taxes account for only about half of total tax revenues, and more than half of corporate income taxes are simply passed on to consumers in the form of higher prices. Other taxes, including state and local sales and property taxes, are regressive.

These regressive taxes largely countervail progressive income taxes, leading to little differential impact across the income distribution. The Institute on Taxation and Economic Policy reports that in 2024 the richest 1 percent of Americans paid about 23.9 percent of all taxes, but their share of total taxable income was 20.1 percent. This estimate does not include consideration of “unrealized capital gains” (increases in the value of their wealth). The poorest 20 percent of all Americans were estimated to pay only 1.5 percent of their income in taxes, but their share of total income was only 2.6 percent. Many of them were living in poverty because they were raising children or caring for elderly family members — activities that should be counted as contributions to our “social reproduction.”

It’s a bit complicated, isn’t it? The difficulty of sorting out who is actually paying for what surely helps explain why it has become difficult to defend — much less increase — the social wage.

In California, the Service Employees International Union (SEIU) has proposed a ballot initiative to impose a one-time 5 percent tax on billionaires. What benefits could be derived for the people of California from a wealth tax on the state’s 200 or so billionaires?

This union initiative provides yet another example of class struggle over the distribution of the costs of social reproduction. The explicit rationale of the proposal for a one-time wealth tax is to counter $30 billion in threatened federal cuts to California’s Medicaid program of health insurance for low-income families, as well as to provide more support for public education in the state.

Will it solve the state’s fiscal problems? Obviously not. But it’s a step in the right direction, like a policy that the city of Los Angeles established in 2023, imposing a higher property tax rate on extremely valuable real estate in order to help fund affordable housing — a “mansion tax.”

What about the argument that wealth taxes will cause the super-rich to flee?

Yes, this is always the threatened response, and some super-rich will probably follow through — especially those who already own multiple mansions around the world. But many wealthy individuals value their local communities enough to stay put. Here in Massachusetts, where I live, we passed a Fair Share Amendment to our state constitution in 2022 to allow a 4 percent surtax on incomes of more than a million dollars. We haven’t seen a significant exodus, and we’re using the revenue to help fund community colleges and repair potholes. I’m proud to say that my union, the Massachusetts Society of Professors, played a crucial role in winning this amendment.