Tangle - The global wealth tax debate.

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Quick hits.

1. Israel began its operation in Gaza's southern city of Rafah yesterday, where Hamas's army battalions are stationed and more than 1 million Gazans are sheltering from the war. Israel struck less than 24 hours after warning 100,000 residents to evacuate. (The operation) Hamas had accepted a ceasefire proposal drafted by Qatar and Egypt early on Monday, but Israeli officials said it did not meet their conditions. (The proposal)
2. Columbia University announced that it was canceling its main commencement ceremony due to campus safety concerns amid weeks of student protests over the war in Gaza. (The decision)
3. A U.S. soldier who was stationed in South Korea was arrested in Russia over the weekend on charges of theft. The soldier traveled to Russia on his own between deployments, U.S. officials said. (The arrest)
4. Sen. Bernie Sanders (I-VT) announced he would run for a fourth term. Sanders, 82, is the second-oldest senator behind Chuck Grassley (R-IA). (The announcement)
5. After finding he violated his gag order for a tenth time in his trial in Manhattan, Judge Juan Merchan threatened Trump with jail time yesterday. (The threat)

Today's topic.

A global wealth tax. Late last month, G20 ministers from Brazil, Germany, Spain, and South Africa signed a motion and published an opinion piece in The Guardian calling for a global tax of 2% on the world's 3,000 billionaires. The proposal is to raise roughly €250 billion (or $270 billion) a year to fight against global poverty, and has also been backed by the head of the International Monetary Fund.

The ministers argued the tax would reduce inequality and help the global economy rebound from the shock of the pandemic.

“It is time that the international community gets serious about tackling inequality and financing global public goods,” they wrote. “One of the key instruments that governments have for promoting more equality is tax policy. Not only does it have the potential to increase the fiscal space governments have to invest in social protection, education and climate protection. Designed in a progressive way, it also ensures that everyone in society contributes to the common good in line with their ability to pay. A fair share contribution enhances social welfare.”

The G20 ministers behind the push say they will attempt to build international consensus on the wealth tax and push for a joint declaration at a meeting of G20 finance ministers and central bankers in July. Brazil, which currently chairs the G20 (each year, the group selects a different member country to serve as president and set an agenda), put the proposal on the agenda for a meeting of finance ministers earlier this year. Research from the non-governmental policy organization Oxfam has shown that billionaires became 34% wealthier by the end of 2023 than they were in 2020, largely due to a boom in asset values. The collective gain was about $3.3 trillion. 

In the U.S., it is not clear if government officials or the Biden administration would back a global wealth tax, though Treasury Secretary Janet Yellen has already endorsed a global minimum tax on corporations. 

The plan already faces stiff opposition from critics, who say that any kind of global minimum tax would amount to a form of taxation without representation. According to polling from Gallup, Democrats are roughly three times more likely than Republicans to favor heavy taxes on the rich, although all Americans have expressed greater support for higher taxes on the wealthy in the past two decades.

Today, we're going to explore some arguments about a global wealth tax from the right and left, then my take.

What the right is saying.

• The right opposes any kind of wealth tax, suggesting it amounts to a power grab by left-wing governments. 
• Some say more taxes on the wealthy won’t have the effect progressives intend.
• Others say history shows wealth taxes are disastrous for economies.

The Wall Street Journal editorial board said to “watch out for a global wealth tax.”

“In our new socialist age, the demand to tax and redistribute income is insatiable. The latest brainstorm arrives in a proposal by four countries in the G-20 group of nations to impose a 2% wealth tax on the world’s billionaires,” the board wrote. “As you might expect, this would principally be a tax raid on Americans, who are the most numerous billionaires. It would also be taxation without representation, since it would be a body of global elites attempting to impose a tax without having passed Congress.”

“The wealth-tax proposal underscores the growing danger from the G-20, which is increasingly at odds with U.S. interests. Founded in 1999 after the Asian debt crisis, the G-20 is becoming a vehicle for the world’s left-wing governments to gang up on the U.S.,” the board said. “The Biden Administration is run by liberal internationalists who are happy to cede more power to multilateral institutions… For this crowd, taxing American billionaires to redistribute income around the world is all too imaginable.”

For The Hoover Institution, Richard A. Epstein argued wealth tax proposals are “a poor idea.”

“Two years ago, at the height of the pandemic, billionaires accumulated capital at near-record rates. Now, potential gains from a wealth tax have fallen because of the enormous declines in wealth,” Epstein wrote. “In sum, the American billionaires lost $660 billion this past year, about one-third of the $2 trillion in losses worldwide. Nothing guarantees that they will recover those losses any time soon, if ever. Considering a hypothetical 3 percent wealth tax rate, close to $20 billion in domestic wealth-tax revenue disappeared in 2022; this number would be far higher if the wealth tax also reached foreigners.”

“The effort to impose a wealth tax runs afoul of the fundamental principles of taxation put in place throughout the course of the income tax era, which now spans more than a hundred years,” Epstein said. “Worse, the tax will damage the economy. Today’s ablest entrepreneurs will be forced to devote their time to defending their fortunes against the predation by the one or more states that lay claim to their wealth… An overall decline in social wealth will likely lead to a reduction of investment and wages and consequently to a lower standard of living and a loss of tax revenues from other sources.”

In Barron’s, Scott Hodge called the wealth tax “the worst form of sin tax.”

“President Joe Biden wants a wealth tax, but it’s not because he has anything against rich people, he says,” Hodge wrote. “Biden’s words and actions reflect progressives’ competing motivations when it comes to taxing the rich. To some, a wealth tax is all about raising revenue. To others, it is an advanced form of sin tax, aimed at punishing wealth and addressing inequality. But history shows taxes aimed at punishing behavior and raising revenues often fail at both, while hurting the poor in the process.”

“Progressives often look to Europe for inspiration on tax policy. Ironically, many European countries, including France, have abandoned their wealth taxes because of the unintended consequences,” Hodge said. “Much like the estate tax, the notion that a wealth tax addresses inequality is an illusion. In reality, these taxes cause a transfer of wealth among the rich while the government skims a bit off the top from the transaction.”

What the left is saying.

• The left generally supports a global wealth tax, framing it as a necessary move amid rising inequality.
• Some say a wealth tax would be toothless without international cooperation.
• Others say the tax would be a step in the right direction toward addressing inequality but wouldn’t solve the issue outright.

In The New York Times, Gabriel Zucman wrote “it’s time to tax the billionaires.”

“One obstacle to taxing the very rich is the risk they may move to low-tax countries. In Europe, some billionaires who built their fortune in France, Sweden or Germany have established residency in Switzerland, where they pay a fraction of what they would owe in their home country,” Zucman said. “There is a way to make tax dodging less attractive: a global minimum tax… So no matter where a company parks its profits, it still has to pay at least a baseline amount of tax.”

“The proposal stays firmly in the realm of income taxation. Billionaires who already pay the baseline amount of income tax would have no extra tax to pay. The goal is that only those who dial down their income to dodge the income tax would be affected,” Zucman wrote. “The idea that billionaires should pay a minimum amount of income tax is not a radical idea. What is radical is continuing to allow the wealthiest people in the world to pay a smaller percentage in income tax than nearly everybody else.”

In The Guardian, Larry Elliott argued the global wealth tax plan “makes perfect sense.”

“US billionaires make their money in ways that are often taxed at lower rates than the ordinary wage income of American workers. Overwhelmingly, their wealth comes from the rising value of their assets, and they use tax loopholes and legal accounting moves to minimise the tax they pay,” Elliott said. “The number of billionaires almost tripled in the 2010s and has continued to rise over the past four years… even though people on much more modest incomes have also seen the value of their homes and pension plans increase, those with high levels of wealth to begin with were the biggest gainers. Even a 2% wealth tax would leave the rich much better off than they were a decade ago.”

“One objection to wealth taxes is that they stifle innovation and growth. This argument would be more compelling if there was evidence that the massive increase in the wealth of the super-rich over the past decade had financed an investment boom. In fact, investment has been historically weak,” Elliott wrote. “Countries that have operated wealth taxes in the past have found they raise relatively small amounts of revenue, in part because the very rich can shift their money to tax havens. For the plan to work there would need to be international cooperation to prevent capital flight.”

In Jacobin, David Moscrop said the wealthy’s opposition to wealth taxes is “a good reason to pursue them further.”

“Wealth taxes are not a panacea. They won’t dismantle the structure that produces billionaires and leaves workers struggling to feed themselves,” Moscrop wrote. “A 2 percent tax would be a pittance. Of course, in a remotely just world, this small number would be irrelevant because there would be no need of the tax in the first place. That’s because there would be no category of billionaire, no class of wealth-hoarder who enjoyed the capital and the power that shape affairs in their interests while the many struggle to make ends meet.”

“Despite the limits of a global wealth tax, there are virtues that make the undertaking worthwhile. For one, extracting hundreds of billions of dollars means there’s more money for states to spend fighting climate change, funding social programs, building infrastructure, and so forth. More money for collective undertakings of social import is more money for good and necessary causes,” Moscrop added. “Successfully implementing a billionaire tax would indicate a modest but notable power shift, an assertion that the many — and the states that are ostensibly meant to represent them — do indeed retain some control over the powerful few.”

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism, or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.

• I wrote half of “My take” today before reading any opinion pieces, and I generally leaned against this proposal.
• What I read didn’t change my mind; I don’t think this would be efficient, and I have many unanswered questions.
• The idea of redistributing wealth from the global ultra-wealthy sounds appealing, but not if that money goes to governments instead of the truly needy.

I tried a little experiment today. I decided to write down a few thoughts about this issue before I read a single opinion piece, and then write the second half of "my take" after I read the various views that were out there. So, let's start with how I was feeling before reading any of the arguments about this proposal:

In principle, I'm fine with the premise. I can certainly concede that billionaires have benefited greatly from the last few years of economic change, and that nobody needs a billion dollars — especially when so many people globally are starving and struggling. We're basically asking billionaires to give up relatively little (for them) to do a lot of good for the masses. In theory, that doesn't offend my limited-government sensibilities.

At the same time, though, I just don't know how something like this would work. I am not at all a fan of a global economic rule that all (or most) countries are bound to. There are certain areas where global rules make sense, like international rules of war, but even in those very sensible spaces there is no consistent authority to enforce the rules when countries violate them. I don't see how this would be any different. Even if we accept the idea that taxing the world's billionaires at a flat rate of 2% is a good policy prescription, my guess is that many billionaires would avoid paying it by simply moving themselves or their wealth to countries not participating in that tax plan, or those least able to enforce it.

To me, this proposal invites more questions than it provides answers. Who is going to actually go and collect this money? Plus, how do we decide who doles it out? What government projects are these taxes going to fund, and who gets to determine where it goes? In the U.S., we vote for representatives who get to decide how to use our tax dollars. How can this system coexist with a tax imposed by an international body that no one has voted for? And do the billionaires get a vote on what happens to the money?  

Funnily enough, when I was at the TED conference in Vancouver a few weeks ago, one of the few talks I actually got to see was Rory Stewart's address about poverty. Stewart is a British academic and former member of Parliament who helped oversee UK government programs to fight poverty.

I'm sure his talk will be online soon, but the gist of his argument — which I found very compelling — is that governments are very bad at fighting poverty, and the best way to do so would just be to give impoverished people moderate-sized one-time cash payments. Stewart spoke about how he used to be a government optimist, but his on-the-ground experience with both large governmental and simple cash-transfer programs) to fight poverty convinced him he was wrong. Which is just to say that I don't think giving these governments an extra quarter-trillion dollars to fund some bloated anti-poverty projects is going to help much.

After spending a few hours reading all the different arguments on this topic, I have to admit... my opinion didn't change much. Sorry. I hoped this would be more exciting.

On the whole, it seems like my gut reactions were very similar to the arguments under “What the right is saying.” Some of those writers added additional points to my argument, like the obvious one that any global tax like this is sure to start with a small group of people (like 3,000 billionaires) but will almost certainly expand to a larger pool of rich people to tax from. That is, historically, what taxes do: They expand. 

Conversely, The New York Times opinion piece by Gabriel Zucman was the most compelling piece I read in favor of the wealth tax — but not on the principles of the argument. Mostly, Zucman illustrated just how wealthy these billionaires are, just how low their effective tax rate can be, and just how good they are at avoiding taxes. He did a great job of convincing me I should have absolutely zero sympathy for the billionaires whom this rule would apply to, adding one important distinction about the proposal: The 2% wealth tax applies only to billionaires who avoided paying income taxes. 

If someone like Bernard Arnault, the French businessman and art collector who is worth about $210 billion, paid no income tax, then this proposal would collect roughly $4.2 billion from him. Therefore, Zucman argues, this doesn't veer into a potentially unconstitutional wealth tax but instead constitutes a penalty for not paying income tax.

Still, Zucman agrees that getting these billionaires to participate would be difficult, and he doesn't do anything to answer my biggest questions: Who gets the money, and how do we decide what to do with it. His entire pitch is based on the idea that “fixing capitalism” includes a step where we give hundreds of billions of dollars to hundreds of governments across the world and trust them to solve poverty. Ironically (because this sounds a lot more radical), I’d find this approach a whole lot more appealing if I was assured that it was just a direct wealth transfer (i.e. giving money directly to the global poor).

In other words: I'm not worried about scraping a couple billion dollars from someone who is stratospherically wealthy and avoiding paying taxes; I'm worried that the end result would be to inflate government coffers and not actually solve poverty.

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Your questions, answered.

Q: From Student Loan Forgiveness to Title 9 to Social Media coercion during Covid and just recently the FTC eliminating non-competes and the reclassifying of independent contractors, it seems as if the Biden Administration is purposefully tying itself up in the courts knowing they most likely won't win. I'm curious if you have any perspective on this? What is their endgame? Why keep pushing student loan forgiveness, for example, knowing it's likely to be challenged and fail again? It's all so very puzzling to me.

— Aaron from Colombia, MO

Tangle: At the risk of being too reductive, the Biden administration is issuing rules and executive actions because — after a strong first two years of lawmaking, it can’t pass any legislation. 

In 2023, Congress passed the fewest laws of any year in decades. That’s due in part to the divided nature of the current government — Republicans have a slim majority in the House, Democrats have the White House and an even slimmer majority in the Senate — but it’s also caused by increasing partisanship: Congress has been on a general trend of passing fewer substantial laws since 1996. With the prominent recent exception of Speaker Mike Johnson (R-LA) navigating the passage of a foreign aid package, the Biden administration has been tied to a Congress that seems committed to working against passing any new laws.

That’s bad news for a president hoping to tout some fulfilled campaign promises going into reelection. 

So, I think Biden’s endgame here is simple: Try to follow through on the things you campaigned on doing as much as possible. Because if that platform was compelling enough to get you elected, then being able to say you delivered on it (or tried, but Republicans stopped you!) might be enough to get you re-elected. 

Let’s take the example of student aid: Yes, much of Biden’s debt cancellation has already been struck down by the courts, and much more is likely to be. But a lot of it has been successful — his administration has approved $146 billion of debt relief for 4 million borrowers. Whether you approve of that or not, it’s something he campaigned on doing.

The same is true for new Title IX rules, reclassifying marijuana, and trying to crack down on independent contractors (or, regulate the gig economy). I don’t think Biden’s end game with trying to accomplish these goals via federal action is to tie up the court system; I think he’s just trying to claim that he’s taking action so he can tell voters that he’s enacting the platform that won him the presidency in 2020. And, if things get caught up in the courts, he can point to that as evidence of his efforts.

Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.

Under the radar.

Are we talking too much about mental health? Researchers at the University of Oxford are beginning to warn that we are in danger of overdoing the focus on mental wellness and instead encouraging kids to identify with disorders they may not have while over-interpreting their normal emotional responses as symptoms. The research has shown unexpected results in trials of school-based mental health interventions in the United Kingdom and Australia, where students who participated in training for mindfulness, cognitive behavioral therapy, and dialectical behavioral therapy emerged no healthier than peers who did not participate. Their view remains a minority position among specialists in adolescent mental health, who argue the more urgent problem is lack of access to treatment. The New York Times has the story.

Numbers.

• 52%. The percentage of Americans who think the government should redistribute wealth via heavy taxes on the rich, according to a 2022 Gallup poll.
• 79%. The percentage of Democrats who think the government should redistribute wealth via heavy taxes on the rich.
• 24%. The percentage of Republicans who think the government should redistribute wealth via heavy taxes on the rich.
• $13.76 trillion. The combined wealth of the world’s 2,660 billionaires in 2021.
• 42.3%. The percentage of all federal income taxes paid by the top 1% of U.S. taxpayers in 2020, according to the Tax Foundation. 
• $1 trillion. The amount of corporate profits shifted to tax havens in 2022, equivalent to 35% of all the profits booked by multinational companies outside of their headquarter country, according to the 2024 Global Tax Evasion Report.
• 40%. The percentage of global profit shifting attributed to U.S. multinationals. 
• $250 billion. The estimated amount that a 2% global tax on billionaires would generate in revenue.

The extras.

• One year ago today we’d just published a Friday piece saying to stop holding Ukraine to impossible standards.
• The most clicked link in yesterday’s newsletter was our Friday piece about the recent student protests.
• Nothing to do with politics: $40,000 in cash was found in bathrooms at a movie theater and a KFC in Ohio.
• Yesterday’s survey: 1,104 readers answered our survey on lab-grown meat with 44% saying they’re willing to try it based on taste and cost. “Assuming equivalent taste, nutrition, and cost, I would see no reason NOT to favor it,” one respondent said.

Have a nice day.

Responding to something that makes you angry by writing about it on a piece of paper then shredding it up can help with controlling anger responses, according to a research team in Japan. The study, published in “Scientific Reports,” is the culmination of years of previous research on the association between writing and anger reduction. "We expected that our method would suppress anger to some extent," lead researcher Nobuyuki Kawai said. "However, we were amazed that anger was eliminated almost entirely." Science Daily has the story.

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