Emmanuel Saez and Gabriel Zucman’s plans for wealth taxation represent a welcome and, frankly, overdue shift in the attention the economics profession pays to issues of wealth inequality. Central to this shift, of course, has been their sometime co-author, Thomas Piketty, whose 2014 book Capital in the Twenty-First Century tracked the relentless redistribution of economic rewards over the last four decades from workers—those whose income derives mainly from wage labor—to capitalists, those whose income stems instead from the rents and profits that their wealth delivers to them. Zucman and Saez provide a powerful proposal for how we might begin to address this problem—what R. H. Tawney called “the problem of riches”—through ambitious political action. But in some instances we need to be more radical than they propose, and there is also much to be done outside the tax system itself. (Some of this Piketty himself outlines in his new book, Capital and Ideology.)

In some instances we need to be more radical than Saez and Zucman propose, and there is also much to be done outside the tax system itself.

Start with our reasons for caring about wealth inequality. Zucman and Saez are right that wealth inequality matters not just to the degree that it determines income inequality. As they put it, “wealth is power.” Great wealth can be both cause and effect: a source of unacceptable forms of economic power as well as a consequence of such power. Wealth is not just a way of storing up opportunities for future private consumption, as in some rather innocent economists’ models. More often it is a means to shift political agendas in the direction of the wealthy by converting economic power into political power, or a way of buying educational and social advantages for family members at the expense of their fellow citizens. 

In this way, extreme wealth inequality corrodes the possibility of genuine democratic politics and economic justice. And these effects create accelerating feedback loops—inequality cascades—that only reinforce the power of the wealthy to organize society in their own interests. The result is the unconscionable form of economic and political domination we see today, which undermines the standing and status of all citizens. In a flourishing economy, wealth flows and circulates between and across individuals and generations. In our comparatively diseased economies, by contrast, this recirculatory flow is blocked; instead wealth pools in particular locations, creating a distorting overconcentration of power, like a malignant growth that reroutes the body’s blood flow to maintain itself. Radical surgery is a reasonable course of action in dealing with such a serious condition.

We should not be even remotely troubled, then, by the most “radical” version of the wealth tax Zucman and Saez propose. A 10 percent marginal tax rate on wealth holdings over $1 billion may go beyond anything proposed by Elizabeth Warren or Bernie Sanders, but it is a proportionate response to a deep and difficult problem. Nevertheless, while billionaires may provide an easily identifiable group at the very top of the wealth distribution, the problems of wealth inequality—and of the corresponding concentration of social, political, and economic power—reach much further down that distribution.

There is also, then, a strong case to be made for serious rates of wealth taxation applied to those who are merely among the deca-millionaires and centa-millionaires. Moreover, although Zucman and Saez focus on the taxation of wealthy citizens by means of a consolidated wealth tax, there are pragmatic reasons to retain specific forms of property taxation on residential property, especially as a means of taxing some members of the wealthiest groups who manage to find ways to transcend international boundaries. One need only think here of the way that many wealthy Russian plutocrats have stored their money outside their national jurisdiction through buying residential property in London, Paris, or New York.

Tax avoidance also points to a troublesome catch-22: the very features of wealth inequality that make it so corrosive simultaneously make it so difficult to solve.

There are also good reasons to retain a distinct inheritance tax in addition to the consolidated wealth tax. Multigenerational transmission of inherited wealth renders especially vivid the incompatibility of extreme levels of untaxed wealth with the aspiration to have a society that rewards individual industry, intelligence, or ingenuity. This problem is especially salient in countries such as the United Kingdom, which counts among its native billionaires figures such as the 7th Duke of Westminster, a twenty-nine-year-old deca-billionaire who owes his good fortune to a seventeenth-century ancestor taking possession of rural land onto which London subsequently expanded. Needless to say, given the political power of the superrich, and the way that current tax codes are designed to further their interests, the Duke managed to avoid almost all inheritance tax after coming into his fortune at the age of twenty-five, through the use of various trusts and other legal mechanisms. This kind of avoidance is more a reason to re-engineer a more effective inheritance tax system, rather than to think that we should do without it.

The Duke of Westminster’s tax avoidance also points to a troublesome catch-22: the very features of wealth inequality that make it so corrosive simultaneously make it so difficult to solve. There is no magic wand; it is precisely because wealth generates political power that it is so difficult for radical progressive politicians to get elected. But even putting that obstacle aside, there remains the problem of reversibility: a future government can easily dismantle whatever a progressive government is able to achieve in reconfiguring the fiscal state. It is a daunting political project to create a significant shift in the operation of the tax system. And even if it were won, such a victory would be relatively fragile, unless other things could be changed to disperse economic and political power. That’s why the fiscal response to inequality can only be part of a broader story.

Although it was defeated in the General Election of December 2019, the recent program of the British Labour Party provides a powerful template for what this kind of institutional turn in economic thinking might look like. Labour’s 2019 manifesto outlined a comprehensive vision that sees the use of the tax system as one tool among others, while also looking to strengthen the bargaining position of labor unions, reform corporate governance, and create—as a new kind of institution—“Inclusive Ownership Funds” giving workers in large firms a share in capital returns and a voice in decision making.

A tax system overhaul would be relatively fragile, unless other things could be changed to disperse economic and political power.

Those kinds of deep structural changes would transform the way that the economy works day to day, rebalancing power between workers and employers. And, most importantly, these structural reforms would not be so easily reversed as changes to the tax code. Institutional changes can become part of everyday life, having the capacity to create the conditions for their own support, going beyond the fragility of overreliance on the tax system. That is why, to take a U.S. example, Bernie Sanders’s adoption of a version of the Inclusive Ownership Fund proposal is at least as important as his proposals on wealth taxation as an element of a new economic settlement. And this is also why Piketty, in his new book Capital and Ideology, sets his proposals for wealth and inheritance taxation within a broader set of proposals for creating a form of twenty-first-century “participatory socialism,” involving the reorganization of corporate governance and the creation of a new economic architecture that disperses power within economic institutions.

This is not so much to criticize the work done by Zucman and Saez as to identify its important limitations: I’m sure they would agree that taxation can only do part of the work of restructuring the relations of power within our economies. But the point is that wealth inequality is more than a matter of public policy options. It is a political problem that requires a political solution—a collective political project to restructure our unequal societies. The hard work of building forms of countervailing power to stand against the power of the wealthy is a long task and one that has to be conducted at every level and in every locality. It is about building unions within workplaces, and strengthening local democratic institutions that can defend the interests of citizens over the interests of capital. It’s a struggle that necessarily must take many forms. One vital part of that larger project is to show with clarity and confidence, as Zucman and Saez do, that the fiscal system can be reconfigured to help create a more just society—that we do not need to accept dismal orthodoxies that cannot imagine an economy that breaks free of the disfiguring effects of extreme inequality.