Rewind: Tax extreme wealth to save our democracy

Last month saw yet another record in terms of the fortunes held by the nation's superrich. In July 2024, the roughly 800 billionaires in the U.S. were collectively worth about $6 trillion, the highest amount ever. In light of this, it seemed like a good time to replay a prior episode of Policy for the People examining the need to tax extreme wealth. In August of last year, Bob Lord of Patriotic Millionaires joined us to discuss why taxing the rich is essential in order to shrink inequality and save our democracy

Transcript

Last month saw yet another record in terms of the fortunes held by the nation's superrich. In July 2024, the roughly 800 billionaires in the U.S. were collectively worth about $6 trillion, the highest amount ever, according to an analysis by Americans for Tax Fairness.

These 800 billionaires together have wealth that exceeds, and by a lot, the combined wealth of the bottom half of all households in the U.S. The analysis by Americans for Tax Fairness also showed that the wealth of billionaires has more than doubled since the enactment of the massive Trump tax cuts in 2017. Officially known as the Tax Cuts and Jobs Act, this tax package was heavily skewed in favor of the rich. But many of these tax provisions are scheduled to expire in 2025, creating an opportunity to set a new course. In light of these developments, it seemed like a good time to replay a prior episode of Policy for the People examining the need to tax extreme wealth.

In August of last year, Bob Lord joined us to discuss why taxing the rich is essential in order to shrink inequality and save our democracy. Bob is a senior advisor on tax policy for Patriotic Millionaires, as well as an associate fellow at the Institute for Policy Studies. Here's our conversation with Bob Lord. 

(Juan Carlos Ordóñez, host): So, Bob, why don't we begin by you sharing a little bit with us about Patriotic Millionaires, as well as about your background, how you became involved in tax policy? 

(Bob Lord): Sure. We'll start with the Patriotic Millionaires. We're an organization of wealthy individuals who believe that the rich have to be taxed more in this country. And the organization was formed around three principles. One is a truly progressive tax system. The second is a livable minimum wage. And the third is equal political participation. My career was mostly as a tax lawyer. I ran for Congress in 2008, and the issue that motivated me the most was inequality.

My campaign was ultimately unsuccessful, but I started to focus a lot at that point on the intersection between our tax law and inequality. A couple of years after that, I became affiliated with the Institute for Policy Studies. I began writing and trying to do as much work as possible to promote the idea that we absolutely have to increase the taxation of the very wealthy. And then in 2022, I joined the Patriotic Millionaires. 

(Juan Carlos): So when we hear debates about tax policy, particularly around the need to raise taxes on the rich, the argument is often framed as "we need to raise taxes on the rich in order to raise revenue to pay for schools, health care and so on." You argue that this is incorrect. What, in your view, is the main reason why we need to raise taxes on the rich? 

(Bob): We need to raise taxes on the rich to address what's really a horrific concentration of wealth in this country. There's a very famous quote from Justice Brandeis that goes, I think, "we can have democracy in this country or we can have great wealth concentrated in the hands of very few, but we can't have both."

And we have succeeded over the last 40 years, basically, in recreating the concentration of wealth that existed at the height of the Gilded Age. You know, folks don't pay that much attention to the size of some of these billionaire fortunes, some of them with wealth of $200 billion. If you were born at the time Columbus sailed to America and you had increased your wealth by a million dollars every single day since then, and somehow managed to live for 500 plus years, you would actually have a little bit less wealth than Elon Musk.

It's just staggering. And we have these fortunes that are far beyond any significance for the goods and services they'll buy, and they're significant only for the amount of power they will buy. And in the end, the power they do buy. 

(Juan Carlos): To what extent have changes in the tax system over the past few decades fueled this rise in wealth inequality that you just described?

(Bob): They're probably the single largest contributing factor to it. There are other things. You know, organized labor has been dramatically weakened over the last four decades. Antitrust laws have been weakened by court decisions over the last four decades. But the really big one is that the very wealthy spend only a tiny fraction of what they have on living expenses.

Unlike the vast majority of the rest of us, who use most of our incomes to pay for the cost of living. So the only way to constrain the build-up of their wealth is if they're sufficiently taxed, because that's their only real cost. And really beginning in the late 1970s, but accelerating dramatically during Reagan's term, the taxes on the very wealthy were just slashed.

We went from a top tax rate of 70% when Reagan took office, to for a while only 28% after the 1986 Tax Act. The rate of tax on corporations, most of the profits of which ultimately flow to the very rich, has dropped dramatically. The taxation of estates and inheritances has fallen off a cliff. And the creativity of tax avoidance planners –  and I worked in this area for a while, so I'm familiar with it – has allowed even billionaires to pass their entire estates to their descendants free of tax. So it wouldn't be possible to overstate the role of tax leniency towards the rich in this buildup of gigantic fortunes. 

(Juan Carlos): I know that you've done some research into the way that one particular billionaire, Phil Knight, Oregon's wealthiest individual, has done estate tax planning in such a way as to avoid large amounts of taxes. Can you describe a little bit about what your research uncovered?

(Bob): I want to start out by saying I don't condemn Phil Knight for his tax planning. I think he just was playing the hands of cards that Congress dealt him. He did something that probably the great majority of folks with wealth at his level are doing as well. Clever lawyers have developed several strategies to minimize or even completely avoid billions of dollars of estate tax.

And I was able to go through the securities filings that Phil Knight and his son Travis had made with the Securities Exchange Commission of transfers of stock of Nike, where most of the Knight Family wealth is held. And I was able to kind of reverse engineer a big part of Phil Knight's estate plan. And it was fascinating because each of the major estate tax avoidance vehicles was featured in his estate plan. The centerpiece of Mr. Knight's estate tax avoidance planning is something called grantor retained annuity trust.

And I don't want to bore people with the details of it, but it basically allows billionaires to use a special kind of trust to transfer huge amounts of wealth. And if done systematically, huge amounts of wealth into trusts for their descendants. And this loophole was kind of blown open in the year 2000 by a court decision in favor of the taxpayers who had used one of these grantor retained annuity trusts that happened to involve the Walton family.

But that's 23 years ago, Juan Carlos. And Congress has done nothing so far to close this loophole. Ten years ago, the lawyer for the Walton family, the one who thought up this strategy, estimated that well over $100 billion of estate tax had been avoided using this strategy. I think he probably had the number too low at the time, but certainly by now that number is probably north of half a trillion dollars of estate tax that has been avoided through this.

And I think the significance of that is not so much that it's half-a-trillion dollars that could have been raised as revenue to “pay for things” because we really have the unlimited ability to pay for things anyhow just by issuing Treasury bonds. The significance is that that's 500 billion dollars still lodged in the fortunes of these hugely wealthy families.

And those fortunes are just continuing to grow. And as they grow, more and more power is being concentrated in these families. And it becomes, Juan Carlos, a vicious cycle where the their wealth grows and then they use the wealth to make the laws and regulations more favorable to them. 

(Juan Carlos): Are there other dangers or harms that flow from such vast inequality? You already described the impact on our democracy and the ability of the powerful to rig the rules in their favor. But what other harms flow to ordinary folks from such vast inequality? 

(Bob): Well, it hurts the economy. There's this myth out there that, well, you cut taxes on the rich and they're the job creators. No, they're not the job creators.

The job creator is consumer demand. People having money in their pockets to buy things. And when we allow this wealth and income to flow into the pockets of the very rich, who basically use it to chase speculative investments or, like I said, to buy power, that means that wealth and that income is not in the hands of folks who would be out there buying goods and services.

So it really chokes the economy to have this really obscene level of inequality. 

(Juan Carlos): So my colleagues at the Oregon Center for Public Policy and I do talk about the need to raise taxes on the rich so that we can generate the revenue needed to pay for essential public services like schools, libraries, healthcare. There's a big difference between fiscal policy at the state level than at the federal level, right?

(Bob): States are constrained in their budgeting. They do have to raise revenue from taxes and fees and whatever to pay for things like schools and firefighting and so forth. The federal government doesn't have that restriction. The federal government can issue Treasury bonds and pay for things. States don't have that kind of flexibility.

And we need to have it this way at the federal level, because those Treasury securities create liquidity in the national economy and in the global economy. You know, the dollar is the primary reserve currency of the world. And that's a really good thing for America. And as the world economy expands, more foreign foreign governments need to be able to hold higher levels of Treasury securities. There's kind of a proportionality to it.

(Juan Carlos): If you're just joining us, you're listening to Policy for the People. And in this episode, we are replaying an August 2023 conversation with Bob Lord, a senior advisor on tax policy for Patriotic Millionaires. And we're discussing why taxing the rich is essential in order to shrink inequality and save our democracy.

So let's switch gears and talk about how we should go about taxing the rich. What do you think are the most important changes to our tax system that we need to enact? 

(Bob): You can look back to when we sort of got it right. Shortly after World War II, or really during World War II and all the way through the 1970s, we had high tax rates at the top. The share of the nation's wealth held by the very rich declined significantly during those decades. The rich were doing very, very well all the way through, but it was much, much less than it was during the Gilded Age. 

But I kind of think that we sort of got lucky in that we had some taxes that were not really geared towards the goal of limiting the concentration of wealth, limiting inequality, but nonetheless accomplished it. I sort of liken it to walking around the block to get to your next door neighbor's house. You can get there, but a lot of things can go wrong along the way. It's a lot better to just walk next door. And what I mean by that is, from the perspective of the super rich, we have this menu of taxes. And we sort of hope that they magically get to the right result in terms of how much the wealthy are being taxed.

But I think the better way to do it would be to have a tax that is geared to one of three things: their level of wealth, the level of their increase in their wealth, or the transmission of wealth, which would be taxed on an estate or on an inheritance. Look at our income tax rate. We call it an income tax, but it doesn’t tax economic income. It taxes what we define to be income in our tax code. You know, if you and I each purchased Amazon stock and it goes way up in value, and at the end of the year you sell your Amazon stock and I hold on to mine. Well, we each had the same economic income. Our wealth grew by the same amount.

But you have income for tax purposes because you sold your Amazon stock. And I don't have income for tax purposes because I held onto mine. Jeff Bezos, Elon Musk, Warren Buffett. They've had humongous increases in their wealth, real economic income, but haven't paid a dime of tax on it unless and until they sell their Amazon stock or their Berkshire Hathaway stock.

And we don't have any taxes on wealth other than local state property taxes. And it's not even on wealth because, you know, you have a house and it's worth, you know, $300,000, but you have a $250,000 mortgage. Well, you pay tax on $300,000. But if a rich person owns that $300,000 house outright, they pay tax on $300,000.

So you're paying the same tax on $50,000 of wealth as they're paying on $300,000. And we do have an estate tax system, but it's completely moribund. It's just not functioning at all. So I think we need to move from the current tax system to one that actually taxes real economic income. In other words, the growth of wealth, the wealth itself, or the transmission of wealth, or some combination of the three to get to where we want to be in terms of how much we limit this concentration of wealth, at least in terms of a tax on wealth itself.

(Juan Carlos): One of the arguments you hear against such a tax, such a wealth tax, is that it's unconstitutional because the US Constitution has an apportionment rule which requires that certain taxes be allocated among the states according to the population. And I know that many, maybe most legal scholars disagree and say that a wealth tax is indeed constitutional. But as we all know, we have in place a very conservative Supreme Court majority that often sides with business interests and the powerful. So there's a real concern that this particular Supreme Court would strike down a wealth tax regardless of what the case law and history may say. So for those of us who would like to see a wealth tax in place, how do you think we should approach this issue of the constitutionality of a wealth tax? 

(Bob): Well, I'll make it a little more complicated, Juan Carlos, because the Supreme Court just agreed to hear a case called Moore vs. United States, which was a challenge to the imposition of a tax under the Tax Cuts and Jobs Act, where folks were required to pay tax on their share of earnings of a foreign corporation, whether or not those earnings are distributed. And there's a fear that the reason the Supreme Court decided to hear this case is not so much because they care about that case, but because they want to preemptively declare unconstitutional wealth taxes and taxes on unrealized income – you know that the gains in the Amazon stock that you have that you haven't sold yet.

But the way I see it is, it's not productive to say, the Supreme Court might declare this unconstitutional. We don't even know what the composition of the Supreme Court will be when a case finally gets to the Supreme Court, if one of these taxes were enacted. So it's really speculative. If something's obviously unconstitutional, it would be unethical for Congress to enact it knowing it's unconstitutional.

That's not the case here. The arguments saying that it is constitutional, as you referenced, are as strong, or stronger, than the one saying it's unconstitutional. So it seems to me that the appropriate course of action is to do what's necessary, what's in the best interest of the American people. And if the Supreme Court then strikes the tax down as unconstitutional, we'll have a decision to make at that point whether to let that ruling stand or whether we do what we did in the late 1800s when the Supreme Court struck down the income tax as unconstitutional, and we amend the Constitution. Yes, amending the Constitution is hard. But, you know, at some point something will happen where it's important enough to go ahead and amend the Constitution. 

And I really think that there's a moral imperative operating here, that we have to do something about the increasing concentration of wealth, because Brandeis had it right. If we allow more and more wealth to be concentrated into the hands of very few, we'll lose our democracy. And we're already in the process of seeing that happen. If you look at what these billionaires are doing, where they're buying off Supreme Court justices, they're buying politicians right and left. We're staring into the abyss and we need to do something besides pursuing a wealth tax.

(Juan Carlos): What else do you think we should be looking at in terms of taxing the rich? Should we look at raising income taxes on the rich as well? What else should we be trying to move forward? 

(Bob) I think certainly we need to restore the progressive income tax code that we used to have. You know, back in the 1950s and 60s, the income tax rates would rise throughout the economic scale. What happened with Reagan, and it's continued this way, is that the policy decision was made to stop increasing tax rates once you got up to basically the bottom of the top 1%. So the doctor and the lawyer who, you know, they're doing well, flying first class, but they're not buying politicians. Those folks are paying the same top marginal rate as Bill Gates. And so we need to restore that progressivity throughout the economic scale where levels of income above $50 million at $100 million of income, those top rates are up there at 80 and 90%. We do need to restore that.

We also have horrible loopholes in the tax code where what really is income is offset by bogus deductions. So we have all of these loopholes that really need to be closed. But I think in the end, that's just part and parcel of doing a better job of taxing real economic income.

(Juan Carlos): What do you think needs to happen to actually bring about change? What needs to happen for the nation to finally decide to tax the rich in a big way that can really curb inequality? 

(Bob): You know, what has to happen is people need to understand how damaging it is. And we already have a bunch of folks who do get it. We have to change the percentages a little bit at the margin. You know, we have to get another 5 or 7% of the population to understand what's going on here. The Patriotic Millionaires have this project they call the Great Economy Project. And what they're doing is going into small, mostly conservative towns and doing kind of a combined listening and education program where we get folks together. And the idea is to talk only about the economy, not to talk about guns or abortion or anything like that, but only about money. And talk about what's happening in our tax system, what's happening with wages, what's happening with CEO compensation. We used to have CEOs making say, 20 times as much as the average worker, and now they're making over 300 times what the average worker does.

And so far, the reception has been really good to the point where we're folks’ minds are changing and they're becoming actively engaged. I think we can make enough progress to get enough progressive politicians elected that we can change things. And look, we succeeded before, and that's what the New Deal was about. Do we need some horrible thing like the Great Depression to happen before we get there? Let's hope not. Let's give it a try before that. 

(Juan Carlos): Well, Bob, thank you very much. 

(Bob): Thanks so much for having me. 

(Juan Carlos): That was Bob Lord of Patriotic Millionaires discussing why taxing the rich is essential in order to shrink inequality and save our democracy. 

Since our conversation with Bob, the U.S. Supreme Court issued a ruling on the case that he mentioned, Moore vs. United States, a case that many feared would be used to declare a wealth tax unconstitutional. But in June of this year, the Supreme Court issued a narrow ruling in Moore vs. United States, upholding the legality of the tax at issue in the case, avoiding, for now, the question of the constitutionality of taxing wealth. That's it for today's show. Thanks for listening and we will see you next time.