Taxes

The first solution to wealth inequality that most people think of is to raise taxes on the rich in order to fund cash or bond-based programs for the poor. Taxation is certainly necessary for containing financial inequality, and Figures 4 and 5 illustrate how income and wealth inequality have increased as the U.S. has decreased taxes on the rich over the last 50 years. Here are some links to more information on how unprogressive taxes have worsened the racial wealth gap and perpetuated dynastic wealth, and how to structure comprehensive tax reform. Nevertheless, Thomas Piketty has explained in detail why even European welfare states with very progressive taxation are still struggling with persistent inequality,10 so there are limits to taxation that must be understood.

Mathematically, in order to stop compound interest from increasing the wealth gaps that result from unequal ownership of the U.S. stock market, the United States would have to tax stock gains (i.e., capital gains) down to the rate of homes and bonds so that all assets have the same effective rate of return over time. Yet what would happen if the country actually did that? Well, stocks would no longer be worth the risk of market meltdowns, so investors would move money abroad. That would collapse the U.S. market, weaken the economy, cause job losses and decrease home values, and only worsen prospects for the poor and people of color as the country restricts social spending due to falling tax revenues. In real life, capital flight starts to occur long before one approaches the mathematical limits of taxation. For example, Norway recently increased its wealth tax by a small margin, from 0.85% to 1.1% per year, with the result that Norway's billionaires fled to Switzerland because it is a tax haven. The same thing would happen here if the U.S. taxes wealth aggressively.

These inherent limits of taxation explain why the United States should use baby stocks to democratize ownership of its stock market. Doing so would secure the equal rights and opportunities promised in America's founding documents, and it would not be socialism because the free market would still belong to individuals rather than to the State.