Did President Biden and other Democrats read 18th century revolutionary Tom Paine before they proposed their taxes on extreme wealth? Hard to know, but the striking similarities between their efforts to tax the mega-rich and Paine’s suggest they might have.
It turns out that Paine, who was too revolutionary for most of his fellow colonial rebels, proposed a wealth tax in 1791 that in motivation and concept—if not specific design—was not unlike those suggested recently by many prominent Democrats.
The details of Paine’s tax differ from recently proposed taxes on wealth and, in fact, seem somewhat ambiguous to 21st century eyes. But the principles of his tax are immediately familiar.
Wealth and democracy
Paine’s motivation was explicit: He felt substantial wealth, especially inherited wealth, was fundamentally anti-democratic.
For him, a steep, progressive tax on extreme wealth would limit the political power of the elite. Paine called it the tyranny of the ruling class, who were the monarchy and the aristocracy in his day. His solution: a 100 percent tax on annual increases in mega-wealth.
Paine thought the tax would help finance a robust social safety net, though he didn’t expect it raise much money. He was much more interested in creating an incentive for wealthy landowners to divide their estates.
Unlike some modern-day wealth tax proponents, Paine had no problem with someone making money, even a lot of money, through hard work and commerce. But he distrusted excessive wealth and loathed inherited wealth that he felt was the source of many of society’s ills.
According to a new analysis by my TPC colleague Vanessa Williamson and George Washington University law professor Jeremy Bearer-Friend, the targets of Paine’s 230-year-old effort and today’s wealth taxes are strikingly similar. Once Paine’s income and tax parameters are adjusted for inflation, roughly the same share of taxpayers would be subject to many proposed modern taxes on extreme wealth as would be taxed by Paine.
The authors compare Paine’s tax on the mega-rich with several modern versions, including Senator Elizabeth Warren’s (D-MA) wealth tax, a tax on unrealized capital gains proposed by Senate Finance Committee Chair Ron Wyden (D-OR), and a tax on inheritance proposed by Lily Batchelder. She was a law professor when she designed the plan but is now the top Treasury tax official in the Biden Administration. TPC sponsored a fascinating conversation about how Paine’s tax applies to today’s debates over taxing wealth that you can watch here.
Paine’s plan contained multiple tax brackets and progressive rates, features Vanessa and Jeremy call “cutting edge” for the time. His tax base is harder for a modern tax analyst to follow: He described his plan as a tax on property. But his tax brackets are based on annual increases in wealth, rather than wealth itself.
In that sense, Paine’s idea technically looks more like Wyden’s annual tax on unrealized capital gains. But details aside, it feels more like Warren’s wealth tax.
Paine’s tax system was steeply progressive. It started with a zero bracket on increases in wealth of less than about $108,000 in 2020 dollars and just 1.25 percent on annual income (or perhaps returns to wealth) of about $1 million. But once annual increases in assets reached about $50 million (which implies wealth of about $1 billion), its top rate was a confiscatory 100 percent.
The Paine tax is probably an appropriate description. Indeed, since by some accounts he was born Thomas Pain, the label may be even more suitable.
How Paine would tax Musk
Vanessa and Jeremy calculate that a US billionaire today would be allowed $27 million in annual after-tax returns under the Paine tax. Any additional increases in wealth would be taxed at 100 percent.
They looked at how the tax would apply to the richest Americans in 2021. Elon Musk, who saw an unusual boost in wealth from 2020 to 2021, would have paid an average rate of 83 percent. Jeff Bezos would have owed 32 percent, and Warren Buffet 25 percent.
Vanessa and Jeremy suggest that Paine’s somewhat uncertain tax base reflects the fluidity of wealth and returns to wealth when designing a tax system. Similarly, those looking to tax great wealth today are trying to get at the same money in three different ways—an annual tax on wealth, an annual tax on returns to wealth, or a one-time tax on inheritances.
Each has its advantages and disadvantages, but all have the same aim. Williamson and Bearer-Friend describe it this way: “These proposals clarify the centrality of political values that motivate tax policy, including the enduring concern with wealth as a challenge to democratic ideals….By stemming the tide of economic inequality, his proposal would reduce the outsized power of wealth in political life.”
Republicans and even many Democrats would dispute that this is their primary motivation. But it surely describes the aspirations of some who want to tax mega-wealth today, just as it described Tom Paine’s goals more than two centuries ago.