Resentment of the Wealthy Is Not a Policy

(Bloomberg Opinion) -- A lot of people resent the wealthy, especially lately, and according to polls they like some of the latest plans to take away the money of the rich. Maybe so. But most people still admire the wealthy, especially if they got that way by working hard, and that’s why I think these plans will turn out to be less popular than Democrats now believe.

At least in the U.S., most envy is local, and not directed at the super-rich. When it comes to income inequality — and unequal outcomes more generally — people tend to worry about their high-school classmates, their in-laws, their neighbors and their colleague down the hall, who perhaps received a bigger raise or a nicer office. Those are the resentments that turn into true grudges, not the wealth gap between you and Bill Gates.

This is only human nature, and it has been remarked upon at least since Adam Smith; it is harder for distant people and events to shake our emotional core. If you were worried about the emotional impact of inequality, for example, you might wish to start not with changes to the tax code but by stopping people from putting photographs of their vacations on social media. (I am not, just to be clear, suggesting this.)

The segment of society most worried about the very wealthy seems to be America’s intellectual class — maybe because for them the wealthy really are a rival source of influence. American intellectuals tend to read a certain kind of news, or attend a certain kind of event-and-conference circuit, that for them the wealthy do seem to be vivid “local” figures. Or at least more vivid than they are to the pauper sleeping under the bridge.

This is the context in which to consider Senator Elizabeth Warren’s proposal for a wealth tax on the rich. However much attention it may command on social media, I don’t see it as a big winner in a general election. It directs the attention of the audience to the word “tax,” and surely most non-wealthy people will start wondering when they might be taxed more, too.

Besides which — a fact that is getting too little notice — the U.S. already has what is in essence a wealth tax: Tax rates on capital gains are not indexed for inflation. With this nominal-based tax system in effect, it is harder to accumulate wealth over time, and the nominal-based tax erodes the real value of the asset base.

Whether or not you think this capital-gains policy is a good idea (I do not), it is striking how few Americans understand that it serves as a wealth tax. It is not marketed or proclaimed as such. And I don’t expect Republicans or Democrats to counter Warren by saying, “Don’t worry, we already have a wealth tax.” Isn’t this a sign that voters simply are not yearning for a wealth tax?

The other major form of wealth taxation in the U.S. is of course the property tax, which is paid by large numbers of Americans and used to finance local services, rather than being primarily directed against the wealthy. It is seen as a way of making local government accountable to those who vote and pay for it, not as an engine of wealth redistribution. If anything, by maintaining the quality of school districts in wealthy communities, its net distributive effects are anti-egalitarian. That system seems to be a permanent part of the American political landscape.

Finally, think about politics in the broadest possible terms. What Americans really want is for their lives, their jobs, and society in general to get better — an admittedly ill-defined but nonetheless instantly familiar concept. Americans also want their leaders to deliver such outcomes with the considerable resources already at their disposal. Is that so unreasonable?

Anyone promoting a wealth tax is in essence saying that there aren’t many ways of improving society within current resource constraints. That is a brand of pessimism which Americans voters have not often rewarded.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “The Complacent Class: The Self-Defeating Quest for the American Dream.”

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