In the last forty years or so, the tax system in the US has reinforced extreme economic inequality. The three progressive taxes that have been created to compensate for such inequalities are the individual income tax, the corporate income tax, and the estate tax. However, they all have weakened in recent years. As a consequence, the government has almost no tools left to redistribute wealth from the top to the bottom. The absence of a strong progressive taxation system takes place in a background situation in which the US is more unequal than ever.
Here I will defend a justification of a wealth tax. The justification I propose is different from traditional justifications, and it avoids some of the problems they have. Specifically, my justification is sensitive to the fact that a wealth tax (and, indeed, many other taxes) might burden agents who should not be burdened with this tax (or, who should not be burdened as much as other agents).
In the existing literature, a wealth tax has mainly been defended on the ground that it is incompatible with the core liberal value of equality. I will call this defense outcome-based. This defense has two different versions.
First, the fact that just a few people concentrate so much wealth, while the vast majority have little or nothing, undermines equality. The government should therefore implement a wealth tax. The wealth tax will simply compensate for the fact that there are very rich and very poor people. A society that prides itself of being egalitarian simply can’t accept the big wealth gaps that we see in current societies.
Second, those who have too much money can use it to unfairly tailor rules of society in their favor. For wealthier people it is easier, tempting and feasible to shape the rules of the game in their favor, and the new rules that they create will, in turn, presumably increase their wealth even further. Whenever this happens, the core value of equality is also undermined, but in a different way. The problem here is that the already existing economic inequality creates the possibility of unequal access to political participation. This is morally unacceptable, as members of a political society should have equal access to the decision process that affects them. The purpose of the wealth tax would be, precisely, to prevent this kind of interference from happpening. By becoming less wealthy, their influence will weaken.
The outcome-based approach is a powerful strategy to justify a wealth tax (or any tax), but it has serious limitations. The main shortcoming of the justification of the wealth based on outcomes is that it ignores or neglects the question of how taxed wealth was created in the first place and, as a consequence, it ends up burdening agents who do not deserve to be burdened. Consider the case of someone who inherited a huge amount of money, versus someone who has obtained the wealth by profitting from structural market injustices. In the former case, the heir has to pay the estate tax (if the tax exists) and the regular wealth tax. In the latter case, the taxpayer will have to pay the wealth tax only, at the same rate as in the former case. The direct application of the outcome approach is obvious: the burden of paying the tax will be unfairly distributed among taxpayers. Because of these limitations, the outcome approach will have to be complemented with what I call a procedural approach. The outcome approach, combined with the procedural approach, is a better strategy to justify a reasonable and fair wealth tax.
The main intuition that underlies the procedural approach is that wealth that results from unjust transactions is undeserved, and therefore those who benefit from these kinds of transactions should not be taxed the same way as those who obtained their wealth through just transactions. Unjust transactions can be, for example, transactions that result from exploitation, domination, or unjust structural market conditions. Defending the procedural version of the tax requires the following steps: first, defining “unfair” transactions. Second, explaining how the procedural approach strengthens the outcome-based approach. Third, discussing its feasibility in public policy.