Wealth Tax Remedy for Future Depression

If the world economy gets stuck in a serious and prolonged slump, the most likely response by governments is to do nothing useful. This is because the only effective action is for governments around the world to take over ownership of large chunks of their economies’ productive assets. This ownership would give them control over a lot of spending decisions and therefore the potential to restore effective demand to levels that would get the economy moving again. Of course, it is hard to imagine governments adopting such a policy unless there is a really big change in the political landscape.

A lot of government ownership could be achieved with a fairly minimum amount of fuss by hitting the very rich. They could be slugged with a 100 per cent tax on any wealth that made them more than just very affluent. My hunch is that the cut off would be somewhere around $10 million. Paying this tax would not require the liquidation of financial assets such as shares and bonds. They would simply be handed over.

I am not sure how much government ownership would be achieved in this way. I suspect not enough. So what could they do next? Extending the wealth tax to the large number of people who are merely very affluent would cause far too much political resistance and would require the government to take over a lot of small and medium sized businesses. This problem could be avoided while greatly increasing government ownership and control if all shares in large public and private firms that have not been seized by the wealth tax were compulsorily exchanged for government bonds. In this way wealth is not confiscated, it is simply put in a form where it cannot cause quite so much mischief.

The government would then have considerable control of the financial sector. It would own the banks and all shares in large companies. To minimize the hassle involved and to quarantine them from political machinations the government could assign these shares to existing or newly formed investment houses. These firms would function much as they do now, except that they would be instructed by their new owner to invest on the assumption that the economy was taking off again. Likewise, companies would be instructed to utilize existing capacity on that assumption. All this activity would then create a self-fulfilling prophecy.

Through these institutions the government could also act as so-called investment angels and venture capitalists, indeed more vigorously than the present lot. They would take a stake in small private entrepreneurial startups and prepare them for the big takeover just like now.

Everything could then just chug along pretty much like the world as we know it. Businesses would continue to be driven by senior executives on high profit based salaries. And I think the government owned investment funds would be fairly effective vehicles for market discipline because their success and failure would show up clearly in their bottom line. (Am I missing anything free-marketeers?)

OK we have got rid of the super-rich and eliminated the business cycle.  That’s pretty good. However, I suspect a society which has just stripped the rich of their wealth, would be up for more than simply replacing them with government-owned capitalism.

18 Responses to “Wealth Tax Remedy for Future Depression”

  1. 1 Arthur

    Main immediate problem is capital flight eg current news of richest French becoming Belgian in response to 75% income tax.

    Coordinated global action can resolve that.

    Problem with leaving them “very affluent” (say $10 million assets) is that a high proportion will devote any surplus over minimal living requirements efforts to attempting to “make life worth living” again by counter-revolutionary terrorism. May be politically necessary to reduce the funds available for counter-revolution.

    Long term problem of course is that the “business” types will enthusiastically proceed to grab what they can, legally and illegally, eventually restoring private ownership.

    Solution still has to involve workers actually taking power, not just “the government”.

    I’m confused about the extent to which decisive means of production are owed by the super rich rather than the “better off”.

    Detailed analysis of statistics is needed but I like the concept of targeting the 1% most wealthy. That is a VERY sizable proportion of the population who can make an enormous fuss, but ought to be manageable by the other 99%.

    Surely the top 1% would cover ownership of the decisive assets?

  2. 2 davidmc

    Here is some useful wealth data.

    In the US and Western Europe and similar places, around 1 per cent of the population have income earning assets of over US$1 million. Source

    Globally there are 11 million such individuals. (same source)

    In the USA in 2007 the top 1 per cent had 42.7 per cent of incoming earning wealth Source

    "In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America." (same source)

    Wealth of the top 1 per cent is highly skewed to the top 0.1%

    ‘The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well. ….

    ‘Until recently, most studies just broke out the top 1% as a group. Data on net worth distributions within the top 1% indicate that one enters the top 0.5% with about $1.8M, the top 0.25% with $3.1M, the top 0.10% with $5.5M and the top 0.01% with $24.4M. Wealth distribution is highly skewed towards the top 0.01%, increasing the overall average for this group. The net worth for those in the lower half of the top 1% is usually achieved after decades of education, hard work, saving and investing as a professional or small business person. While an after-tax income of $175k to $250k and net worth in the $1.2M to $1.8M range may seem like a lot of money to most Americans, it doesn’t really buy freedom from financial worry or access to the true corridors of power and money. That doesn’t become frequent until we reach the top 0.1%.’ Source


  3. 3 tomb

    I think transparency is important here as everywhere. We need to know who they are and do they pay taxes now and how much. There are a number of companies in Bermuda etc to avoid tax and those people hiding wealth there and in trusts etc should be outed. The notion that they are benefiting the rest of society through there wealth needs to be exposed as rubbish and the burden they impose on society analysed. Also the flight of capital through this method already exists think we are talking of an increase.

  4. 4 Arthur

    Just a reminder about the sources of wealth data posted at the Occupy Melbourne Economic Discussion group blog about a year ago:


    The Credit Suisse databook towards the end of the comments is particularly useful.

    Also re Tom’s point on transparency, there’s a link to individual Norwegian income tax available online.

    My favourite factoid is that about 1000 billionaires own more than the entire bottom half of humanity.

    That of course reflects the huge numbers who own nothing in third world.

    Unfortunately many people in developed countries still see themselves as having a stake against redistribution to that poor majority of humanity (eg immigration and boat people hysterics in Australia).

    If top 1% has about half the total assets, expropriating that should be enough to respond to Depression?

    For political tactics, simply respond to demands for austerity by proposing revenue be raised from the top down. ie First reduce the 1000 billionaires to same level as the rest of the super rich, then peel off super rich etc until finances ok. No justification for cuts to mass living standards until whole wealth of upper layers has been taken.

  5. 5 davidmc

    To help with the budget deficit, you could have very high marginal tax rates for very high incomes and also a wealth tax that would allow the government to pay off debt.

    Where austerity is needed because of foreign government debt such as Greece, you would hand over the assets of the local rich to foreign creditors. Of course, you could not then complain about the sudden increase in foreign ownership!

    Explaining what the rich do and don’t do and explaining how they do what they do do badly is an important project.

    It would seem that not many small business owners are in the $1 million and above category. I assume that must be because ‘the bank owns the business’ The wealth figures are net of debt. So if this is true – and it needs to be confirmed – they could generally be left alone. Except the bank debt would now be to a government owned bank.

    I am inclined to treated those in the 99th to 99.5th percentiles far more lightly. They anly have between $1 and $2 million and you would be doubling the number being antagonized.

    How much of the wealth is owned by the super rich? Still checking on that. According to Wikipedia, there are 1,226 billionaires with $4.6 trillion in wealth. But that is only the top of the super rich. Even half a billion is very rich.
    I have two global wealth figures to compare with:

    Global wealth according to Boston Consulting Group
    I think this is assets under management

    Global household wealth (credit suisse, p.17)

    Page 20 The World Distribution of Household Wealth 2008

    Table 4: Estimated global numbers of US$ millionaires and billionaires, 2000, official
    exchange rate basis
    Wealth ($) Number above
    1 million 13 674 966
    10 million 469 361
    100 million 16 110
    1 billion 553

    $100 million is a bare minimum to be really wealthy. Assuming a rate of return of 6% that is $6 million p.a. to spend. If you have a few houses to maintain, servants, fleet of cars, yacht, lawyers etc $6 million won’t go far.

  6. 6 Arthur

    “It would seem that not many small business owners are in the $1 million and above category. I assume that must be because ‘the bank owns the business’ The wealth figures are net of debt. So if this is true – and it needs to be confirmed – they could generally be left alone. Except the bank debt would now be to a government owned bank.”

    That “sounds right” to me. Very worthwhile to confirm it as provides solid basis for neutralizing or even alliance with small business who are potentially the biggest counter-revolutionary force.

    Also need analysis of the layer of executives, lawyers, accountants etc that see themselves as having a stake in ownership and profits rather than as merely employees of those that do.

    Firming it up into an “alternative budget” showing actual numbers for paying off the debt by expropriating the rich while leaving vast majority better off would be a major contribution!

    Note that mainstream politics revolves around detailed budget maneuvers for income tax and welfare transfers to maximize votes of beneficiaries v losers.

  7. 7 tomb

    not sure that a redistribution of wealth would change the fundamentals that much but would certainly eliminate the huge disparity and isolation of the lower incomes. Think the change in economic direction would have to be directed otherwise it would be just a change in ownership with revenue going in a different direction with marginal difference. Think we need to create jobs and administer capital to those areas we decide require it. Can’t do this without knowing details and hence need for transparency.

  8. 8 Arthur

    Sorry, I was using “redistribution” loosely (wrongly). I don’t support transfer of assets directly to the poor but to public ownership that uses them on behalf of all and therefore benefits the poor at expense of those from whom assets transferred.

    Problem I mentioned is that the general public in countries like Australia has assets as well as income enormously greater than the majority of humanity and many see themselves as having a stake in perpetuating that.

    Complete abolition of commercial secrecy is an essential part of program. But there is already sufficient publicly available data for adequate policy formation. We just have to learn to use it properly. (Cf Lenin’s use of primitive Tsarist statistics in “Development of Capitalism in Russia”).

    PS I’m currently enrolled in online courses such as “Introduction to Finance” and “Computational Finance and Financial Econometrics”. There huge numbers of well designed courses coming on stream and I recommend them to others. Regular weekly assignments with grading is surprisingly motivating.


    Also doing other stats courses. However my interest is for theory rather than detailed analysis. Hope others tackle that!

  9. 9 Davidmc

    Pension funds in Australia manage AU$1.35 trillion.  (ABS 5655.0 – Managed Funds, Australia, June 2012)

    That would have to mean that ‘in theory’ we already own a fair chunk of the capital stock.  Indeed around 16% if all of it were all invested locally. (1301.0 – Year Book Australia, 2012  – National Balance Sheet)

    Productive assets are worth about AU$8 trillion. (Interestingly, half of this is land and subsoil assets.)


  10. 10 Arthur

    Slightly off topic but I mentioned earlier the “model thinking” course as of general interest.

    Mainly impressed by “percolation model” giving insight into dialectical leap from quantity to qualitive change with the gradual incease of prairie flammability reaching a tipping point that ensures a single spark will start a prairie fire rather than dying out locally.

    That course also restarted on September 3 (and its deadlines and grading are unimportant so fine to join now).


    Another course I enrolled in “Networked Life” just started a few days ago and covers this sort of stuff in much more depth.


    In particular the video 3-2 for lecture 4 “Contagion in Networks” covers this percolation model very clearly. Join now either to just see that video or to stay with the course (in which assignments and grading deadlines probably do matter more than for model thinking, so its important not to delay joining).

    I suspect network issues are highly relevant to wealth distribution and expropriation as well as to dialectics generally.

  11. 11 v.stewart

    Very well intentioned but uneducated article. In my humble opinion you don’t understand economics 101. This is hardly surprising since universities nowdays often teach ‘consumption’ theory economics which supposes that by consuming we are productive. Obviously this is wrong since consumption is the opposite of production but somehow the plethora of propaganda has gotten to many. For example:

    “This ownership would give them control over a lot of spending decisions and therefore the potential to restore effective demand to levels that would get the economy moving again.”

    Indeed it would give them control but the consequence would be disastrous. Spending by government does not give rise to much potential at all to restore demand because ‘spending by government’ is an expense on the productive class since it is funded by tax. An expense is only good if it is applied honestly and profitably. Both of which it is clearly historically evident that governments rarely achieve such a thing. Your proposal would only reduce the application of honest and profitable demand that you so desperately seek. That tax money diverts away from wage demand or cheaper prices and puts it into the ‘corruption filter’ where it comes out offering much less. Again study government spending corruption, incompetence and waste and you will see the error of your proposal in short time.

    Austrian economics is true economics those theories and proponents easily predicted the current world economic crises. It is based upon ‘savings’ as the standard for economic health not ‘consumption’. Please study Austrian economics carefully. http://www.mises.org/

  12. 12 tomb

    v stewart the quote you use clearly says “ownership”:. not sure how you could confuse ownership with tax given your deep knowledge of economics 101. Austrians were not the only ones who saw crisis coming. My psychic told me. While those who didn’t see it clearly had/have little idea those that did don’t necessarily fully understand capitalism.

  13. 13 v.stewart

    tomb: I’m not confused, he says so precisely in the article repeatedly, eg:
    “A lot of government ownership could be achieved with a fairly minimum amount of fuss by hitting the very rich. They could be slugged with a 100 per cent tax…”. Plus the articles title: “Wealth Tax Remedy for Future Depression”.

    BTW a 100% tax on the rich is ludicrous and demonstrates a complete blinding by propaganda of simple principles of energy exchange. Think about it…..who would work if they are taxed 100% of their income? And how could the rich be rich if they were paying such a 100% tax? It’s dribble. But before the internet these scams had legs because they were pushed incessantly by ignorants in power.

    Did your psychic tell your family & friends to move their super before it got cut in half? Did you psychic tell you how to defend against the next global financial crises/scam due in 2013? Did you psychic tell you that the Aussie dollar has been FALLING slower than the US dollar and that doesn’t make it strong?

    It’s not fair or in your best interest that you try to belittle this effort of true economics. We are trying to protect a lot of innocent people who have suffered unfairly for decades due to this kind of consumption propaganda. Thankfully now because of the internet ppl are slowly getting educated and can make themselves immune this rubbish.

    I trust the author of this article had no malicious intent and I sympathize with his desire to help end unjust suffering.

  14. 14 tomb


  15. 15 Davidmc

    Hi guys

    I should check my RSS feeds more often.

    The point I am making is that if we are in a depression with lots of labor and production capacity unemployed for no other reason than we had a capitalist crisis and depression, a government that took on ownership of a great chunk of the economy would be in a position to instruct its agents to start producing stuff. I am sure my way of explaining it is inadequate but the general idea to me is pretty obvious – only a capitalist economy can have unemployment of resources for no good reason.

    You are right about governments being corrupt and that is a major problem for the socialist revolution. However, I think it is ultimately surmountable once the masses are roused from their slumber. OK that just proves I am a left nut job. The very idea of the average stiff being energized to ensure the health of the body politic!

    Just a free plug for the article I am trying to get published in the World Economic Review. It is currently undergoing an online reviewing process. It is entitled Re-Opening the Debates on Economic Calculation and Motivation under Socialism. So check it out.

  16. 16 tomb

    Corruption not only in government is a problem but it doesn’t mean we have to accept it. Transparency is something we should demand for government and private companies. Total transparency!! People can’t make decisions if they don’t have the facts. Ponzi schemes and Enron fiasco’s thrive because there is little transparency. If we want to expose the rich and how they accumulate their wealth then transparency will play a large part in that.

    WE want everyone to take responsibility for their lives and their society so they need all the information to that.

    No more secrets!!!!!!!!!!!!

  17. 17 informally yours

    No more secrets. The first thing I learnt from the ‘bureaucrats’ in the Union I became President of was its secrets. The one’s you keep in the interests’ of not bringing the organisation into disrepute. The one’s that mean that the course is therefore set regardless of the Presidential views.

    Like the time a financial officer siphoned off who knows how much and was quietly paid out and replaced, subsequently becoming involved in a major fundraising arm of a government department!

    What is occurring in many other private and GOs and NGOorganisations is the equivalent of shuffling them off to the next parish as the church did with slippery priests etc..Leaving plenty of scope for them to hone their skills. There was also the secret about the ex staff member work cover claim among others. I regret ‘keeping those secrets’ and thus perpetuating the culture of secret keeping in the interests of the government/organisation./party etc.

    This examination of interests is pivotal in ensuring that in future officials and organisations involved in placing the buckets of money they have to get ‘working’ can be supervised and accountable and exercising a well-informed duty of care. (As Mundine does in unfortunately choosing to resign in protest of the approach of the Gillard govt.)

  18. 18 tomb

    The figures below do not include state or local government expenditures or government owned companies. This is why the USA is low and is around %40 and china is so low when the government owns a large percentage of all companies and the provinces also have a large input. This is also true of a large percentage of countries like australia where local and state governments play a role. I am not putting these figures as gospel as it is not important just that the % of economic activity by governments is significant. Most of us are monitoring or giving handouts to the workers!!!

    We are closer than we imagine. Transparency might clear a few things up and give us a perspective and the idea of what our potential really is in the short term.

    Validating stereotypes since 2005.
    Tuesday, October 25, 2011
    National government spending as a percentage of GDP by country
    A few years ago, I became frustrated when unable to find a table of national governmental expenditures as a percentage of GDP by country. So, using data from the invaluable CIA World Factbook, I created one.

    It’s gathered some dust, and an update is in line, especially since something or other having to do with the global economy occurred between then and 2010, from which the most recent data come. An inquiry from an author (who I won’t name but who is certainly welcome to be made known in the comments if he so desires) searching for more recent numbers served as the impetus to actually get it done. Getting out in front of the inevitable objections, a disclaimer: These data do not include all government spending and state, local, and provincial government outlays of course differ from country to country. For consistency, all figures are in exchange rate terms:

    GE as GDP
    1. Iraq
    2. Cuba
    3. Ireland
    4. Lesotho
    5. Denmark
    6. France
    7. Finland
    8. Sweden
    9. Belgium
    10. Austria
    11. Libya
    12. Netherlands
    13. Italy
    14. United Kingdom
    15. Portugal
    16. Iceland
    17. Bosnia and Herzegovina
    18. Hungary
    19. Greece
    20. Serbia
    21. Equatorial Guinea
    22. Cyprus
    23. Germany
    24. Norway
    25. Slovenia
    26. Belarus
    27. Spain
    28. New Zealand
    29. Cape Verde
    30. Canada
    31. Latvia
    32. Bolivia
    33. Botswana
    34. Croatia
    35. Malta
    36. Eritrea
    37. Brunei
    38. Lithuania
    39. Luxembourg
    40. Slovakia
    41. Moldova
    42. Japan
    43. Romania
    44. Swaziland
    45. Estonia
    46. Bulgaria
    47. Algeria
    48. Saudi Arabia
    49. Chad
    50. Oman
    51. Macedonia
    52. Czech Republic
    53. Australia
    54. South Africa
    55. Burundi
    56. Malawi
    57. Trinidad and Tobago
    58. Georgia
    59. Switzerland
    60. Angola
    61. Ukraine
    62. Vietnam
    63. Mongolia
    64. Nicaragua
    65. Kuwait
    66. Namibia
    67. Jamaica
    68. Israel
    69. Kyrgyzstan
    70. Uzbekistan
    71. Seychelles
    72. Ecuador
    73. Papua New Guinea
    74. Aruba
    75. Uruguay
    76. Mozambique
    77. Zimbabwe
    78. Egypt
    79. Guyana
    80. Albania
    81. Jordan
    82. Nepal
    83. Lebanon
    84. Belize
    85. Colombia
    86. Kenya
    87. Gabon
    88. Panama
    89. Burkina Faso
    90. British Virgin Islands
    91. Venezuela
    92. Brazil
    93. Senegal
    94. Yemen
    95. Bahrain
    96. Azerbaijan
    97. Armenia
    98. Malaysia
    99. Turkey
    100. Morocco
    101. Tunisia
    102. Rwanda
    103. Tajikistan
    104. Ghana
    105. Tanzania
    106. Mauritius
    107. Mexico
    108. Syria
    109. Iran
    110. Sierra Leone
    111. Qatar
    112. Kazakhstan
    113. United States
    114. Argentina
    115. Russia
    116. Zambia
    117. China
    118. Sri Lanka
    119. Chile
    120. Guinea
    121. El Salvador
    122. Honduras
    123. Togo
    124. South Korea
    125. Cote d’Ivoire
    126. Haiti
    127. Benin
    128. Afghanistan
    129. Laos
    130. United Arab Emirates
    131. Poland
    132. Republic of the Congo
    133. Pakistan
    134. Costa Rica
    135. Cameroon
    136. Sudan
    137. Thailand
    138. Peru
    139. Taiwan
    140. Gambia
    141. Indonesia
    142. Cambodia
    143. Philippines
    144. India
    145. Paraguay
    146. Hong Kong
    147. Bahamas
    148. Uganda
    149. Ethiopia
    150. Central African Republic
    151. Dominican Republic
    152. Madagascar
    153. Nigeria
    154. Bangladesh
    155. Singapore
    156. Guatemala
    157. Turkmenistan

Leave a Reply