PDF Summary:The Triumph of Injustice, by Emmanuel Saez and Gabriel Zucman

In The Triumph of Injustice, economists Emmanuel Saez and Gabriel Zucman examine the inequities entrenched in the US tax system. They reveal how favorable treatment of capital income over labor income, combined with weaker enforcement against tax avoidance schemes by the wealthy, has fueled a dramatic rise in wealth inequality.

The authors propose a framework for restoring progressive taxation that includes a tax on the extreme wealth of billionaires, minimum global corporate tax rates, and income taxes to fund social programs like universal health care. Their analysis provides a compelling case for tax reform to sustain economic fairness and faith in democracy.

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Context

• By limiting monopolistic practices and encouraging competition, higher tax rates can lead to more efficient markets. This is because they can reduce the ability of large entities to dominate markets and stifle innovation.
• Wealth concentration can lead to ownership of major media outlets, allowing the wealthy to control narratives, influence public opinion, and suppress dissenting voices.
• Rent-seeking can lead to economic inefficiency as resources are diverted from productive uses to activities that merely redistribute wealth. This can stifle innovation and slow economic growth.
• With more public funds available, governments can invest in education and training, increasing the skill level of the workforce and enabling more people to start their own businesses.
• Wealthy individuals may use philanthropy to shape public policy and discourse according to their personal beliefs and interests, which can sometimes bypass democratic processes and accountability.
• Philosophers like John Rawls argue for a system where inequalities are arranged to benefit the least advantaged members of society, suggesting that high tax rates can be a tool for achieving such fairness.

Progressive Tax Policies in Other Countries Like the UK

The authors point out that the United States wasn't alone in implementing highly progressive tax policies. The UK went even further, with maximum income tax percentages climbing to 98% in the mid-twentieth century. Similarly, these elevated rates were imposed only on the top incomes and aimed to lessen inequality rather than primarily raise revenue. Like the US, the UK also experienced a significant decline in income and wealth concentration during this period. This indicates that progressive taxes, far from hindering economic prosperity, can be compatible with a thriving economy and a more equal society.

Practical Tips

• Create a personal budget that incorporates a progressive savings plan, mirroring the concept of progressive taxation. Allocate a higher percentage of savings from higher earnings and a lower percentage from lower earnings. This approach can help you manage your finances more effectively and build a savings habit that adjusts to your income levels.
• Explore historical tax rates to understand how they've shaped modern financial planning by visiting your local library or using online archives to find data on tax rates from different periods. This can give you a perspective on how tax policies have evolved and may influence your current financial strategies.
• Consider starting a side business to diversify your income sources. With the knowledge that higher tax rates affect top incomes, creating additional revenue streams can help you manage your tax burden more effectively. For instance, if you have a hobby or skill, such as crafting or web design, you could monetize it. This not only potentially keeps your primary income below the top tax threshold but also offers the chance to explore small business tax incentives.
• You can support businesses that practice fair wage distribution by choosing where you shop and what services you use. When you spend your money at companies known for paying their employees equitably, you're effectively voting with your wallet for a more balanced economic system. Look for businesses that are transparent about their pay scales or have certifications for fair labor practices.
• You can evaluate your personal beliefs about taxation and economic growth by journaling your thoughts before and after learning about the UK's experience with progressive taxes. Start by writing down your initial opinions on how taxes affect prosperity. After a period of time, reflect on any changes in your perspective, noting what influenced your shift in thinking. This exercise can help you understand the impact of taxation policies on your economic outlook and decision-making.

Restoring Progressive Taxes, Curtailing Avoidance, Ensuring Global Justice

The authors don’t just diagnose the problems; they propose practical solutions for reestablishing progressive taxes and ensuring a fairer, more sustainable global system. Their plan has several key points, addressing both domestic and international aspects of avoiding taxes.

Nations Must Regulate Multinational Companies to Ensure Fair Taxation

The authors argue that globalization doesn't make us fated for a downward spiral in corporate taxes, where companies pay lower and lower rates as they shop for the most favorable jurisdiction. They propose concrete steps that countries can take to regain control over tax revenue.

Unilaterally Impose Taxes on Income Moved to Tax Shelters

The authors propose that countries should start imposing remedial taxes on the earnings their multinational companies divert to low-tax jurisdictions. They highlight that this can be done unilaterally, without requiring any cooperation from low-tax jurisdictions themselves. This is possible because most countries now collect data on the profits and taxes of their own multinationals, broken down by country. The US, for example, could impose a global tax floor of 25% on all profits that American companies earn. If Apple pays 1% in Ireland, the US could claim the remaining 24%. This would directly incentivize companies to pay an equitable level of tax somewhere, rather than exploiting regulatory arbitrage for zero-sum gains.

Practical Tips

• Develop a habit of reading the financial sections of international news sources to gain a broader perspective on how multinational companies operate. By comparing the financial reporting from different countries, you'll start to see patterns and differences in how profits and taxes are handled globally, which can inform your understanding of international business practices.
• You can evaluate the impact of a global tax floor on your investments by reviewing the international diversification of your portfolio. If you own stocks or funds with significant overseas operations, research how the proposed tax changes might affect their profitability and, consequently, your returns. Adjust your investment strategy if necessary to mitigate potential risks or capitalize on new opportunities that arise from the shift in tax policy.

Global Floor Tax Rates and Sanctions Curb Cross-Border Tax Avoidance

The authors advocate for international cooperation to make this system even more robust and discourage tax havens from undercutting global standards. This involves two key elements: a global minimum taxation level and sanctions against uncooperative havens.

International Cooperation Achieved Via Info Sharing & Financial Taxes

The authors propose that the world's most significant economies—the G20 countries—should reach a consensus on a uniform minimum corporate tax level. This would level the playing field and eliminate the incentive for large companies to move profits to places with minimal taxes. This agreement would require information sharing between countries, a practice that is already happening to a limited extent. To reinforce this, the authors suggest imposing economic sanctions on tax havens that refuse to comply, such as taxes on financial dealings with those countries. This approach, already used successfully by the US to force information sharing on personal bank accounts, could effectively stop a downward competition and encourage a race to the top, where countries compete on the quality of their infrastructure, education, and workforce rather than by offering lower and lower tax rates.

Practical Tips

• Consider starting a virtual book club that focuses on economic development and policy. Invite friends, family, or online community members to read and discuss books on related topics. This can lead to a deeper understanding of the implications of policies like a uniform minimum corporate tax. During discussions, you can facilitate conversations on how such policies might affect different countries within the G20 and beyond.
• When making purchasing decisions, prioritize products from companies that are known for paying their fair share of taxes. This consumer choice sends a message that there is a market for ethically-operating companies. You can research and compile a list of such companies and share it with friends and family to spread awareness and influence their purchasing habits as well.
• Create a blog or social media page dedicated to highlighting successful international collaborations on environmental projects. Use this platform to share stories, interviews, and case studies from around the world that showcase the benefits of information sharing. For instance, if a certain fish species is thriving due to a joint conservation effort between two countries, post an article detailing the collaboration process and the outcomes.
• Encourage your workplace to adopt a responsible investment policy that excludes companies with operations in tax havens. Start by suggesting the idea to your HR or CSR department and offer to help draft the policy. This could involve setting up a meeting to discuss the benefits of ethical investing and how it aligns with the company's values.
• Start a blog or social media page focused on ethical investing, where you share insights on how to avoid transactions with non-compliant countries. This raises awareness and helps others make informed decisions. You don't need to be an expert; sharing your learning journey can be just as impactful.
• You can enhance your financial privacy by using cash for transactions whenever possible, reducing the amount of personal financial information that is digitally tracked and potentially shared. By opting for cash, you minimize your digital footprint in bank databases, which can be subject to information-sharing agreements.
• Create a social media campaign using infographics and short videos to illustrate the long-term consequences of declining tax rates on community infrastructure, education, and healthcare. This visual approach can help demystify complex economic concepts and engage a broader audience in advocating for responsible tax policies.
• Volunteer to mentor students or young professionals in your field to enhance workforce quality. By sharing your knowledge and experience, you contribute to the development of a skilled workforce. For example, you could offer to help a college student with their resume or provide insights into industry trends during a casual coffee meet-up.

Progressive Taxes on Assets and Income Could Boost Levies on the Extremely Wealthy

The authors advocate for a more comprehensive approach to imposing taxes on the wealthy: A combination of a graduated income tax, a robust tax on corporations, and a graduated wealth tax. They argue that this is necessary to counter prevalent tax avoidance schemes that allow the super-rich to pay minimal taxes.

Wealth Taxes Reach Billionaires With Small Taxable Incomes Better Than Income Tax

While many focus on raising top income tax rates, Saez and Zucman highlight a fundamental problem: Many billionaires, like Warren Buffett and Jeff Bezos, have very low taxable income despite immense wealth. Their earnings are tied up in assets that appreciate in value, but they only pay taxes when they sell those assets and make money on them. A wealth tax that scales with wealth level, levied annually on a person's net worth, would ensure that billionaires contribute a fair share even when their income is artificially low.

Practical Tips

• Invest in educational courses to increase your earning potential while benefiting from potential tax credits. Certain educational expenses can qualify for tax credits, which directly reduce the amount of tax you owe. If you take a course to improve your job skills, you might be eligible for the Lifetime Learning Credit, which can provide a credit of up to $2,000 per tax return.
• Consider investing in assets that appreciate over time but do not generate current taxable income. Real estate can be a practical choice, where you benefit from property value appreciation and can use mechanisms like 1031 exchanges to defer capital gains taxes when you sell and reinvest in another property. This strategy allows you to grow your wealth similarly to how billionaires' assets appreciate without immediate tax implications.
• Educate yourself on the differences between wealth taxes and income taxes through free online finance courses or webinars. This knowledge will empower you to make informed decisions about your finances and understand the broader economic policies that could affect your wealth. Look for courses that cover tax policy, personal finance, and economic theory to build a well-rounded understanding.

Designing an Enforceable Wealth Levy With In-Kind Payment Options Is Important

The authors address practical challenges in implementing a tax on wealth. They propose that the IRS should be able to value private companies based on earnings and the valuations of comparable publicly traded companies. To ensure fairness and address liquidity concerns (the ability to pay the tax without selling assets), taxpayers should be able to settle the wealth tax by giving shares of their company or other assets. The government could then sell these shares on the open market to raise the necessary revenue, effectively creating a market assessment for those assets. This innovative approach could make a tax on wealth that’s progressive much more enforceable and prevent billionaires from dodging taxes simply by owning illiquid assets.

Practical Tips

• Create a simple spreadsheet tool to estimate the value of your own small business using public company data. If you own a small business, gather your financial data, focusing on net earnings. Then, research public companies in your sector and document their earnings and market capitalization. Use ratios such as price-to-earnings (P/E) to create a formula in your spreadsheet that can estimate your business's value based on these public comparables.
• Engage with a local community college or university to sponsor a study or workshop that examines the local economic impact of asset-based tax settlements. This could provide valuable data and insights that support the concept and encourage community leaders and policymakers to consider its implementation.
• Engage in virtual stock market games to simulate the experience of selling shares for revenue. These games provide a risk-free environment to practice and understand the implications of selling assets in the market. You'll gain insights into market fluctuations, the impact of external factors on share prices, and strategic asset liquidation without actual financial risk.

Fair Tax System's Role In Funding Public Goods and Institutions

Saez and Zucman emphasize that increased tax progressivity isn't just about fairness but about ensuring adequate funding for essential public goods and institutions, especially health care and education. They criticize the American system, where private health insurance costs impose a huge and regressive burden on the working and middle class, and propose an income tax on a national scale to support a more comprehensive social safety net.

Unfair Taxes on Working and Middle Class Via High Insurance Expenses

The authors highlight the high cost of private health insurance in the US, where it operates like a giant poll tax, burdening the working and middle class far more than affluent people. Unlike most other developed countries, where health care is financed publicly through progressive taxes or contributions, the US relies heavily on compulsory private insurance, often acquired through employers. This has created a system where a secretary literally spends as much money on health insurance as a multi-millionaire executive. The authors argue that this approach is both unfair and unsustainable, placing a disproportionate financial burden on those with lower and middle earnings.

Taxing Income to Support Universal Healthcare and Reduce Regressive Taxes

The authors propose a country-wide income tax, imposed on all sources of income at a single rate, to fund universal health coverage and other vital public services. This would tax income from labor as well as capital, including profits, interest, and wages. The tax would be broad-based, covering most sectors of the economy, and would be simpler to administer than a VAT. Unlike a value-added tax, it would not fall disproportionately on those with lower incomes. This tax on national income might replace regressive sales taxes and lessen the burden of high health insurance premiums, leading to a more equitable and efficient taxation model that provides essential resources for everyone.

Practical Tips

• Educate yourself on the current tax system and healthcare funding by reading government publications and credible news sources to understand the status quo. This knowledge will allow you to have informed discussions with peers and policymakers, potentially influencing opinions and decisions toward the proposed single-rate income tax for universal health coverage.
• You can simulate the impact of comprehensive income taxation on your finances by creating a detailed budget spreadsheet. Include all your income sources, such as wages, interest, and profits, and apply a hypothetical tax rate to each to see how it would affect your net income. This exercise can help you understand the real-world implications of such a tax system and prepare for any potential financial planning adjustments.
• You can streamline your tax filing process by using a dedicated tax management app that automates calculations similar to a VAT system. By inputting your income and expenses, the app can simplify the tax calculation process, ensuring you pay the correct amount without needing to understand the complexities of tax codes. For example, an app could provide real-time updates on deductible expenses and offer suggestions for tax savings based on your financial data.
• Volunteer with organizations that provide tax assistance to lower-income individuals. By helping people prepare their taxes or understand their tax rights, you're directly contributing to their ability to navigate a complex system that may otherwise disadvantage them. Look for local nonprofits or community programs that offer these services and offer your time, even if it's just for a few hours during tax season.
• You can analyze your spending habits to understand the impact of sales taxes on your budget by tracking your purchases over a month and categorizing them to see which items are taxed more heavily. This will give you a clearer picture of how regressive sales taxes affect your personal finances and may motivate you to seek out alternatives or advocate for change.
• You can analyze your healthcare usage to tailor your insurance plan more effectively by tracking all your medical expenses and visits for a few months. This data can help you determine if you're over-insured (paying for more coverage than you use) or under-insured (needing more coverage than you have). For example, if you find that you rarely visit specialists, you might opt for a plan with higher primary care but lower specialist co-pays.
• Engage with local government representatives to express your support for tax reform measures that aim for equity and efficiency. This can be done through writing letters, attending town hall meetings, or participating in public comment periods. Your actions could influence policy by demonstrating constituent interest in the subject. For instance, if there's a proposal for a progressive tax policy, show your support by providing well-reasoned arguments in its favor.
• Volunteer your time for online tutoring or skill-sharing sessions in a subject you're knowledgeable about, targeting individuals who may not have easy access to educational resources. By using free video conferencing tools, you can help bridge the educational gap and provide essential learning opportunities to those who might otherwise be unable to afford them.

Reintroducing Progressive Taxes Sustains Fairness and Trust in Democracy

The authors conclude by arguing that a just tax structure is essential not only for economic reasons but for maintaining social cohesion and trust in democracy. When taxation is perceived as biased, benefiting the wealthy and hurting others, people become disillusioned with government and less willing to support collective action.

Perceived Tax Bias Undermines Government Support

The authors point out that restoring a taxation approach that's more progressive, where those who benefit most from the economy contribute more to its collective needs, is ultimately about sustaining fairness and faith in democracy. They argue that a biased system, where affluent individuals contribute less even as inequality increases, erodes confidence in government and fuels social unrest. They cite historical examples of revolts related to taxation, arguing that they are often triggered by a perception of unfairness rather than simply by taxes being too high. A sustainable future for globalization and democracy, they argue, depends on creating a more equitable and inclusive tax structure, one that reflects a shared sense of responsibility for funding the institutions and services that benefit everyone.

Context

• In a globalized economy, capital can move more freely across borders, allowing wealthy individuals and corporations to exploit tax havens and loopholes, which can further erode national tax bases and public trust.
• In recent times, movements like the "Occupy Wall Street" protests have highlighted issues of economic inequality and perceived tax injustices, showing that these concerns are still relevant today.
• Trust in government is essential for effective governance. A transparent and fair tax system can enhance public trust, encouraging compliance and reducing the need for costly enforcement measures.
• Taxes fund public goods and services such as education, healthcare, infrastructure, and national defense. These are services that benefit all members of society, regardless of individual contribution, and are typically not profitable for private companies to provide.