President Barak Obama is right to insist on the "Buffett rule: Millionaires should not be paying income tax at a rate lower than their secretaries". But correcting this inequity is only a small step towards fairness.
The more serious inequality problem facing the United States involves overall wealth, not just income. While the top 1% of Americans earned 21% of the nation's income, they owned a staggering 35% of the wealth in 2006-07, the most recent year for which statistics are available. We should be taxing that wealth directly, and not merely focusing on million-dollar incomes.
We propose a 2% annual wealth tax on households owning more than $7.2 million in net assets. Such a tax would target the 0.5% of Americans at the top of the pyramid, and would yield at least $70 billion a year. This calculation is based on Federal Reserve data that we have updated to take into account the recession's impact on housing and stock prices to 2009. Because we have used very conservative assumptions, the revenue yield could well be higher.
Obama's operational proposal for a "Buffett tax" is vague, so it's hard to predict how much it would raise. But our initiative would generate at least half the $1.5 trillion in deficit reduction that Congress' super-committee is aiming to achieve over the next decade. And the burden would fall on the Americans who have suffered least from the economic downturn.
There is more at stake than fairness. Our proposal would address a deeper issue. There comes a point at which extreme wealth concentration threatens the very existence of democracy, and we are reaching that point.
This is one of the tragic lessons of Latin American history, where democracy has repeatedly bumped up against tight economic oligarchies that feel threatened by majority rule. Though reliable statistics on wealth equality aren't available, we do know that income inequality in the US today far exceeds that in Europe, and it is getting into the Latin American range. Because wealth is generally more concentrated than income, we are clearly in the danger zone.
Remarkably enough, the CIA has investigated the matter, and its website contains some sobering estimates. It reports that income is already more concentrated in the US than in Venezuela, though we still have a way to go to reach the dizzying heights of Brazil and Chile.
A wealth tax is the best way to reduce this classical danger to democracy, and it provides the primary motivation for our proposal - though we also believe that it's more than fair for the super-rich to be paying more as we confront our long-term fiscal problems.
Wealth taxation is no novelty. In 2008, France, Norway, Switzerland and five other members of the Organisation for Economic Co-operation and Development imposed the tax, and Italy is considering following suit. Spain, which dropped such a tax several years ago, now plans to reinstate it as part of a deficit-reduction effort.
In the United States, anti-tax zealots will try to use the Constitution to cut off debate about a wealth tax before it begins. Article 1, Section 8 grants Congress plenary power to impose any and all "taxes, duties, imposts and excises" but it contains a special limitation on "capitation and other direct taxes". Under this little-known proviso, such taxes may be imposed only if they are apportioned among the states according to their population.
This provision was part of a compromise with the slave-holding South, and its intention was to prevent the North from imposing a "head tax" on slaves because this could not be apportioned equally among the population of all the states.
Given its origins, this provision has consistently been construed very narrowly by the Supreme Court, which has found only head taxes and real estate levies to be within its scope.
There has been only one exception. In 1895, the court used the clause to declare the income tax unconstitutional, but this judgement was reversed by the 16th Amendment.
Given this history, it is extremely unlikely that the justices will cite the founders' original compromise with slavery to bar a tax that would serve the cause of economic equality and democratic legitimacy.
The Roberts' court may be conservative, but it is not quite as reactionary as all that.
There is nothing that prevents us, then, from thinking outside the box, and doing something more than tinker with the status quo. Rather than draconian cuts to Medicaid or Medicare, why not a wealth tax?
• Bruce Ackerman and Anne Alstott are professors of law at Yale and the authors of The Stakeholder Society.
