Wealth: NOMOS LVIII 9781479849291

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WEALTH NOMOS

LVIII

NOMOS Harvard University Press I Authority 1958, reissued in 1982 by Greenwood Press The Liberal Arts Press II Community 1959 III Responsibility 1960 Atherton Press IV Liberty 1962 V The Public Interest 1962 VI Justice 1963, reissued in 1974 VII Rational Decision 1964 VIII Revolution 1966 IX Equality 1967 X Representation 1968 XI Voluntary Associations 1969 XII Political and Legal Obligation 1970 XIII Privacy 1971 Aldine-Atherton Press XIV Coercion 1972 Lieber-Atherton Press XV The Limits of Law 1974 XVI Participation in Politics 1975 New York University Press XVII Human Nature in Politics 1977 XVIII Due Process 1977 XIX Anarchism 1978 XX Constitutionalism 1979 XXI Compromise in Ethics, Law, and Politics 1979 XXII Property 1980 XXIII Human Rights 1981

XXIV XXV XXVI XXVII XXVIII XXIX XXX XXXI XXXII XXXIII XXXIV XXXV XXXVI XXXVII XXXVIII XXXIX XL XLI XLII XLIII XLIV XLV XLVI XLVII XLVIII XLIX L LI LII LIII LIV LV LVI LVII LVIII

Ethics, Economics, and the Law 1982 Liberal Democracy 1983 Marxism 1983 Criminal Justice 1985 Justification 1985 Authority Revisited 1987 Religion, Morality, and the Law 1988 Markets and Justice 1989 Majorities and Minorities 1990 Compensatory Justice 1991 Virtue 1992 Democratic Community 1993 The Rule of Law 1994 Theory and Practice 1995 Political Order 1996 Ethnicity and Group Rights 1997 Integrity and Conscience 1998 Global Justice 1999 Designing Democratic Institutions 2000 Moral and Political Education 2001 Child, Family, and State 2002 Secession and Self-Determination 2003 Political Exclusion and Domination 2004 Humanitarian Intervention 2005 Toleration and Its Limits 2008 Moral Universalism and Pluralism 2008 Getting to the Rule of Law 2011 Transitional Justice 2012 Evolution and Morality 2012 Passions and Emotions 2012 Loyalty 2013 Federalism and Subsidiarity 2014 American Conservatism 2016 Immigration, Emigration, and Migration 2017 Wealth 2017

NOMOS LVIII Yearbook of the American Society for Political and Legal Philosophy

WEALTH Edited by

Jack Knight and Melissa Schwartzberg

NEW YORK UNIVERSITY PRESS

• New York

NEW YORK UNIVERSITY PRESS New York www.nyupress.org © 2017 by New York University All rights reserved References to Internet websites (URLs) were accurate at the time of writing. Neither the author nor New York University Press is responsible for URLs that may have expired or changed since the manuscript was prepared. Library of Congress Cataloging-in-Publication Data Names: Knight, Jack, 1952– editor. | Schwartzberg, Melissa, 1975– editor. Title: Wealth / edited by Jack Knight and Melissa Schwartzberg. Description: New York : New York University Press, [2017] | Series: Nomos ; 58 | Includes bibliographical references and index. Identifiers: LCCN 2016045480 | ISBN 9781479827008 (cl : alk. paper) Subjects: LCSH: Wealth—Political aspects—United States. | Distributive justice— United States. | Democracy—Economic aspects—United States. | Law and economics. Classification: LCC HC110.W4 W422 2017 | DDC 330.1/6--dc23 LC record available at https://lccn.loc.gov/2016045480 New York University Press books are printed on acid-free paper, and their binding materials are chosen for strength and durability. We strive to use environmentally responsible suppliers and materials to the greatest extent possible in publishing our books. Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 Also available as an ebook

CONTENTS

Contributors

ix

Preface Jack Knight and Melissa Schwartzberg

xi

1. Having Too Much Ingrid Robeyns

1

2. Wealth, Commonwealth, and the Constitution of Opportunity Joseph Fishkin and William E. Forbath

45

3. The Evolution of Wealth and Mutual Concern: Democracy or Revolution? Nicole Hassoun

125

4. Where’s the Middle? Constitutional Aspirations, Biased Institutions, and the Disappearing Middle Class Mariah Zeisberg

146

5. Wealth Defense and the Complicity of Liberal Democracy Jeffrey A. Winters 6. Wealth Concentration, Racial Subordination, and Political Corruption David Lyons

158

226

7. Wealth and Democracy Jedediah Purdy

235

8. Not So Fast: The Hidden Difficulties of Taxing Wealth Miranda Perry Fleischer

261

Index

309 vii

CONTRIBUTORS

JOSEPH FISHKIN Professor of Law, University of Texas, Austin MIRANDA PERRY FLEISCHER Professor of Law, University of San Diego WILLIAM E. FORBATH Lloyd M. Bentsen Chair in Law and Professor of History, University of Texas, Austin NICOLE HASSOUN Associate Professor of Philosophy, Binghamton University DAVID LYONS Professor of Philosophy and Law Emeritus, Boston University JEDEDIAH PURDY Robinson O. Everett Professor of Law, Duke University INGRID ROBEYNS Ethics of Institutions Chair, Utrecht University JEFFREY A. WINTERS Professor of Political Science, Northwestern University MARIAH ZEISBERG Associate Professor of Political Science, University of Michigan

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PREFACE JACK KNIGHT AND MELISSA SCHWARTZBERG

This volume of NOMOS—the 58th in the series—emerged from papers and commentaries given at the annual meeting of the American Society for Political and Legal Philosophy in Washington, DC on August 28–29, 2014, held in conjunction with the annual meeting of the American Political Science Association. Our topic, “Wealth,” was selected by the Society’s membership. The conference consisted of three panels: (1) “Do the Rich Deserve Their Wealth?”; (2) “Wealth, Opportunity, and Equal Citizenship: Reconstructing the Distributive Constitution”; and (3) “Wealth Defense.” The volume includes revised versions of the principal papers delivered at that conference by Ingrid Robeyns; Joseph Fishkin and William E. Forbath; and Jeffrey A. Winters. It also includes essays that developed out of the original commentaries on those papers by Mariah Zeisberg, Nicole Hassoun, David Lyons, and Jedediah Purdy. After the conference we asked Miranda Perry Fleischer to contribute an additional paper to the volume. We are grateful to all of these authors for their insightful contributions. Thanks are also due to the editors and production team at New York University Press, and particularly to Caelyn Cobb and Alexia Traganas. On behalf of the society we wish to express our gratitude for the Press’s ongoing support for the series and the tradition of interdisciplinary scholarship that it represents. Finally, thanks to Samuel Bagg of Duke University for providing expert assistance during the editorial and production phases of this volume.

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1 HAVING TOO MUCH INGRID ROBEYNS

I. Introduction Whatever else contemporary theories of distributive justice take a stance on, they always specify a metric of justice and a distributive rule.1 The metric is concerned with the good X whose distribution matters insofar as justice is concerned. Among the most influential metrics are welfare, resources, primary goods, and capabilities. The distributive rule specifies how X should be distributed; prime examples are the principles of priority, sufficiency, equality of outcomes, equality of opportunity, and Rawls’s difference principle. This chapter articulates and defends a view of distributive justice that I call limitarianism. In a nutshell, limitarianism advocates that it is not morally permissible to have more resources than are needed to fully flourish in life. Limitarianism views having riches or wealth to be the state in which one has more resources than are needed and claims that, in such a case, one has too much, morally speaking.2 Limitarianism is only a partial account of distributive justice, since it can be specified in a way in which it is agnostic regarding what distributive justice requires for those who are not maximally flourishing. It could, for example, be combined with one of the many versions of equality of opportunity below the limitarian threshold. The version of limitarianism that I defend here is not agnostic as to what happens below the line of riches; but, as I will point out in section II, there are several different versions of limitarianism, and different versions may have different views on what morality requires below the line of riches. In this chapter I defend limitarianism as a non-ideal doctrine. I postpone the question of whether limitarianism could be 1

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defended as an ideal theory for future work. Analyzing limitarianism as a non-ideal doctrine requires that we start from the distribution of the possession of income and wealth as it is, rather than asking what a just distribution would be in a world with strong idealized properties, such as for example the absence of inherited wealth and privileges, a world in which everyone’s basic needs are met or where we are in a state of initial property acquisition.3 Social scientists and scholars in the humanities have a long tradition of theorizing and conducting research on the position of the worst-off in society. In theories of justice, this is especially visible in the wide support for sufficientarianism.4 In its dominant understanding, sufficientarianism is the view that distributive justice should be concerned with ensuring that no one falls below a certain minimal threshold, which can be either a poverty threshold or a threshold for living a minimally decent life.5 It shouldn’t be surprising that the study of poverty and disadvantage is so vast, since most people hold the view that these conditions are intrinsically bad. Given the sizeable philosophical literature on poverty and the position of the worst-off, it is surprising that so little (if any) contemporary theorizing on justice has focused on the upper tail of income and wealth distribution. Obviously, there is a great deal of literature about theories of justice in relation to inequality in general; it may well be that political philosophers assume that it is not necessary to single out the upper tail of the distribution in particular. Still, I think it would be helpful for political philosophers to conduct a normative analysis of the upper tail of the distribution. For one thing, this would make it possible for philosophers to have greater impact on existing debates in society. For a long time normative claims related to the rights, privileges, and duties of rich people have been advanced in public debate. Most countries have some political party that claims that the rich should pay for economic crises, rather than the poor or the middle classes. In recent years several European political parties have proposed introducing an increase in the highest marginal tax rate of the highest income group; similarly, the Occupy movement in the United States has claimed that the “one percent” should be taxed much more heavily. Some citizens have also complained that austerity measures affect the poor and the middle classes disproportionally, rather

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than affecting the rich in equal measure. What all these normative claims have in common is a focus on the upper tail of the distribution—thereby making a distinction between the middle class and the rich.6 Interestingly, in recent years several economists have developed analyses of the top of the income and wealth distributions. Most famous was Thomas Piketty’s Capital in the Twenty-First Century, along with his earlier collaborative research with other economists, which generated part of the data forming the empirical basis of the later book.7 These studies show that in the decades following the Second World War inequality decreased, yet wealth inequality has again been expanding since the 1980s. Piketty offers a theory for why the postwar period should be regarded as an historical exception, rather than the beginning of a period in which inequality would decrease or stagnate. Piketty argues that this increase in inequality is undesirable, but certainly not all economists share this view. The Harvard economist Greg Mankiw has defended the moral desirability of letting the rich be rich, on the grounds that they deserve their wealth.8 However, as Mankiw himself admits, he is merely engaging in “amateur political philosophy.”9 In fact, few normative claims made by economists about inequality and the rise of top earners are well defended. But this should not necessarily be seen as a criticism, since in the intellectual division of labor, this task falls on other shoulders. In this chapter I want to articulate one particular version of limitarianism and offer a justification. But before doing so, I first want to highlight that there are a variety of limitarian views, and a variety of grounds on which they can be defended. In this sense it is no different from the other distributive doctrines, such as sufficientarianism, prioritarianism, or egalitarianism. In the next section, I spell out a variety of potential strategies for defending the limitarian view. Some offer reasons why being rich is intrinsically bad. In contrast, the reasons that I offer regard limitarianism as derivatively justified. Limitarianism as a distributive view is justified in the world as it is (the non-ideal world), because it is instrumentally necessary for the protection of two intrinsic values: political equality (section III), and the meeting of unmet urgent needs (section IV). After offering these two arguments for limitarianism, I address the question of which notion of wealth or riches the two

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arguments require (section V), and discuss whether limitarianism should be considered a moral or a political doctrine (section VI). I will also respond to two objections: the objection from unequal opportunities and the incentive objection (section VII). The final section sketches an agenda for future research on limitarianism. II. Intrinsic versus Non- Intrinsic Limitarianism In its most general formulation, limitarianism is a claim relating to distributive morality, which entails that it is not morally permissible to be situated above a certain threshold in the distribution of a desirable good. Limitarianism could be defended in various dimensions or domains, and with different theoretical modifications. For example, the case of a personal emissions quota that has been studied in the climate ethics literature is an example of a limitarian institution, whereby the good that is limited is the right to emit greenhouse gases. Breena Holland has argued for the introduction of “capability ceilings” in environmental regulation, which are “limitations on the choice to pursue certain individual actions that are justifiable when those actions can have or significantly contribute to the effect of undermining another person’s minimum threshold of capability provision and protection.”10 For example, if having access to high-quality water and not living in an environment with severely polluted water are capability thresholds, then extracting gas by means of hydro-fracking may not be permitted in case fracking could contaminate the local hydroecosystems. Normative arguments for limits could also be provided in other areas of life. For example, one could discuss limitarianism in the context of global population size, and argue that due to environmental concerns, there should be a moral limit of one child per adult.11 In this chapter, the focus is on limitarianism of financial resources. Limitarianism is then the view that it is not morally permissible to be rich. Given that our “metric” is a monetary metric, we can reformulate the limitarian claim. Call surplus money the difference between a rich individual’s financial means and the threshold that distinguishes rich from non-rich people. By definition, only rich people have surplus money. Limitarianism can then be restated as claiming that it is morally bad to have surplus money.

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How can limitarianism be justified? That would depend on whether we aim to defend limitarianism as having intrinsic value or instrumental value—a distinction that also applies to egalitarianism.12 Intrinsic limitarianism is the view that being rich is intrinsically bad, whereas according to non-intrinsic limitarianism, riches are morally non-permissible for a reason that refers to some other value. In this chapter I am concerned only with non-intrinsic limitarianism, and remain agnostic on the question of whether intrinsic limitarianism is a plausible view. To examine the plausibility of intrinsic limitarianism, one could develop an argument based on paternalism, whereby wealth is objectively a burden on rich people and their children, leading them to suffer in the nonmaterial dimensions of a flourishing life. There may be some evidence for this, but in this chapter I will not investigate this argumentative strategy any further.13 Other argumentative strategies for intrinsic limitarianism can be sought in virtue ethics. Several arguments against wealth accumulation, based on virtue ethics and perfectionist theories, can be found in the history of ethics, and have been very important in, for example, the teachings of Aristotle and Thomas Aquinas. In this chapter, I merely want to note the possibility of defending intrinsic limitarianism, and will remain agnostic on the plausibility of that view and on the soundness of any of its justifications. Instead, I limit myself to developing two reasons for non-intrinsic limitarianism. The first, which I will discuss in the next section, is the democratic argument for limitarianism, which focuses on the claim that wealth undermines the ideal of political equality. Section IV will then present and analyze another argument for limitarianism: the argument from unmet urgent needs. The distinction between intrinsic and non-intrinsic limitarianism is important, since the two views offer different answers to the question: “What—if anything—is wrong with some people being rich in an ideal world?” Non-intrinsic limitarianism will most likely respond that in such an ideal situation, where all important intrinsic values are secured, riches are not morally objectionable. Non-intrinsic limitarianism will limit its claim that riches are morally objectionable to a world where certain intrinsically important values are not secured, and where limitarianism is instrumentally

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valuable to securing those ultimate ends. In contrast, intrinsic limitarianism will answer the question affirmatively. Nevertheless, as I mentioned earlier, in this chapter I am agonistic on whether intrinsic limitarianism is a plausible view. My aims here are instead limited to an analysis and defense of non-intrinsic limitarianism. III. The Democratic Argument for Limitarianism The first justification for the limitarian doctrine can be found in political philosophy and political science, where there exists a long history of arguments that great inequalities in income and wealth undermine the value of democracy and the ideal of political equality in particular.14 Rich people are able to translate their financial power into political power through a variety of mechanisms. In his article “Money in Politics,” Thomas Christiano discusses four types of mechanisms by which the expenditure of money can influence various aspects of political systems.15 Christiano shows how the wealthy are not only more able but also more likely to spend money on these various mechanisms that translate money into political power. This is due to the decreasing marginal utility of money. Poor people need every single dime or penny to spend on food or basic utilities, and hence, for them, spending 100 dollars or 100 pounds on acquiring political influence would come at a serious loss of utility. In contrast, when the upper-middle class and the rich spend the same amount, they see a much lower drop in utility, that is, the utility cost they pay for the same expenditure is much smaller. The democratic argument for limitarianism can easily be derived from the mechanisms that Christiano outlines: Because rich people have surplus money, they are both very able and seemingly very likely to use that money to acquire political influence and power. On the account of “the rich” that I will develop in section V, the rich have virtually nothing to lose if they spend their excess money, which is the money that goes beyond what one needs to fully flourish in life. The welfare effect—understood in terms of a certain set of valuable functionings—is more or less zero. There may be some psychological welfare loss, such as a loss in status if one spends a fortune on politics rather than on the latest Lamborgini, or there may be a purely subjective loss if one

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does not like to witness a decline in one’s financial fortune, but there will be no loss on the account of well-being presented below. In other words, the arguments Christiano develops for those who have some money to spend will apply a fortiori to the rich, as defined in section V. The four mechanisms that turn money into political power are buying votes, gatekeeping, influencing opinion, and the workings of money as an independent political power. First, rich people can fund political parties and individuals. In many systems of private campaign financing, those who donate a lot will get special treatment or greater support for their causes. Donations generally come with the expectation that if the funder one day needs some help from the politician he or she will get it. This commonsense wisdom is reflected in the saying “He who pays the piper calls the tune.” Receiving money makes people, including politicians, indebted to the donor and likely to try to please them, do them a favor, spread their views, or at the very least, selfcensor their own views to avoid upsetting the donor. In the political arena, this undermines political equality. But, as Christiano points out, there are also other democratic values at stake. When money can be used to buy votes, those who funded the elected politician will see their interests protected in the policies that are implemented—but a large part of the costs of those policies will be borne by society as a whole. Vote-buyers are, in a certain sense, free-riding on the spending of society as a whole, which bears a (large) chunk of the costs, for legislation that favors the interests of said private donors. The second mechanism for turning money into political influence or power is in using money to set the agenda for collective decision making. If, as with the US presidential elections, the ability to raise funds is a crucial determinant in who will be the next candidate, and if upper-middle-class and wealthy people are more likely to be donors, then political candidates who represent those upper-middle and upper-class interests are much more likely to be on the ballot in the first place. Since the affluent are much more likely to contribute to campaign financing, and since donors choose to give money to people who have the same values and beliefs, those who cannot donate will not have their interests and views represented in the election debates or on the ballot.

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Christiano argues that if part of the value of democracy is that it publicly treats citizens as equals by giving them an equal say in the process of collective decision making, then financial expenditures on politics cause a great inequality of opportunity when it comes to influencing the political agenda.16 A third mechanism is that money can be used to influence opinions. Rich people can buy media outlets, which they can use to control both the spread of information and the arguments that are exchanged in public debate. Media outlets have become a very important power factor in contemporary democracies, yet if access to the media is a commodity that can be bought and sold to the highest bidder, this provides another mechanism for rich people to translate financial power into political power. Lobbyists are another increasingly important instrument for influencing opinions. Again, their services are costly, so the interests of those who can afford to hire lobbyists will be much better represented in the decision making of policy makers and politicians. While the corporate media and lobbyists are most often discussed when analyzing how money can influence opinions, there are also more subtle ways for rich people to influence views—not necessarily on direct questions of legislation and policy making, but also more diffusely on the construction of what is perceived as sound evidence and knowledge. Rich people can also put financial power into changing the ideological climate and what is perceived as “sound evidence,” e.g., via research and think tanks, which provide arguments supporting the views of their funders on various social, economic, and political issues. For example, historical research by Daniel Stedman Jones has shown how private financial support played a crucial role in the spread of neoliberal thinking within universities and subsequently within politics.17 Finally, to the extent that rich people have their wealth concentrated in firms, they can undermine democratically chosen aims by using their economic power. This turns the power of capitalists into a feasibility constraint for democratic policy making. For example, if citizens have democratically decided that they want fewer greenhouse-gas emissions in their country, then major firms can threaten to shift polluting production to other countries if the democratically elected government were to impose stricter ecological emission regulation.18

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These are all mechanisms through which wealth undermines the political equality of citizens. Yet the political equality of citizens is the cornerstone of free societies—and it is the most basic principle of our democratic constitutions. The constitution should guarantee political equality, but it does not protect our right to be rich. Thus, we have an initial argument for why we shouldn’t be rich—namely, that it undermines political equality. One could object to the democratic argument for limitarianism as follows. The moral concern is not so much that there are inequalities within one sphere of life (e.g., economic welfare) but rather that one’s position in one sphere of life can be used to acquire a better position in another sphere of life (e.g., politics, education). The real moral concern is therefore not inequality per se, but rather the spillover of inequality from one sphere of life into another sphere of life.19 Surely there should be solutions to preventing financial power from turning into political power other than simply forcing rich people to get rid of their surplus money. For example, one could try to reform the legislation on campaign funding, or the state could guarantee public radio and television in order to restore the balance of views and arguments in public debate. Dean Machin has argued that we should present the superrich with the choice between incurring a 100% tax on their wealth above the level that makes them superrich, or forfeiting some political rights.20 The idea is that this would prevent the rich from buying political influence and power. Similarly, one could argue that if we implement proper campaign legislation and anti-corruption legislation, the money invested by the rich could no longer significantly affect politics, and there would be no democratic reason to make surplus money an undesirable thing. While some of these institutional measures are surely necessary for a healthy democracy, none of the solutions will restore political equality between rich and non-rich citizens. The reason for this is that much of the political influence of rich people escapes the workings of formal institutions, such as legislation and regulation. Rich people could give up their right to vote, but if they are still able to set up and fund think tanks that produce ideologically driven research, or if they still have direct private access to government officials, then they will still have disproportionate levels of

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political power. Given the overall class stratification in society, rich people tend to know other rich people from the schools and colleges where they received their education, or from socializing in clubs where membership is only affordable to rich people. Money not only translates into economic capital and political power; it also translates into social capital. Class-stratified social capital accumulation can to some extent be limited, for example, by outlawing expensive and selective private education, or by using spatial politics to create mixed neighborhoods. But this can at best limit the accumulation of social capital according to lines of affluence and class. Most of the reasons why rich and influential people socialize with other rich and influential people cannot be influenced by policy makers. Imposing formal institutional mechanisms in order to decrease the impact of money on politics is thus feasible only to a limited extent. Large inequalities in income, and the possession of surplus money in particular, will thus always undermine political equality, even in societies where those four mechanisms have been weakened as much as possible through institutional measures. Therefore, if we hold that the value of democracy, and political equality in particular, are cornerstones of just societies, then we have an initial reason to endorse limitarianism. IV. The Argument from Unmet Urgent Needs The second justification for the limitarian doctrine can be called the argument from unmet urgent needs. This argument is essentially consequentialist in nature, and makes the justification of limitarianism dependent upon three empirical conditions. These conditions, which we can call the circumstances of limitarianism, are the following: (a) the condition of extreme global poverty: a world in which there are many people living in extreme poverty, and whose lives could be significantly improved by government-led actions that require financial resources; (b) the condition of local or global disadvantages: a world in which many people are not flourishing and are significantly deprived in some dimensions and whose lives could be

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significantly improved by government-led actions that require financial resources; (c) the condition of urgent collective-action problems: a world that is faced with urgent (global) collective-action problems that could (in part) be addressed by government-led actions that require financial resources. The argument from unmet urgent needs is dependent upon these conditions: if none of these conditions are met, the argument no longer holds. At least one of these three conditions has to hold for this argument to be valid. Yet, in the world as we know it, all three are met.21 First, the condition of extreme global poverty is clearly met. Billions of people worldwide are living in (extreme) poverty, and while not all solutions that entail financial costs or financial redistribution are effective in eradicating poverty, many if not all of the effective poverty-reducing interventions do require financial resources.22 Even institutional changes, such as creating a publicly accountable bureaucracy or establishing the rule of law, require financial resources. The second condition is also met. Even people who are not extremely poor in material terms can be deprived or disadvantaged in many other ways. All post-industrialized countries have citizens who are homeless or who are socially excluded to the extent that they cannot fully take part in society; children with special educational needs do not always get the education that allows them to be adequately challenged and developed; a surprisingly large number of people are functionally illiterate; and a worryingly large number of both adults and children have mental health problems for which they are not receiving adequate help.23 The third condition is also met, since there are numerous collective-action problems that require the attention of governments or other actors of change. As twenty years of Human Development Reports have documented, several major collective problems facing the world could be effectively addressed if only the government were to devote sufficient attention and resources to these issues. Addressing climate change and the deterioration of the Earth’s ecosystem is arguably the most urgent problem, which could partly be mitigated by a massive investment in green technological innovation. Other issues could be addressed by, e.g.,

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providing expanded educational opportunities for girls, reproductive health services in areas where there is a large unmet need for contraceptives, large-scale programs of reforestation, and so forth. All of these require financial resources.24 If any of these three circumstances is in place, certain needs will have a higher moral urgency then the desires that could be met by the income and wealth that rich people hold. Recall that the money that rich people hold that exceeds the wealth line is their surplus money. The argument from unmet urgent needs claims that since surplus money does not contribute to people’s flourishing, it has zero moral weight, and it would be unreasonable to reject the principle that we ought to use that money to meet these urgent unmet needs. The limitarian principle is thus supported by a modified version of Thomas Scanlon’s Rescue Principle, which states that “if you are presented with a situation in which you can prevent something very bad from happening, or alleviate someone’s dire plight, by making only a slight (or even moderate) sacrifice, then it would be wrong not to do so.”25 Scanlon also points to Peter Singer’s famous defense of a version of the Rescue Principle in his influential paper “Famine, Morality and Affluence.”26 The limitarian principle I defend here bears resemblance to Singer’s and Scanlon’s principles. Yet there are at least two significant differences. First, limitarianism is less demanding than Singer’s and Scanlon’s principles since it only makes a claim about moral duties related to surplus money. It does not spell out any duties we have with regard to the money that we would use in order to flourish yet do not need to stay out of poverty—say, money we spend on learning the piano, or on taking a holiday abroad. Under one widespread interpretation of Singer’s view, we ought not to spend that money on playing the piano or taking a holiday, but should send it to Oxfam. As many have pointed out, such a radical principle suffers from overdemandingness.27 Limitarianism, in contrast, need not take a stance on our duties related to the money we possess that is not surplus money, and hence can be part of a comprehensive theory of justice or morality that is able to avoid overdemandingness. For example, while limitarianism claims that 100% of surplus money should be redistributed and re-allocated to satisfy the three sets of urgent unmet needs, this claim could be part of a more comprehensive view on

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justice whereby incomes between the poverty line and the wealth line would be taxed at percentages well below 100%, and those tax revenues should be redistributed to the urgent unmet needs mentioned above. The second difference to Singer and Scanlon’s principles is that the argument for unmet urgent needs broadens the category of needs that are to be addressed. Scanlon refers to “lives that are immediately threatened” or people “in great pain, or living in conditions of bare subsistence.” Singer, too, focuses on the globally worst-off, those whose deaths from famines and destitution could be prevented. While I do not deny that the basic needs of these people should be met, I cannot claim that the life of a homeless person living on the streets of Moscow or Chicago, at great risk of freezing to death, or the lives of psychiatric patients, suffering from anxiety attacks and self-harming behaviors, any less urgently need addressing. Note that the argument from unmet urgent needs does not deny that it is possible for people to still want their surplus money, for example to spend it on luxurious lifestyles, or to simply accumulate it. Yet the account of flourishing is an objective account of well-being: Flourishing should not be confused with a desire– satisfaction account of well-being. Such subjective accounts of wellbeing may be plausible and defensible for some purposes, but not if we need a policy-relevant notion of well-being, as is the case for discussions about distributive justice. Note also that the argument from urgent unmet needs does not regard wealth as an intrinsically morally bad social state, or rich people as non-virtuous people. Rather, the argument for urgent unmet needs is based on the premise that the value of surplus income is morally insignificant for the holder of that income, but not for society at large, at least under certain alternative usages. A strength of this consequentialist argument for limitarianism is that it is highly suitable for the non-ideal world, in which we often do not have information about the origins of people’s surplus income and about their initial opportunity sets. More precisely, we do not need to know whether someone’s surplus income comes from clever innovation in a market where there was a huge demand for a particular innovative good, whether it is whitewashed money from semi-criminal activities, if it came from being part of

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a cartel of high-level managers who give each other excessively high incomes, or if it is the accumulated inheritance from four frugal grandparents. If one has so much money that one has more than is needed to fully flourish in life, one has too much, and that money should be redistributed in order to ameliorate one of the three conditions that make up the circumstances of limitarianism. V. An Account of Riches In the two preceding sections, I have offered two arguments in defense of limitarianism. Yet these arguments remain vague and elusive as long as we don’t know what the relevant thresholds are. In other words, we need to know who counts as rich, and who doesn’t. Such an account of riches is required, since otherwise limitarianism will suffer from the same ambiguity that surrounds sufficientarianism—the view that everyone should have resources or well-being above a certain threshold. As Paula Casal puts it, “sufficientarianism maintains its plausibility by remaining vague about the critical threshold.”28 It is difficult to know whether limitarianism is a plausible view if we don’t know what the critical threshold is above which a person will be judged as having too much. In this section, I will therefore offer a conceptualization of the notion of “riches.” This account will allow us to identify rich people. The conceptualization will need to meet three criteria. First, the purpose of the conceptualization is that it will serve a function in normative claims of justice. Second, given the non-ideal character of this project, the conceptualization has to be operable: With access to the relevant data, economists and social scientists should be able to estimate the amount of riches within a certain population and be able to identify rich persons. Third, the conceptualization should not be an all-things-considered account of all that matters when we consider people’s quality of life. A person can be rich but unhappy: A proper conceptualization of riches should not lump all these factors together. Being rich is not all that matters in life—in fact, it may be something that doesn’t matter much at all. Yet, for questions of distributive justice, we may have good reason to want to capture riches and only riches, while acknowledging that for some other questions this is not what we should be

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focusing on. After developing a conceptualization of riches, I analyze and respond to two objections to the account of riches. Is “Riches” an Absolute or a Relative Notion? Since poverty and riches are opposite tails of the same distribution, the literature on the conceptualization of poverty provides a good starting point for thinking about how to conceptualize riches.29 If we want to identify the poor, we need to define a party line, which is a certain cutoff point on the metric that we hold relevant (e.g., money): Anyone situated below that cutoff point qualifies as poor. To identify rich people, we need to define a riches line, a cutoff point on the metric that everyone situated above qualifies as rich. At first sight, then, the conceptualization of riches is symmetrical to the conceptualization of poverty. Three issues emerge from the poverty literature that are relevant for the conceptualization of riches: first, the issue of relative versus absolute poverty measures; second, the question of the relevant metric of comparison; and third, the question of the scope of comparison. We will address the question of the metric of comparisons below, and turn first to the issue of relative versus absolute measures and the scope of these comparisons. A relative poverty measure defines poverty wholly in terms of the distance to the average of the distribution. For example, in the European Union, poverty is defined as living at or below 60% of the median income of the country in which one lives. An absolute poverty line defines poverty in terms of the resources needed for meeting some basic needs, such as adequate food, housing, and so forth. In the empirical literature, it is generally acknowledged that no single poverty line is clearly superior to all other poverty lines, and that each conceptualization of poverty faces some challenges.30 Statisticians and policy makers in Europe, North America, and Australia favor relative measures in the space of income. Nevertheless, there are at least two problems with relative measures from a conceptual point of view.31 The first is that relative measures conflate “poverty” with “the worst-off,” independently of how well-off or badly off those worst-off are. A relative measure is thus better

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understood as a hybrid of a poverty measure and an inequality measure. Second, in the case of relative measures, there will always be poor people and hence a fight against poverty can never be won, even if everyone were living in an affluent utopia. The only exception would be either if inequality was completely eliminated or if income distribution below the poverty line was completely eliminated, e.g., by introducing an unconditional basic income pitched at the level of the poverty line. The second lesson from the poverty literature relates to the scope of poverty comparisons. Poverty measures are generally applied to geographic areas that are relatively homogenous in terms of economic development, or that form a fiscal unit. This is especially true for relative poverty measures. Some absolute poverty measures, particularly related to poverty in developing countries, are absolute and can be applied internationally, such as the well-known $2/day poverty line. Yet, apart from extreme poverty understood as having the mere prerequisites for physical survival, the consensus on poverty measurement is that poverty needs to be understood in its local context, since being poor in India equates to something different from being poor in England. One could argue that independent of context, there is an abstract idea of poverty shared across contexts, such as not having enough material resources to live a dignified life. But the concrete translation of that abstract idea will then have to be specified in a context-dependent manner. How have these insights into the relative/absolute nature of poverty measures, and the scope of the comparisons, been used in measures of affluence and riches? The few existing empirical analyses of riches tend to define the rich in relative terms. In one of few empirical studies on the rich, the British social policy scholars Karen Rowlingson and Stephen McKay define three categories of wealthy people: the “rich” are the most affluent 10% on a combined measure of income and assets; the “richer” are the top 1%; while the top 1,000 households are the “richest” group.32 From a theoretical point of view, relative riches measures seem arbitrary and suffer from the same problems as relative poverty measures.33 First, if the income distribution shifts, and everyone becomes materially better or worse off, the number of wealthy people stays the same. Suppose we endorse a relative riches measure that defines the rich as the top 10% of the income and assets

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distribution. Suppose now that the Swedish government discovers a huge oil field below its territories, and decides to distribute the revenues by giving all Swedish citizens equal entitlement to the profits of oil exploitation. If everyone’s annual disposable income goes up by 20,000€, then the number of rich, richer, and richest on a relative riches measure will stay exactly the same, and those belonging to the middle classes, who were just below the cutoff point for being counted as rich (say, those who were in the 89th percentile before the real income increase) will still be considered middle class. They were, by this account, almost rich, and apparently the additional 20,000€ of disposable income doesn’t make a difference to whether they should count as rich or not. The idea that a riches measure would be insensitive to changes in one’s absolute income level is strikingly implausible. Relative riches measures may be appropriate for tracking the income position of the top tail of the income distribution over time, or for comparing the position of the top x% richest people in different countries, but relative riches measures are unsuited to giving a proper answer to the questions: “What entails riches?” or “Who should count as rich?.” Second, we need to distinguish between being the person who has the best position in material terms (a comparative notion) and being rich (an absolute notion). A person can have an excellent or even the very best position in comparative terms, but in absolute terms could be in a dire situation. This is most obvious in the case of a life-and-death situation. Take a dangerous and overcrowded refugee camp in Darfur. In such a context, having access to a useful basic object like a knife or a torch is surely incredibly important and may be an unusual object to have: Such a person holds a valuable asset that most other people in the refugee camp don’t have, and hence in comparative terms this person is well-off. But possessing some valuable object that most other people around her don’t possess is not enough to make a person rich. It would be deeply counterintuitive to say that an undernourished refugee whose only possession is a knife should be considered rich. Instead, such a person may be said to be slightly less deprived or slightly better equipped in the struggle for survival. The conceptual problems of relative poverty measures are thus reflected in relative riches measures. Yet from this it doesn’t follow that the only options left are absolute measures of poverty and

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wealth, such as the $2/day poverty measure, or a riches metric that would state, for example, that if your disposable household income is 100,000€ or more, you count as rich. There are more options for riches measures, but in order to see them we need to make a distinction between two types of relative measures, namely measures that are distribution-relative versus measures that are context-relative. Distribution-relative measures define riches or poverty as being at a certain distance from the average of the distribution. Contextrelative or contextual measures, on the other hand, make some (generally weaker) reference to the context of the measurement in the definition of the riches or poverty line, without making that reference a function of the distribution itself. Context-relativity is plausible for an account of riches, since it allows us to account for the socially constructive nature of riches, and to allow for differences in our understanding of riches over time and space. For example, in Western Europe owning a new yet not luxurious car doesn’t in itself make one rich, but there are areas in the world where car ownership is a prime indicator of affluence. A plausible conceptualization of riches should avoid distribution-relativity, that is, riches should not be defined as a particular share or percentage of the distribution of welfare, wellbeing, or material resources, or be defined as those living at a certain distance above the average of that distribution. Rather, we should be able to describe in absolute terms what having riches entails—even if that absolute description is context-specific—and those people who meet the criteria that are entailed by this conceptualization will then count as rich. The choice of a context-specific absolute conceptualization of riches provides a first step toward a conceptualization of riches. However, it leaves two difficult questions to be answered: First, what is the metric in which we conceptualize riches, and second, where do we draw the riches line—the cutoff point on the metric above which a person will qualify as rich, and thus, according to the limitarian doctrine, as having too much? The Power of Material Resources The intuitive and commonsense understanding of riches is the state in which one has more resources than are needed to fully

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flourish in life. Yet to develop a distributive rule, this needs to be expanded and specified. More specifically, we need an articulation of the relationship between resources and human flourishing. It seems quite obvious that we do not want to develop a metric of subjective well-being for the conceptualization of riches (like happiness or preference satisfaction, or self-perceived judgments of affluence). A subjective measure, such as how satisfied a person is, or how affluent a person considers herself to be, may be interesting for other purposes, but it will not reflect what affluence and riches actually are. A subjective measure would clash with our commonsense notion that affluence does not refer to a mental state of mind, or to happiness or satisfaction, but rather to the material possessions that people hold or the material side of their quality of life. In addition, subjective well-being measures are problematic because of the pervasive issue of adaptation. Problems of adaptation occur not only in the case of disadvantaged or oppressed people adapting to adverse circumstances; rich people also adapt to their current level of welfare, and hence adapt their levels of satisfaction and their aspirations accordingly in an upward way. A rich person living among other rich people may not feel rich at all, and a rich person living among the hyper-rich may even strongly believe that she is not rich, since others around her have even more than she does. Particularly in countries with high levels of class segregation, this may lead to significant distortions in people’s own assessment of their level of affluence. We should thus stay away from subjective judgments about affluence status, and instead develop an account of affluence and riches that is objective and conceptualizes the relationship between material possessions and flourishing or well-being.34 In daily language, the common metric of affluence is the material resources that people have at their disposal—both flows of material resources as well as stocks of material resources. In their empirical estimates, Rowlingson and McKay use a combination of income flows and an estimate of assets as their metric for determining who counts as rich, richer, and richest. Many other popular indicators of riches also focus on the amount of money people have in their possession (e.g., we speak of “billionaires”) or of the luxurious material goods people have bought with this money, such as expensive cars, large houses, designer clothes, and

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so forth. There does seem to be a prima facie case for conceptualizing affluence and riches in terms of a metric that focuses on the material side of quality of life—either on the means that one has at one’s disposal (income, durable consumption goods, assets), or on the material lifestyle that one can afford to enjoy. Yet some of the arguments that have been voiced from a capability perspective on the conceptualization of poverty may also have some force in the conceptualization of affluence. For example, if I have extensive needs due to a physical impairment or pervasive mental health problems, then the amount of money that would make a non-impaired person rich may not make me rich, since I may well have to spend a lot of money on my medical needs before I can contemplate spending it on luxury items. The wellknown argument from the capability approach, which favors focusing on what people can do with their resources rather than on the resources itself, applies.35 However, accounting for such factors may lead us into a tricky situation when conceptualizing affluence, since we may not want to account for all individual differences between people. Some of these differences may be needs, such as in the case of an impaired person, but some of these differences may simply be “expensive taste,” for which we may not want to account when deciding who is affluent and who isn’t.36 For example, a semi-paraplegic person who buys an electric wheelchair buys an expensive good that she needs in order to secure some basic functioning, namely to acquire the same mobility that non-impaired people have in walking, cycling, or using public transport. Yet an able-bodied person who lives in a city with excellent public transport and cycling facilities, who buys a fancy scooter just for fun or because he is a bit lazy, is buying a luxury item. They are similar commodities and may be similarly priced, but from a normative point of view the second purchase should count as a luxury item, whereas for the impaired person it would be deeply counterintuitive to say that such a purchase counts as a luxury item, since it is simply needed to secure some basic functioning. The challenge of distinguishing “needs” from “expensive tastes” is a general problem for the capability approach, and indicates the theoretical price we have to pay for endorsing the core capabilitarian insight that what matters is not what resources people have, but what those resources can do for people.

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Adopting these insights from the debate on the metric of justice, I want to propose a metric of affluence that accounts for these three insights: First, it should account for our commonsense understanding of the terms “rich” and “affluence” as referring to people’s material possessions; second, it should incorporate the core insight from the capability approach, namely that when we consider people’s standard of living we are not interested in resources themselves but in what those resources enable people to do and be; and third, it should account for the concerns related to the need/want distinction that have been discussed at length in the literature on theories of distributive justice. Let me call the proposed metric of affluence the power of material resources (PMR). PMR is an income metric that makes a number of modifications to our income level in order for the modified income metric to properly reflect the power we have to turn that income into material quality of life. The PMR will be constructed in such a way that it best captures the conceptualization of the material side of quality of life, and can therefore be used as a metric of affluence. PMR = (YG+YK+ A–EXP–T–G)*ES*CF (1) PMR starts from the gross total income of a household (YG). That is, we aggregate income from all sources—whether from labor, profits, entitlements (such as child benefits), transfers, or returns on financial capital or investment. In line with all empirical measurements of poverty and inequality, we assume sharing of income and assets within the household. (2) We add to YG a monetary estimate of any income or transfer in kind (YK). For example, if an elderly person is living in a nursing home that is paid for by her adult child, then the cost of living in a nursing home will be added to the estimated income of that elderly person (and subtracted as a gift (G) from the PMR of the adult child). Similarly, if a diamond company decides to give its employees diamonds as a bonus or Christmas present, then the market value of those diamonds will be added to those people’s income. (3) We add an estimate of the life annuity (A) of a household’s assets. That is, we estimate what the assets of a household would be worth if they were to be sold as a life annuity, that is, if the asset

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were turned into an annual payment for the rest of the owner’s life. These assets include not only real estate and financial savings, but also shares, stocks, and company ownership. (4) If a person endures reasonable expenses in order to undertake income-generating activities, these are also deducted from gross income. For example, the net expenditures (EXP) on child care and other forms of family care, but also expenditures for commuting or the improvement of one’s human capital, should be included.37 Obviously, this notion of “reasonable expenses” is vague, and there will inevitably be a grey area where we are unsure of and/or disagree about where to draw the line between reasonable and non-reasonable expenses. But the presence of a grey area should not prevent us from deducing at least those expenses where a large consensus exists that they are unavoidable or otherwise reasonable and needed for income generation. (5) Next, we deduct the taxes that a person has paid on income and the annuity (T) and also deduct any transfers of money or gifts (G) the household has made. Not all gifts can be deducted from an income to decide on a person’s PMR; this applies only to those gifts that represent a net increase in someone else’s PMR. Gifts to causes that do not affect someone’s PMR, such as political campaign contributions, or financial support of the arts and sciences, should not be taken into consideration, since these gifts give the gift-giver power to decide on which causes more or less money is spent. (6) At this point we need to consider the capabilitarian argument that what intrinsically matters is not income, but rather what resources enable people to do and to be. Income is at best a proxy for what matters; in other words, it may matter for instrumental or diagnostic reasons. In addition, people are diverse and income metrics cannot sufficiently account for this diversity: People need different amounts of income to meet the same set of basic capabilities. These insights have been developed in detail in the poverty literature—both in theory and in empirical measures.38 How does this insight transpose itself on the upper tail of the distribution? If a person has personal characteristics that mean she has less of an ability to convert income into valuable functionings (or that allow her to avoid negative functionings39), then this conversion factor (CF) needs to be applied to her gross income. If someone is

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perfectly able to turn income into a valuable functioning, then CF = 1 and no correction is needed. If a person is severely impaired or has other characteristics for which they cannot be held responsible and which lead to a need for significantly more resources than other people to reach the same level of valuable functionings, then CF. Modern democracy ended up protecting the rich so well that Mc-

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Cormick (2011) proposed the creation of a Roman-inspired Tribunate of the Plebs as the only hope for confronting the distorting effects of wealth power. 29 The work of Jack Pole (1966) is especially important for understanding this era. 30 Pessen (1971, 1980) and Rubenstein (1980) provide convincing evidence that contradicts the Tocquevillian image of a new American nation with equality of conditions. Attacking what he terms the “egalitarian myth,” Pessen shows that wealth concentration was high, the scale of the largest fortunes in the United States rivaled those of Europe, and barely 2% of the tycoons in the late eighteenth and early nineteenth centuries came from humble origins. The rest came from wealthy and politically connected families. 31 Charles A. Beard (1913) famously argued that the Constitution should be understood as an “economic document.” His focus was on the personal financial and property interests of the delegates at the Convention in Philadelphia to explain their motivations and actions. The argument being made here does not emphasize the private fortunes of the Framers, but instead centers on the broader wealth defense crisis leading up to the Convention. The delegates viewed the behavior of state legislatures and violent rebels as posing a dangerous threat to the basic institutions of private property. Their perspective was primarily big picture rather than narrowly self-interested—even if these two levels overlapped. For a comprehensive treatment of the Beardian interpretation and its recent rehabilitation, see Edling (2013), which is an introduction to a special issue of the journal American Political Thought on Beard’s agenda-setting study. 32 Efforts to amend the Articles to enable the federal government to tax failed in 1781 and 1786. A convention was called in Annapolis in September 1786, but only five states showed up. Maier (2012, 386) notes that “virtually everyone recognized the need to strengthen the central government. The issue was how.” 33 Seven states issued paper money, bills of credit, or both. They were Rhode Island, New Jersey, New York, Georgia, North Carolina, South Carolina, and Pennsylvania. In New York and South Carolina, they were not legal tender (although the Convention notes of Rufus King [1787] mention that in South Carolina “a majority of the People are in favor thereof”). Important sources on paper money and the struggle over debt relief include Nevins 1969 [1924], Jensen 1950, Morrill 1969, Kaminski 1989, Schweitzer 1989, Hall 1991, and Thies 2005. 34 The hard currency states were Massachusetts, Delaware, New Hampshire, Connecticut, Maryland, and Virginia.

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35 On these popular uprisings, see Szatmary 1980, Schweitzer 1989, Richards 2002, and Holton 2007. 36 On Madison’s proposed “federal negative,” as the veto was called, see Lacroix 2010. Gibson notes that the failure to pass the veto left Madison “despondent.” Madison wrote that without this potent weapon, the federal government would likely be “materially defective” in blocking unacceptable democratic decisions at the state level—a telling choice of words given the wealth defense battles at the heart of the constitutional redesign (quoted in Gibson 2012, p. 189). 37 “Although Constitutional Convention delegates Elbridge Gerry and Alexander Hamilton ended up on opposite sides of the ratification debate, in Philadelphia they described the convention’s fundamental task using the same phrase,” Holton (2005, p. 339) observes. “The goal, both told their fellow delegates, was to rein in the ‘excess of democracy’ in the thirteen state governments.” Holton (2007) adds: “Alexander Hamilton, the most ostentatiously conservative of the convention delegates, affirmed that many Americans—not just himself—were growing ‘tired of an excess of democracy.’ Others identified the problem as ‘a headstrong democracy,’ a ‘prevailing rage of excessive democracy,’ a ‘republican frenzy,’ ‘democratic tyranny,’ and ‘democratic licentiousness.’” Although technically not theft, debtors were using the power of their numbers to redistribute wealth with democratic legitimacy. 38 Holton 2005, p. 36. “Playing upon the widespread belief that bond speculators were men who had avoided danger during the war,” Holton continues, “the editors of the western Massachusetts Hampshire Herald demanded, ‘Will they who have already copiously bled for their country, think it equitable, that the small remains of their blood should be drained off to swell the turgid veins of those who have dwelt in security?’” 39 The aggrieved farmers of Massachusetts did elect a significant number of new representatives supporting paper money to the state legislature in 1786. But Holton (2005, p. 354) notes that their efforts were “cancelled out by other towns that expressed their anger at the legislature’s harsh fiscal and monetary policies by withdrawing their assemblymen altogether. Fifty-two fewer assemblymen showed up for the summer 1786 session of the Massachusetts House of Representatives than had participated in the previous session. Absenteeism was especially high among western representatives, whose attendance fell to a three-year low.” This attempt to undermine the legitimacy of the legislature by boycotting it not only failed, but maintained power in the hands of currency hardliners defending creditor interests. 40 Fitzpatrick 1931–1944. Less than two weeks later, Washington wrote to Henry Lee: “the commotions, and temper of numerous bodies in the

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Eastern States, are equally to be lamented and deprecated. They exhibit a melancholy proof . . . that mankind when left to themselves are unfit for their own Government. I am mortified beyond expression when I view the clouds that have spread over the brightest morn that ever dawned upon any Country.” Washington was convinced that the uprising in Massachusetts was the work of a few trouble makers holding sway over a larger segment of the population. “In a word, I am lost in amazement when I behold what intrigue, the interested views of desperate characters, ignorance and jealousy of the minor part, are capable of effecting, as a scourge on the major part of our fellow Citizens of the Union; for it is hardly to be supposed that the great body of the people, tho’ they will not act, can be so shortsighted, or enveloped in darkness, as not to see rays of a distant sun thro’ all this mist of intoxication and folly” (ibid.). 41 For most of the delegates from the slave states, it was a wealth defense worry of a different kind that shaped their interest in the Convention. One of the most valuable forms of capital in America was the ownership of humans. Slave owners wanted their state prerogatives protected but also could benefit from a stronger national security apparatus to prevent or suppress slave revolts. The proximate cause of the Convention was not, however, a slave-based crisis. On the importance of the slavery issue at the Convention, see Kaminski (1995) and Waldstreicher (2009, 2013). 42 McHenry (1787, notes from May 29). The next day, Randolph went further, calling for a need to restrain the “fury of democracy.” See Pierce (1787, notes from May 30). 43 Paterson (1787). 44 Yates 1787 (notes from June 19). 45 All quotations in this paragraph are from Madison (1787, notes from June 26). Madison made similar comments earlier that month. See King (1787, notes from June 4). 46 Yates (1787, notes from June 26). Hamilton made the same point a week earlier: “All communities divide themselves into the few and the many. The first are the rich and well born, the other the mass of the people. The voice of the people has been said to be the voice of God; and however generally this maxim has been quoted and believed, it is not true in fact. The people are turbulent and changing; they seldom judge or determine right. Give therefore to the first class a distinct, permanent share in the government. They will check the unsteadiness of the second, and as they cannot receive any advantage by a change, they therefore will ever maintain good government.” Hamilton concluded: “Nothing but a permanent body can check the imprudence of democracy. Their turbulent and uncontroling disposition requires checks” (Yates 1787, notes from June 19).

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47 This section draws liberally on Winters 2011a, chapter 5, which extends the analysis of the income tax battle beyond the 1913 constitutional amendment. 48 As Pollack (2013, p. 299) writes, however, it was hardly the first attempt to impose a sharply progressive income tax on the rich. “From 1874 to 1894, no fewer than 68 bills were introduced in Congress for a graduated income tax—albeit, none of these ever came to the floor for a vote.” 49 Whitte (1986), Herber (1988), and Pollack (2013) analyze the politics surrounding the 1894 tax. 50 Although space does not permit a full elaboration, it turns out the victory was short-lived. “In the years and decades that followed, oligarchs mounted a sustained campaign of wealth defense to counter the new threats to their material position. The battle had two consequences. As tax rates on the wealthy were increased—prompted by the onset of World War I—oligarchs used their formidable capacities for resistance and evasion to force the government to lower rates and shift the burdens increasingly onto the wealthy strata immediately below them, who were far more numerous but less able materially to mount an effective defense. Confronted with the costs of the New Deal and World War II, and facing a wall of powerful resistance from oligarchs who quickly refined their techniques for income defense, Congress turned the federal income tax against the much poorer majority who had supported it precisely because it exempted everyone but the rich. The oligarchic prey had turned the tables on the democratic predator” (Winters 2011a, p. 228). 51 On the politics surrounding the New Deal, see Skocpol and Finegold (1982), Skocpol and Amenta (1985), Skocpol, Finegold, and Goldfield (1990), Domhoff (1991), and Swenson (1997). 52 Data for this section are drawn from Winters 2011b (pp. 23–24) and income tables developed by Piketty and Saez (2012 updated). 53 If there is a single pioneer of the Wealth Defense Industry, it is surely Burton W. Kanter of Chicago. The New York Times described Kanter as “one of the nation’s most prominent tax lawyers.” He made a career “pushing the limits of the tax laws. [ . . . ] He pioneered the use of foreign trusts to reduce taxes. He lectured for decades on his creative tax structures at the University of Chicago Law School and wrote a regular column in The Journal of Taxation” (Story 2005). Forbes noted that Kanter “crafted tax-saving strategies for Hollywood producers and mega-wealthy families,” and “counted the billionaire Pritzker family [owners of the Hyatt hotel chain] as clients and for years famously paid no federal income taxes of his own.” He claimed the IRS had audited him every year from 1961 until his death in 2001 (Barrett 2009). Kanter began his tax specialization in the late 1950s when tax rates on the rich were high and the

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demand for sophisticated tax avoidance and evasion instruments was increasing. In the early 1960s, he created some of the first “shelf companies” and offshore secrecy banks in the Bahamas and Cayman Islands. The most notorious of these was Castle Bank & Trust. Clients of the bank included “Chicago’s Pritzker family, Detroit land developer Arnold Arnoff, Playboy magazine publisher Hugh Hefner, Penthouse magazine owner Robert Guccione, actor Tony Curtis, the former rock group Creedence Clearwater, and three men—Morris Dalitz, Morris Kleinman, and Samuel A. Tucker— who have been described in Justice Department documents as organized crime figures.” IRS agents who investigated the bank and its clients in 1973 considered it “the single biggest tax-evasion strike in IRS history.” However, the case was shut down after the CIA intervened on “national security” grounds because the bank was also a conduit for “the funding of clandestine operations against Cuba and other covert intelligence operations directed at countries in Latin America and the Far East” (Drinkhall 1980). For an extensive discussion of the Castle Bank case and Kanter’s involvement, see Block 1988. 54 Estimates of US wealth distribution are from Saez and Zucman (2014). Data on taxation are from Piketty and Saez (2003, updated to 2012). 55 Rubenstein (1980, p. 34) cites the rare exceptions of “the German census of millionaires undertaken only in 1913 or the Australian War Census of Income and Wealth, a unique work but one compiled only once, in 1915.” 56 See Credit Suisse’s (2013) global wealth reports and databooks. For extensive documentation of the Wealth Defense Industry, the complicated instruments it creates, and the services it sells, its use of offshore secrecy havens, and the estimated losses in taxes to the US Treasury, see US Senate (2003, 2005, 2006). Winters (2011a, pp. 233–254) provides a detailed analysis of the Wealth Defense Industry. 57 The one significant price the rich may pay as a result of the crisis and rampant tax evasion is a major new effort to increase wealth legibility and reporting on a global basis. The Foreign Account Tax Compliance Act (FATCA) went into effect in July 2014. It requires financial institutions around the world, including in secrecy jurisdictions, to register with the IRS and report on all assets held by Americans. This is the first step toward building a global legibility infrastructure comparable to the US income tax withholding system built domestically almost a century ago. The problem with the initiative is that the Treasury estimates that it will recover just under $9 billion in evaded taxes over the coming decade. If Senate estimates of $75 billion in annual taxes lost due to offshore holdings are even remotely accurate, then FATCA will recover less than 1% of the loss

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over the coming ten years. For a detailed description of the new offshore reporting system, see GAO (2013, especially pp. 2–11) and Byrnes (2014).

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Cover, Robert. 1986. “Violence and the Word.” Yale Law Journal 95, pp. 1601–1629. Cowen, Tyler. 2014. Average Is Over: Powering America beyond the Age of the Great Stagnation. New York: Plume. Credit Suisse. 2013. “Global Wealth Databook.” publications.creditsuisse.com. ———. 2013a. “Global Wealth Report.” October. publications.credit-suisse. com. ———. 2014. “Global Wealth Databook.” publications.credit-suisse.com. ———. 2014a. “Global Wealth Report.” October. publications.credit-suisse. com. ———. 2015. “Global Wealth Databook.” October. publications.creditsuisse.com. ———. 2015a. “Global Wealth Report.” October. publications.credit-suisse. com. Dahl, Robert A. 1998. On Democracy. New Haven, CT: Yale University Press. Domhoff, G. William. 1991. “Class, Power, and Parties in the New Deal: A Critique of Skocpol’s State Autonomy Theory.” Berkeley Journal of Sociology, vol. 36, pp. 1–49. Drinkhall, Jim. 1980. “CIA Helped Quash Major, Star-Studded Tax Evasion Case.” Washington Post, April 24, pp. A21–A22. jfk.hood.edu. Edling, Max M. 2013. “Introduction to the Centennial Symposium on Charles Beard’s Economic Interpretation.” American Political Thought, vol. 2, no. 2 (Fall): 259–263. www.jstor.org. Elias, Norbert. 1993. The Civilizing Process. Volume Two. State Formation and Civilization. Oxford: Basil Blackwell. Ellis, Lee, ed. 1993. Social Stratification and Socioeconomic Inequality. Volume 1: A Comparative Biosocial Analysis. Westport, CT: Praeger. Fitzpatrick, John C., ed. 1931–1944. “Letter from George Washington to David Humphreys, October 22, 1786,” and “Letter from George Washington to Henry Lee, October 31, 1786.” In The Writings of George Washington from the Original Manuscript Sources, 1745–1799. www.loc.gov. Flannery, Kent and Joyce Marcus. 2012. The Creation of Inequality: How Our Prehistoric Ancestors Set the Stage for Monarchy, Slavery, and Empire. Cambridge, MA: Harvard University Press. Freedom House. “Individual Country Ratings and Status, FIW 1973– 2016.” freedomhouse.org. GAO. 2013. “Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May Be Missing Continued Evasion.” Report to Congressional Requesters. GAO-13–318. United States Government Accountability Office. March.

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Getzler, Joshua. 1996. “Theories of Property and Economic Development.” Journal of Interdisciplinary History, vol. 26, no. 4 (Spring): 639– 669. Gibson, Alan. 2012. “Madison’s ‘Great Desideratum’: Impartial Administration and the Extended Republic.” American Political Thought, vol. 1, no. 2 (Fall): 181–207. Golden, Charles and Andrew K. Scherer. 2013. “Territory, Trust, Growth, and Collapse in Classic Period Maya Kingdoms.” Current Anthropology, vol. 54, no. 4 (August): 397–435. Goerner, E. A. and Walter J. Thompson. 1996. “Politics and Coercion.” Political Theory, vol. 24, no. 4 (November): 620–652. Hale, Robert L. 1923. “Coercion and Distribution in a Supposedly NonCoercive State.” Political Science Quarterly, vol. 38, no. 3 (September): 470–494. Hall, Arthur P. 1991. “State-Issued Bills of Credit and the United States Constitution: The Political Economy of Paper Money in Maryland, New York, Pennsylvania and South Carolina.” PhD dissertation, University of Georgia. Hardoon, Deborah, Sophia Ayele, and Ricardo Fuentes-Nieva. 2016. “An Economy for the 1%.” Oxfam Briefing Paper, January 18. Oxfam International. www.oxfam.org. Henry, James S. 2012. “The Price of Offshore Revisited.” Tax Justice Network. www.taxjustice.net. Herber, Bernard P. 1988. “Federal Income Tax Reform in the United States: How Did It Happen? What Did It Do? Where Do We Go from Here?” American Journal of Economics and Sociology, vol. 47, no. 4, pp. 391–408. Holton, Woody. 2005. “An ‘Excess of Democracy’: Or a Shortage?: The Federalists’ Earliest Adversaries.” Journal of the Early Republic, vol. 25, no. 3 (Fall): 339–382. ———. 2007. Unruly Americans and the Origins of the Constitution. New York: Hill & Wang. Jensen, Merrill M. 1950. The New Nation: A History of the United States during the Confederation, 1781–1789. New York: Vintage Books. Kaminski, John P. 1989. Paper Politics: The Northern State Loan Offices during the Confederation, 1781–1790. New York: Garland Publishing. ———, ed. 1995. A Necessary Evil? Slavery and the Debate over the Constitution. Madison, WI: Madison House. King, Rufus. 1787. “Notes of Rufus King in the Federal Convention of 1787.” Reprinted from The Life and Correspondence of Rufus King (New York, 1894), vol. 1, pp. 587–619. avalon.law.yale.edu.

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6 WEALTH CONCENTRATION, RACIAL SUBORDINATION, AND POLITICAL CORRUPTION DAVID LYONS

Jeffrey A. Winters writes that “Wealth concentration is the single most enduring economic pattern across all polities from Mesopotamia to the present—interrupted only rarely and for brief intervals.” His important paper focuses on “wealth defense,” which refers to measures taken, mainly by or for the most wealthy, to maintain their exceptional wealth. As Winters’s view of American public policy appears sound to me, I propose to abdicate the role of philosophical critic and instead explore further applications of his wealth defense thesis in American history.1 If my comments seem at any point to disagree with Professor Winters, I think they may be regarded as friendly amendments. Here are some points to be expanded upon in what follows: (1) A major form of wealth, in America and elsewhere, has been property in human beings. During the antebellum period, for example, the Southern slave economy was one of the principal factors driving the American economy as a whole and a significant basis for personal wealth. (2) Because of its distinct character, this kind of wealth necessitated distinct forms of wealth defense—which suggests one avenue along which Winters’s thesis may be developed. 226

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(3) The example of slavery also suggests a much broader application of the wealth and wealth defense concepts. Slaves were so highly valued in America because of their collective productivity,2 or in other words their labor. Enslavement involved ownership3 of the source of labor. But claims upon other persons’ labor can be acquired without recourse to enslavement, e.g., through legally enforceable contracts. This would include the labor of indentured servants4 and that of “free” laborers. (4) Defending the wealth that is represented by the latter classes of labor calls for additional measures, such as preventing the flight of indentured servants and recapturing those who have run away and maintaining a supply of lowcost “free” laborers. (5) As the previous points suggest, many measures that are employed to defend wealth also serve to promote and concentrate wealth. Such measures include, for example, resistance to unionization and undermining the independence of trade unions. (6) As the burden of wealth defense is assumed by the state, it is paid for by the population at large, so that many are obliged to subsidize their own subordination. (7) As wealth secures political power, wealth defense secures the wealth of the more affluent to a greater degree than that of the less affluent. In the absence of ameliorating public policies, wealth inequality tends to increase. (8) What also can be shown is that public policies that secure wealth and promote its concentration sometimes systematically violate the governments’ own laws and the neutrality that governments often claim. (9) As the above points imply, wealth defense is not morally neutral. It treats members of society with unequal concern and respect, it treats some with no respect at all, it is profoundly hypocritical, and it undermines democracy and the rule of law. I will now expand upon and substantiate some of those points.

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Unlike other kinds of property, slaves exercise understanding and self-control. They are told what work they must do and, given relevant training, are normally capable of going ahead and doing it, however much they may need to be coerced. Unlike machines, slaves’ bodies do not need to be articulated by others. But the same capacities make slaves capable of resisting their condition and capable of generating threats to their owners and their owners’ property. Slaves may try to escape, and they sometimes succeed. They can deliberately destroy real estate, tools, and livestock. They can rise up against those who use them. This necessitates measures that are not needed to secure other kinds of property—measures such as punishments that are intended to dissuade others from engaging in comparable resistance, even though the punishments may kill or disable the punished slaves and thus represent immediate costs. Some of these measures are employed not only to defend wealth but to promote it by extracting as much labor from slaves as possible. In considering slavery in America, it may be useful to go further back in time than Jeffrey Winters goes. I will focus on Virginia, the first permanent American colony, begun in 1607.5 The story begins with indentured servants, who in America were used much like slaves. Their labor was immensely valuable once tobacco became a very profitable cash crop. Only the most affluent of the colonists could secure indentured servants, and they also acquired land under the headright system, which promoted wealth concentration and intensified inequality. The punishment of servants who were recaptured after running away might include extra years of service, which promoted as well as defended the wealth of their masters. As the colonial government was dominated by the wealthiest settlers, measures to promote and defend wealth were implemented through colonial policies. Servants ran away because they suffered “nightmarish” conditions under the brutally hierarchical system that prevailed in early Virginia.6 By the middle of the colony’s first century, only half of the servants who came there survived their indentures. Such conditions and improved economic prospects in England help to explain why it became increasingly difficult to recruit servants.

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Partly for that reason, colonists seeking to purchase labor increasingly sought slaves.7 The first twenty Africans who, in 1619, joined the colony had been held as slaves on a Dutch ship that stopped in Jamestown and were exchanged for provisions.8 Colonial records do not tell us much else about them, and we cannot be sure about their subsequent status because the colonies were subject to the English common law, which did not authorize private parties to enslave others.9 But colonial records do tell us that by the 1630s some Virginia colonists held Africans as slaves. We know this, for example, from the report of Elizabeth Key’s 1655 freedom suit in the Virginia courts.10 Ms. Key was identified as a “negro” whose mother was a “slave” and who was herself being held as a “slave.” Ms. Key argued that, as her father was a free man, she should be freed because under the common law a child inherits the condition of its father.11 She also argued that, as she had been christened, she should be freed because Christians may not enslave other Christians. Ms. Key won her suit and her freedom.12 Clearly it was possible for colonists unlawfully to enslave individuals and for the practice to be accepted by the colonial elite, who both held slaves and determined public policy. Although neither English nor colonial law had authorized slavery, it seems reasonable to count those who were then held as slaves as de facto property and thus for the concept of wealth defense to apply. The latter would have included allowing slaveholders to employ whatever measures they saw fit to extract labor from and secure their slaves (e.g., by preventing escapes and imposing punishments). Wealth defense developed significantly after Virginia courts freed Elizabeth Key. The Virginia legislature appears to have been persuaded by the success of Ms. Key’s freedom suit that the colony’s practice of enslavement required attention, for it proceeded to enact a series of laws regulating slavery, the first two addressing Ms. Key’s common law arguments. In 1662 it laid down the rule that a child inherits the condition of its mother and in 1667 it declared, in effect, that Christians may enslave other Christians.13 The legislature then continued to regulate slavery. In 1669, for example, it permitted the disciplinary killing of a slave by its master or his agent and in the 1690s it authorized draconian measures

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against runaways.14 By the century’s end it had enacted what taken together amounted to a comprehensive slave code. In 1682 the Virginia legislature restricted enslavement to people of color,15 and in the 1690s it severely penalized fraternization between whites and blacks.16 These measures, among others, seem meant to discourage cooperation between poor blacks and poor whites, such as Virginia had experienced a few years earlier, during Bacon’s Rebellion—the most serious anti-establishment uprising prior to the eighteenth century’s war for independence.17 In adding racial stratification to economic and political inequalities, the legislature created new wealth defenses: by dividing poor whites from poor blacks and, over time, recruiting poor whites to help subordinate people of color, they secured the landed elite’s control of the colony and their concentrated wealth. Winters’s discussion of wealth defenses in the 1789 Constitution should also be supplemented by a consideration of slavery, which the new Constitution defended in a variety of ways, ranging from its Fugitive Slave Clause to its Three-Fifths Clause, which promoted slave-state influence in the federal government and thus promoted federal sympathy for slavery-friendly policies.18 Likewise, Winters’s discussion of wealth concentration under the robber barons and their successors should be supplemented by considering public policies, some simply unlawful, that insured the restoration of wealth concentration in the Old South after the Civil War.19 During the Civil War, Southern wealth had been threatened when the Union Army allocated abandoned plantations to thousands of former slaves (who ran them effectively) and the Fifteenth Amendment made the electoral franchise available to freedmen. The threat disappeared when the federal government abandoned Reconstruction. Congress had declined to enact Thaddeus Stevens’s proposal for land reform, and President Johnson made sure that as much land as possible was returned to its former owners or sold at auction to the highest bidders. As a result, very few freedmen were able to secure their own farms, which they needed for economic and political independence. The Supreme Court eviscerated Reconstruction legislation and amendments20 and the executive branch withdrew military forces from the South, which were needed to enforce the freedmen’s surviving civil rights. These measures permitted white supremacists to attack African

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Americans and their allies, enabled the landed elite to resume regional control, and laid the groundwork for Jim Crow, a system that was designed to resemble slavery as much as possible.21 Most African Americans remained in the South and became sharecroppers, often working for their former owners. Most sharecroppers became prisoners of permanent debt, as they were charged high prices for the supplies they needed to purchase from company stores, received low prices for their crops from the landowners, and were subjected to plantation owners’ fraudulent accounting, any challenge of which was discouraged by the palpable threat of lynching.22 All these measures secured wealth and promoted its concentration. They were supplemented by public policies that tolerated lynching, which was crucial to the continued subjugation of African Americans, and policies that promoted convict leasing (which affected thousands in the South)23 and systematic wage discrimination24 (which has affected millions nationwide)—both of which were enormously profitable to wealthy private corporations.25 Reparations for former slaves, though morally obligatory, were not required by law, but reparations could have been imposed by an innovative federal government on those who profited most from slavery. (Land reform—which was called for by freedmen and proposed by Thaddeus Stevens—would have been a modest step in that direction.) As reasonable compensation would have been costly, especially to those who had most to lose, avoiding reparations amounts to a significant form of wealth defense. Free Labor As I suggested early on, if the labor of indentured servants is a form of wealth, then so is that of “free” workers. Wealth-promoting and -defending policies concerning free labor range from hiring and job assignment practices that seek to exploit traditional hostilities among various racial and ethnic groups to assaults on unionization. Territorial Expansion My final example of measures taken to promote and defend concentrated wealth centers upon the Southwestern expansion of

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the United States. This has three notable aspects. First, the independence movement for Texas involved the expansion of Southern slave society,26 which incorporated extreme wealth concentration. Second, the Treaty of Guadalupe Hidalgo, which gave America the northern half of Mexico, included a commitment to respect property rights in that region according to Spanish and Mexican law. This commitment was nullified by the American government, which enabled a privileged few to acquire vast land holdings and thus promoted wealth concentration that was subsequently defended by American law.27 Third, the subordination and exploitation of Mexican Americans in the annexed territories likewise promoted wealth concentration, which American policies defended.28 In these brief comments I have suggested expanding the category of wealth defense measures that are presented to us by Winters. By considering labor, both slave and free, I believe we can see that that feature of human society is even more prominent and important than Winters describes. Notes This is a revised version of comments on “Wealth Defense” by Jeffrey Winters, presented at the ASPLP annual meeting in Washington, DC, August 29, 2014. 1 The comments that follow draw upon my Confronting Injustice: Moral History and Political Theory (Oxford: Oxford University Press, 2013). As used here, “America” refers to the English North American mainland colonies and the United States. 2 Collective rather than distributive because not all slaves were used in conventionally productive capacities, e.g., some slaves were used to create more slaves. 3 De facto or de jure, as I note below. 4 Indentured servants were officially understood to have contracted to serve for a few (e.g., four or seven) years, though many did so involuntarily. 5 Although Massachusetts formally endorsed slavery in 1641, which as we shall see was earlier than Virginia, Virginia embraced slavery even earlier. See Confronting Injustice, chap. 2. 6 G. B. Nash, Red, White, and Black: The Peoples of Early North America, 5th ed. (Upper Saddle River, NJ: Pearson Prentice Hall, 2006), p. 59.

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7 As Virginia legislation makes clear, Native Americans were also enslaved. Act I (an act repealing a former law making Indians free), November 1682, in The Statutes at Large [Virginia colonial enactments], ed. W. W. Hening (Richmond: Samuel Pleasants, 1809–23), II, 490–92. Most Africans who became slaves in early Virginia were familiar with Europeans and their customs, and some had been baptized. I. Berlin, Many Thousands Gone: The First Two Centuries of Slavery in North America (Cambridge, MA: Harvard University Press, 1998), pp. 29, 44–45. 8 Virginia Company of London, The Records of the Virginia Company of London, ed. S. M. Kingsbury (Washington, DC: US Government Printing Office, 1933), III, 243. 9 Slavery could be imposed by courts as punishment and could be authorized or imposed by Parliament or by colonial legislatures. Parliament never authorized slavery in the colonies and Virginia did not legalize slavery until later (see below). 10 W. M. Billings, “The Cases of Fernando and Elizabeth Key: A Note on the Status of Blacks in Seventeenth-Century Virginia,” William and Mary Quarterly 30 (1973): 467–74. 11 The legislature later expressed uncertainty on this point (see Act XII, December 1662, Statutes at Large, II, 170), understandably, as the common law rule applied to a child who was born within a lawful marriage. We have no reason to believe that Ms. Key’s father married her mother, so Ms. Key’s first argument may have been unsound. 12 She also argued that she had been sold to the person who was then holding her, on condition that she serve for only nine years. It is unclear how heavily that argument weighed in the courts’ judgments. As we’ll see, however, subsequent legislative developments suggest that her other two arguments were taken quite seriously. 13 Act XII, December 1662, Statutes at Large, II, 170; Act III, September 1667, Statutes at Large, II, 260. 14 Act I, October, 1669, Statutes at Large, I, 270; Act XVI, April 1691, Statutes at Large, III, 86. 15 Act I, November 1682, Statutes at Large, II, 490–492. This statute comes closest to explicitly authorizing slavery—some fifty years or more after the practice began. 16 Act XVI, April 1691, Statutes at Large, III, 86. 17 Bacon’s Rebellion challenged the colony’s policy, adopted in the 1640s, of honoring the treaty entered into with neighboring Indian tribes and thus respecting the latter’s territories. This policy counts as a wealth defense measure because it secured the concentrated wealth of the landed elite by discouraging Indian uprisings like earlier reactions to the aggressively expansionist policies that the colony previously embraced.

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18 P. Finkleman, “The Founders and Slavery: Little Ventured, Little Gained,” Yale Journal of Law and the Humanities 13 (2001): 199–200, n. 23; Finkelman, “Making a Covenant with Death,” in Slavery and the Founders, 2nd ed. (Armonk, NY: M. E. Sharpe, 2001), pp. 441–43. 19 E. Foner, Reconstruction: America’s Unfinished Revolution 1863–1877 (New York: Harper & Row, 1989), pp. 35–6, 119–23, 198, 209. 20 Slaughter-House Cases, 83 U.S. 36 (1873); Civil Rights Cases, 109 US 3 (1883). 21 Foner, Reconstruction, pp. 587–601. 22 Ibid., pp. 103–9, 171–5, 404f, 537. 23 D. A. Blackmon, Slavery By Another Name: The Re-Enslavement of Black Americans From the Civil War to World War II (New York: Doubleday, 2008). 24 President’s Committee on Civil Rights, To Secure These Rights (Washington, DC: US Government Printing Office, 1947). 25 In re African-Am. Slave Descendants Litigation, 304 F. Supp. 2d 1027 (N.D. Ill. 2004). 26 R. Takaki, A Different Mirror: A History of Multicultural America (New York: Back Bay Books, 2008), pp. 155–7. 27 M. Ebright, Land Grants and Lawsuits in Northern New Mexico (Albuquerque: University of New Mexico Press, 1994). 28 Ibid.; R. Acuña, Occupied America: A History of Chicanos, 4th ed. (Boston: Addison Wesley Longman, 2000), pp. 41–152.

7 WEALTH AND DEMOCRACY JEDEDIAH PURDY

It wasn’t supposed to be like this. The present that we are living in is not the future that we were promised. Wealth was not supposed to be so unequal, and its inequality was not supposed to be such a problem for democracy. Thinking about wealth today means taking stock of a rude awakening. Of course, stating it this way simplifies the matter dramatically. But let us take it in steps. To recite a cultural history that readers already know as cliché—but no less true for its familiarity— the 2014 appearance in English of Thomas Piketty’s Capital in the Twenty-First Century alerted Americans to a body of research that had been developed over more than a decade, showing both income and wealth growing sharply more unequal around the world. The strongest data concerned the wealthy countries of the North Atlantic, where inequality has been growing since roughly 1970 and, Piketty warned, a new rentier class of inherited wealth and social prestige is on the verge of emerging. As his most acute respondents have pointed out, Piketty’s work raises many more questions than it answers.1 My major concern here is what growing inequality means for democracy and the rule of law, a topic where Piketty himself is more suggestive than informative. Others have focused on disaggregating Piketty’s findings: how much comes from real estate, from first-wave returns to technological innovation, and so forth. Both sets of questions are necessary in moving from measuring inequality to assessing it. Inequality, as a merely formal or statistical feature of the economy, is not good or bad; it becomes good or bad only as it affects those things that people value and have reason to value. Indeed, 235

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inasmuch as the word “inequality” in common use implies something bad, a problem, it is a derivative concept, taking its intelligibility from some (explicit or implicit) idea of what would count as an appropriate kind of equality. And because wealth is itself an instrumental good, valuable only because it enables people to have and do things that they value, any idea of an appropriate level of inequality will presuppose a series of things: what wealth enables one to do in a given society, which things wealth cannot buy, which things are available regardless of wealth, and, of course, what kinds of things are important to be able to have and to do. Part of this web of presuppositions is the conception of citizenship implied in any picture of democracy: what it means to have standing in the political community and among other private individuals, and how wealth structures these relations. To diagnose unequal wealth, then, one must disaggregate its effects and relate them to a scheme of values and the institutions that embody those values—such as schemes of social provision, market-making and market-limiting rules, and so forth. Another kind of disaggregation is also essential, this kind concerned less with the effects of wealth than with its sources. To do anything with respect to unequal wealth, one must know something about what causes it and what kinds of interventions are possible around those causes. How much inequality of wealth is the result of simple rentseeking, such as featherbedding by executives and compensation committees? How much comes from broader political choices, such as tax policy or laws governing labor unions? How much is a structural result of technological innovation, or of globalization, or of some persistent dynamic in the spectrum of economic orders that we call “capitalism”? How much is specific to changes in a specific area of the economy, such as real estate, and are such changes basically contingent, or are they symptoms of some structural dynamic? For any of these sources, but particularly the last two, how much political space is open to mitigate the effects of inequality, and at what cost? Moreover, both questions—what does wealth mean and where does it come from?—are all the more important in how they interact. To put the question in a way that is somewhat over-stylized, how do capitalism and democracy interact? Is there a tendency toward rising economic inequality that erodes putative commitments to

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civic equality? Does civic equality presuppose and require certain economic arrangements—whether laissez-faire, social-democratic, or otherwise? This, of course, is not a question that could be answered once and for all: because it concerns dynamic interplay between two spheres of braided equality and inequality (broadly, the economic and the political), it might get a different answer at any moment in time, depending how events had played out to that point, what kinds of institutions were in place, and so forth. Although this last question, the issue of interacting spheres, is sweeping and elusive, it is also the most important, because it joins the work of explaining and assessing wealth inequality with the work of acting on it. I. Wealth and Democracy in the Age of Kuznets and Keynes The rediscovery of massive and growing wealth inequality brings an inconvenient realization: Much of the thinking of recent decades has been subtly inflected by empirical premises that seem to be turning out false. First among these is the expectation that economic inequality in developed countries should settle at stable and tolerable levels. This expectation was crystallized in the famous “Kuznets curve,” named for economist Simon Kuznets, which found (based on a limited sample of mid-century tax records in the United States) income inequality growing for a time, then leveling off. Soon matched by doppelgangers such as the “environmental Kuznets curve” (which showed pollution rising early in the development process, then falling as wealthy societies adopted environmental regulations), the Kuznets curve became a kind of macroeconomic emoji for optimism about the social meaning of economic growth. If the first vulnerable promise belonged to Kuznets, the second can be fairly identified with economist John Maynard Keynes: the benign statist assumption that expert governance has more or less wrestled economic vicissitudes to the ground and is now firmly in control of economic life. Although the core of Keynes’s contribution to postwar economic governance was the management of business cycles through demand stimulus (via public spending or relaxed interest rates), it rested on a larger image of political and

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social life in which, as Keynes famously put it, the “economic problem” (basically the problem of scarcity) was on the way to being solved.2 Taken together, these two premises describe the common sense of the North Atlantic countries in the “thirty glorious years” following World War II, when high rates of growth, effective national controls on the international movement of capital, and a strong political role for organized labor resulted in widely shared prosperity. (There were important exceptions to the trend of economic inclusion, notably African Americans in the United States, but it was typical of the time that these, like certain other pockets of poverty or social vulnerability, were regarded as exceptions, and the assumed solution among elites was to incorporate them into a system generally regarded as working for everyone.) This common sense implied that there was no great reason to expect wealth inequality to be self-compounding, and that, if inequality did grow, no reason that a democratic political order should not be able to sort it out. This is not to say that there was perfect complacency, but that the conceptualization of issues at the intersection of private wealth and public power assumed that they were soluble: of a manageable scale and subject to powerful tools of governance. For instance, John Rawls’s Theory of Justice, published in 1971, devoted a bit more than two pages to “the fair value of political liberty,” that is, the problem of ensuring that formally equal rights to political participation should not be undermined by unequal economic power.3 Rawls recognized that unequal political power might arise from unequal economic power, then entrench itself in the legal rules of the game (both political and economic).4 He responded with what was in effect a strong expression of the Keynesian assumption: in its distributive capacity, government should maintain an ongoing re-sorting of wealth to avoid excessive concentrations of economic power, while also using public financing of elections to sustain boundaries between the political process and private wealth. All of this appeared in Rawls’s thought as, in effect, an important administrative problem for a postwar state assumed to have the power, expertise, and legitimacy to carry it out. Rawls offered no sustained reflection on the ways that unequal wealth might arise from within, or break free of, a basically social-democratic state

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and impose its own logic of power throughout both economic and political life.5 Rawls wrote that if such questions arose, they would “belong to political sociology,” rather than to his theory of justice.6 But the thought that a theory of justice could set aside problems of “political sociology” got the point exactly backward, at least in one key respect. Rawls’s theory of justice had the appeal that it did because it could presuppose a political sociology characterized by the assumptions of Kuznets and Keynes. It could stand as an idealizing and rationalizing account of a certain kind of postwar state, one poised to manage economic life so completely as to make economic processes thoroughly objects of political choice and control, rather than allowing them to become agents of political power and change. To write of the economy as Rawls did, as the site of distributive shares, to be organized by rules that allow only those inequalities that benefit the least advantaged, while also treating the choice between socialism and private ownership as an open one, assumes that economic life is basically a plastic object of regulation, not a source of barriers to, and disruption of, the political project of justice. Because it rests on these (in hindsight) heroic assumptions, Rawls’s project is in some sense the apogee of a body of thought that preceded the postwar period by many decades but came to its fullest flowering then. This line of thinking expected to see the importance of the distinctively economic domain of life diminish as scarcity receded and humanity emancipated itself from material insecurity. Whatever organizing principles scarcity and self-interest imposed on economic life would turn out to be, in effect, transient features of a passing era. In its liberal version, this tradition owed a key debt to John Stuart Mill. In his Principles of Political Economy, Mill argued that the era of money-making and business-driven busyness that he was living through would prove an anomaly, an historical peculiarity. In good time, Mill predicted, people would recognize that their material needs had been met by growing social wealth, and would turn to other priorities, the “higher pleasures” of refinement, self-unfolding, and non-instrumental personal relationships. The forecast was consistent with Mill’s tendency toward an optimistic, humanist libertarianism woven into the fabric of a perfectionist

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utilitarianism. In Mill’s account, social life, the realm of sociability that is defined neither by the instrumental rationality of the marketplace nor by the formality and sovereign authority of politics, would spontaneously and fluidly implement post-economic, humanistic priorities—for no great, or lesser, reason than that women and men would become bored with money-making and appreciate that they had better things to do with their lives. A culture devoted to making money had something wrong with it, Mill reckoned, and the perspicacity of free individuals would recognize this and set it right. Keynes’s forecast in “Economic Possibilities for Our Grandchildren,” that the problem of scarcity might be overcome after another century, was little more than an extension of Mill’s argument, augmented by intervening decades of compound growth. Keynes proposed that the defining question of collective life would no longer be how to create wealth, but rather how to use leisure. The most socially prized people would be those who showed others gracious, edifying, and pleasurable ways to spend their time and powers toward non-accumulative ends. Keynes even suggested, following Mill and perhaps waxing a bit mischievous, that the pursuit of wealth as an end in itself, having exhausted its social usefulness, could be handed off with a shudder to experts in mental disorders. Like Mill, Keynes seemed to imagine that tastes for leisure and refinement would assert themselves organically once material needs ceased to be pressing. The engine of capitalist wealth production would slow and cease, having used up its fuel of human cupidity. By the end of the 1950s, the engine had not even slowed. This was the puzzle to which Keynesian economist John Kenneth Galbraith set himself in one of the twentieth century’s major American social-theoretic treatments of wealth, The Affluent Society. Galbraith argued that Keynes’s utopia of leisure had not arrived for two reasons. First was the perverse persistence of economic insecurity in a wealthy society: Although the United States was rich enough to provide a decent and secure living for all, economic life continued to be shadowed by the prospect of vulnerability and deprivation for those who fared badly. Galbraith argued that whatever rationale these fearsome incentives might have had in an earlier, poorer era that needed to make a priority of economic growth could no longer apply in the age of affluence. The feeling

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of scarcity and vulnerability was a kind of collective neurosis in economic life—albeit one given a very real material basis by lawmakers’ failure to provide security for Americans in the form of social provision and protection in their employment. Second, Galbraith sought to explain the unsettling fact that the appetite for consumption of material goods had not abated, even as the economy provided nearly everyone with levels of material prosperity that, a century or even fifty years earlier, would have seemed to solve the problem of material want. Here he introduced a kind of deus ex machina: The advertising industry produced new wants in pace with economic production, artificially keeping consumer demand high enough to stoke the engines of industry. Galbraith distinguished between those wants that preceded the production process and those that, as he described it, were created as part of the production process itself. He argued that human happiness could be fostered just as much by avoiding the creation of new wants as by satisfying those wants once they existed: after all, the sum of satisfied wants is a joint product of the level of wants and the degree of their satisfaction, and one may produce full satisfaction as easily by subtracting inessential desires as by multiplying means of satisfying them. The weak point in Galbraith’s account is the would-be distinction between natural and artificial desires. There is, to be sure, something important here; but it is not enough to say that desires without an old pedigree have less weight than those known to Homer and the Victorians. The reasons are familiar from Marx and from market-oriented technological optimists alike: In a deep way, human life is a joint product of the organic and the inorganic, our individual bodies and personalities and our collective technologies of production. We create ourselves and discover our potential—our powers, desires, and discontents—through an historical process of innovation. This innovation sets in motion a constant series of revolutions—technological, political, cultural, and at the level of consciousness itself. People had, at one time, not heard of racial equality, same-sex marriage, or safe and effective control over reproduction; but there is nothing deficient in our demands for these things today. In Galbraith’s view, then, wealth was both an achievement and a problem; but the problem lay essentially in the fact that the society

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had not yet matured enough to take full advantage of wealth’s revolutionary humanitarian potential. The way to do this would be by legislating, rather than simply waiting for, the culture of leisure and refinement that Keynes had forecasted. The legislation would take the form of social provision, in personal security (job protection and pensions, for example) and public goods, the latter cultural as well as infrastructural. This was, in effect, the theoretical version of President Lyndon B. Johnson’s Great Society: a program for a humanistic, post-material utopia of lifelong education, leisure, reflection, and self-development.7 Galbraith identified a vanguard for this change: what he called the New Class, a social stratum whose members valued work as a source of intrinsic satisfaction and self-expression, rather than a hard bargain of instrumental labor in exchange for unrelated wants. This population was already moving into the post-material world of satisfaction in activity rather than things, in doing rather than consuming. The goal of any affluent society, Galbraith argued, should be to usher as many of its people as possible into this class, and so to realize the emancipating potential that wealth represented. In Galbraith’s account, as in Rawls’s, there is a clear assumption that the Keynesian state stands ready and able to realize the potential of affluence to solve the problem of scarcity and release people into a post-scarcity society. Both of these assumptions—the availability of a post-scarcity situation and the capacity of the state to usher it in—came under pressure from both left and right in the decades following Galbraith’s 1958 book. II. Doubts from the Left: Positional Goods and the Persistence of Scarcity Fred Hirsh’s Social Limits to Growth made both cases in 1976. Hirsch, an economist and former International Monetary Fund official, argued that Keynesian optimism had rested on a pair of assumptions that turned out to be historically contingent—and, increasingly, no longer held. First was that the lion’s share of economic demand would be for goods that served classically material needs, such as food and shelter. Economic growth straightforwardly serves more of these needs as it progresses: more food, bigger houses with more bathrooms, more consumer electronics,

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and so forth. But, Hirsch argued, economic development brought growing emphasis on positional goods, goods whose capacity to satisfy their owners or consumers is relative to what others have. Affluence created a paradox: The value of positional goods was eroded precisely by increasing material wealth, so that the satisfaction produced by economic growth was often a matter of two steps forward, (at least) one step back. Positional goods were mainly of two kinds. First were material goods subject to congestion, such as cars and suburban houses— goods that appeared luxurious when few people had them, but turned out to be much less enjoyable when widely distributed, precisely because wide distribution meant crowded roads and clogged, increasingly remote suburbs. Inasmuch as economic growth produces positional goods, it constantly undermines its own promise: what one sets out to achieve is less satisfying once one finally gets it. Hirsch’s second type of positional good is the pure positional good, the thing that is scarce by its nature, such as leadership positions or other bases of prestige. Hirsch’s lead example was higher education. As material wealth increases, ever more spending flows into competition for positional goods, which do not increase in number (at least not in proportion to the increase in overall wealth). With increased competition for positional goods, pressure increases on universities to serve as sorting institutions, allocating leadership positions, prestige, satisfying work, and so forth. Results include longer certifying processes, increasing rates of matriculation, (one might add today) rising tuition, and, at the heart of the matter, years spent in education that is purely instrumental to achieving a positional good, or, even worse, purely defensive—like a home-security system, a way of avoiding a loss, the loss in this case being a decline in social standing. All these uses of wealth to pursue positional goods are, Hirsch argued, mainly social waste. Such waste is unavoidable in a materially wealthy society with a highly uneven topography of positional goods. Because of positional goods, economic growth does not overcome scarcity, but displaces it from the straightforwardly material sphere to the positional sphere. Hirsch’s second paradox takes us to the crucial issue: the interaction between capitalism and democracy. Hirsch argued that

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the traditional agenda of economic development, associated with a broadly utilitarian state (whose policies were to be laissez-faire under the Benthamite dispensation, managerial in the Keynesian incarnation), was coherent only because of an invisible but indispensable boundary on the domain of economic self-interest. Individual economic actors were expected to pursue their selfinterest to the full, but always within the rules of the game, while principled and public-spirited officials were charged with enforcing those rules in an even-handed fashion. But these boundaries would prove unstable. Absent some independent social morality, there was no reason for people, professions, and industries not to try to game and change the rules in their favor. Reciprocally, there was no guarantee that officials would not put the rules up for sale, if not crudely and nakedly, then in the familiar, revolving-door style of capture that has become familiar in the capitalist regulatory state. There was reason to expect these trends to quicken as the status of economic self-interest as a sole and sufficient account of rationality eroded the quasi-religious social ethics of businesspeople and professionals and the mandarin noblesse oblige of public officials. Such extra-market social ethics, Hirsch argued, were the implicit sociological linchpin of the regulated market that the Keynesian state supported; but the market’s logic tended to undercut this sine qua non of its own regulation. For these reasons, Hirsch argued, political intervention would be necessary to create a social state in which prosperity would not undercut its own promise. As he put it, the market provides a range of choices to the individual, but only politics provides the power to choose among multiple ranges of choices, that is, to shape the playing field and the rules themselves in a deliberate way. And individual choice alone would prove insufficient to deliver the promised escape from scarcity and insecurity. It is interesting, in hindsight, that Hirsch felt it urgent to make this case: In his view, a benign and effective regulatory state could no longer be assumed, and this at the very moment when growing evidence suggested that market-led economic growth could not fulfill its promise without political intervention.

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III. From the (Center- ) Right: Doubts about Democracy and Neoliberalism’s Rise Part of the difficulty was this. Throughout the twentieth century, as the regulatory state took on ever-greater importance as the assumed linchpin of political economy, it was losing plausibility as a vehicle of democratic feedback. A line of argument widely broadcast in the United States by Walter Lippmann and Joseph Schumpeter held that actually existing mass democracy could not instantiate any idealistic conceptual account of collective self-rule. Voters were ill-informed, emotional, and often in sway of fantastical confusion. Majorities were contingent and transitory. Even at its most lucid, the will of the majority was simply visited on the minority with the arbitrary decisiveness of authoritarian dictates. The idea that democracy involved a collective body deliberately choosing its direction was insupportable outside certain exceptional and archaic circumstances, such as the Greek polis or Swiss canton. The most optimistic account one could give of democracy was to describe majoritarian elections as a rule of decision to resolve contests among rotating bands of elites—the position Schumpeter adopted. Lippmann took a gentler tone but was not much more optimistic, describing popular majorities as weighing in occasionally on questions of great moment—not all that rationally, but more or less decisively—but otherwise little connected with the activity of governance, which was the work of institutions, not populations. These arguments appeared between the 1920s and the 1940s: By the 1970s, a sophisticated body of public-choice literature portrayed government as, in effect, a subset of economic life—a congeries of rent-seeking by industries and constituencies, power-accumulation by bureaucrats, and, at worst, utopian flights of reformist fancy free of the discipline that cost-internalization imposes on private decisions. Hirsch thus wrote in a world in which Galbraith’s rather easy assumption of a legitimate, effective, and benign state was under considerable intellectual pressure. Recognizing the need for regulation was already a matter of reclaiming contested ground, not simply bathing in near-consensus. The most polemical, sustained, and—in hindsight— emblematic attack from the right on Great Society optimism came from Friedrich Hayek. Hayek argued that, contrary to promises

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of post-material security, an economy could do its work only if it maintained a measure of insecurity and arbitrariness, and that social provision did not complete the promise of economic development, but instead undercut it. Hayek argued that the economy should be understood as an information-processing system, conveying data about the relative scarcity of goods, time, and talent, and the extent and intensity of desire for them. Effective communication of this data laid the groundwork for rational decisions about the trade-offs between possible uses of resources that are the ligature of economic life. The key to this informational function was the price mechanism, which expressed the kaleidoscopic facts of economic life in uniquely succinct and usable form. Prices could do this work only if they were allowed to coordinate decisions about distribution and use of resources: Every redistributive or regulatory mandate clogged and diverted the flow of information, turning a healthy vascular system of data into a swampy delta of drifting decisions. The consummation of secure prosperity that Galbraith sketched would be, in effect, the end of economic life as Hayek described it, and its eclipse by the bureaucratic life of an administered state. One could expect such a state to be inefficient, arbitrary, and actuated by envious and irrational passions, quite unlike the relatively lucid instrumental rationality that the price system enforced on market choices. Faced with a choice between liberalism—which for him meant the classical economic liberalism of laissez-faire— and democracy, Hayek argued, one should prefer liberalism. The more democracy developed in the directions that Galbraith and Hirsch urged, the more it might force the choice. On the strength of these arguments, Hayek has become the exemplar of the approach to political economy often called neoliberalism. The heart of this revival of classical economic liberalism is the claim that there is no viable alternative to a market system, and therefore any attempt to use state power to do what Galbraith presupposed and Hirsch urged—to choose collectively among sets of choices—is an error. Less a program or system of thought than a constellation of programs united by an intellectual mood, neoliberalism is sometimes bolstered by the claims that markets secure liberty and equality (which Hayek argued), fairness (which he did not), or welfare (which he did, but in qualified form), but the

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heart of the neoliberal position is a negative one: There is nothing much for the state to do but make and maintain markets. Ambitious political projects will undermine liberty, equality, fairness, and welfare together. A market regime is the least-worst for all of these values. This is, increasingly, the intellectual mood in which revelations of growing inequality have appeared.8 One of the major divisions in today’s political economy must occur because of the reason the forecasts of Keynes and Galbraith did not come true. Was it because Hayek’s recuperation of market theory, combined with a long-running theoretical demotion of democracy, was intellectually right, and sensible policymakers saved the world from incipient statism? Or was it because, as Wolfgang Streeck has argued, capital revolted against the broadly social-democratic mid-century accommodation that thinkers like Galbraith assumed and sought to perfect?9 Put differently, is the surging inequality of recent decades a feature of the best of possible worlds, or of a world where a relatively egalitarian regime was recently dethroned and false necessity reigns, enforcing an undue impression of inevitability in the very market arrangements that produce and sustain inequality? Obviously, the stakes of this question are not small. They concern whether the inequalitygenerating logic of economic life limits and conditions the possible forms of democracy or, on the contrary, the real possibility of democratic decisions about the shape of the economy has been suppressed by a counter-democratic revolt of capital. IV. A Step Back: The Long History of Markets, Democracy, and Social Life The recognition that markets have their own logic, which imposes an order on social activity and allocates resources and capabilities among social groups, and which may conflict with other principles of social organization and distribution, is basically a nineteenthcentury one, although it appears in germ in works as diverse as Adam Smith’s Wealth of Nations and Jean-Jacques Rousseau’s Discourse on Inequality (aka the Second Discourse). As David Grewal argues in his Invention of the Economy, modern social and political thought, going back to roots in the seventeenth century but flowering in the latter part of the eighteenth, is marked by a pair of

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contrasting utopias, two pictures of how a society of equally free people might coordinate its common life. The economic utopia, associated especially with Adam Smith and David Hume, envisions a noncoercive structure of cooperation emerging organically, in the form of proto-legal rules of property and contract akin to the structures of grammar. Such rules require no central authority to create or specify them; rather, they are, so to speak, preprogrammed into human nature (again, in the manner of grammar) and manifest themselves under the pressure of increasing interdependence and social complexity. This is the point of origin of a laissez-faire conception of social order in which mutuality of interest, coordinated by commonly recognized rules, enables people to structure their lives around obligations freely and rationally assumed, without arbitrary imposition. Grewal’s other utopia is political. The political utopia is founded on citizenship and sovereignty. The emphasis on sovereignty reflected the view that the organizing principles of social life arise from the binding decision of what Thomas Hobbes identified as the sovereign. A sovereign, for Hobbes, was not necessarily a monarch or any other specific institution. Rather, it was an analytically necessary feature of any legal and political order. In such an order, there must be some entity with the power to make, interpret, and enforce its rules, a holder of the last word. This was the sovereign, whatever form it took in any polity (court, council, assembly, monarch, etc.). The political utopia is a utopia of equal citizenship: Each person has an equal share in the production and legitimation of the sovereignty, and thus of the rules that shape their common life. At a deep level, the clash between the two utopias was rooted in conflicting accounts of the relationship between law and human nature. Smith and Hume’s naturalistic jurisprudence tied a uniquely functional and beneficial set of laws to an account of human beings as organically intertwined through sociability, a disposition to join in bonds of mutual interest and intelligibility. Law was a product of human cooperation, not its precondition, and the range of laws that would emerge from organic cooperation at any stage of economic development was narrow enough that one could speak of it as a domain of natural law. By contrast, Hobbes’s positivism denied the possibility of an organic, emergent law: the

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epistemic situation of uncertainty and mutual endangerment that Hobbes famously diagnosed as the “state of nature” (that is, a social world imagined without law) was as far as horizontal, spontaneous encounters would take people. The conditions of mutual intelligibility and assurance that cooperation required could arise only through legislation and enforcement of law by a third party outside the would-be cooperators, that is, the role of sovereign. (Of course, the sovereign, as an artificial juristic entity, might just be the will of a majority of members of the political community. This was precisely the idea of the political utopia of equal citizenship.) Law, and social order, were therefore constructed in quite a radical sense: Nothing about them was natural except the need for them. In later developments, the two utopias have, of course, not existed as pure types, but rather as regulative principles, asymptotic ideals that have motivated competing schools of thought. Nonetheless, when one asks into the relationship between markets and citizenship, one is speaking within this tradition of conflict, asking how far the contemporary extensions of one version of a society of equally free persons constrain and distort the ambitions of the other version. The two utopias coexist in social and legal thought with a third ideal-type of social life, which is organic and horizontal, in the manner of Hume and Smith, but does not find its consummation in the market. This vision has its exemplary twentiethcentury expression in Karl Polanyi’s Great Transformation, which portrays laissez-faire doctrine as artificial dogma, achieved only through aggressive, state-led reform. The organic form of social cooperation is not that of the market, but arises from loose reciprocity and deeper ties of solidarity. These motives produced a “moral economy” that included ideas of just prices and wages, various forms of security, and, above all, forms of obligation that were ethical, religious, and emotional as well as, and often rather than, self-interested. From this point of view, the state is neither the source of ordering principles, as for Hobbes, nor the superintendent of market order, as for Smith and Hume. Instead the state would be either the guardian of organic patterns of reciprocity or the battering ram of disruptive, market-making reforms. Polanyi is famously associated

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with the formula “Laissez-faire was planned,” but it is just as illuminating to see him as arguing that planning was spontaneous: Society mobilizes in its own defense.10 Less abstractly, people mobilize to defend security and established patterns of social relations, and, quite naturally, call on the state to help them in doing so. The point of this taxonomy is that there is no pre-theoretical formulation of the question of democracy’s relation to unequal wealth. The question depends on one’s conception of democracy, and also on one’s conception of economic order. The stronger one’s commitment to an idea of robustly equal citizenship, and the more strongly one supposes that a political community might choose among a range of economic orders, the more unequal wealth seems to foreclose the work of a sovereign polity, predisposing political judgment in favor of the present economic regime. Conversely, the more one sees politics and law as handmaidens to a naturalized set of market relations, the less is at stake in unequal wealth among citizens. While the eighteenth-century naturalization of markets was affirmative, claiming to root rights of property and contract in human nature and providential design, and the twenty-first century version is more likely to be negative—asserting that “there is no alternative” to markets on account of incentives, information costs, or some other constraint on institutional design—the basic logic remains: the demotion of political sovereignty by the naturalization of market economics, which in turn demotes citizenship to a symbolic status rather than a substantive part in collective governance. Among nineteenth-century figures who identified a basic conflict between market order on the one hand and social or political community on the other—those, that is, who rejected the naturalization of markets—there were two predominant responses. One, associated with Karl Marx and various strands of revolutionary socialism, sought to absorb economic life fully into the community of equal citizens, that is, to overcome the distinction between the political and economic domains and dissolve all forms of unequal economic power into the sovereign power of democratic politics. The other, associated with Progressive reformers in the United States and in Europe with certain strands of social democracy and, later, Christian democracy, took the opposite approach, using the political power of the state to strengthen the boundary between

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economic relations and non-economic social life, notably in the domains of the family, education, culture, and professional activity. While the first approach updated and radicalized the utopia of equal citizenship, the second represented a compromise between the two utopias and, in the style of Polanyi, a political defense of non-market orders in the reproduction of biological, social, and cultural life. The latter was the basic strategy of the accommodation that structured post-War life in the twentieth century. Trans-Atlantic social democracy, then, was more social than democratic. It took seriously the quest for security in a relatively familiar, stable, and manageable social world, whether that of the factory, the union, the neighborhood, the university or profession, or the family. Through pluralistic representative institutions, it sought to maintain a reasonable balance among interests conceived of through these collective categories, even as, through the period, rights-based claims to greater individual liberty and the end of various caste systems also proliferated. Its basic strategy of reform—not premeditated, but consistent in application—was to open up existing institutions of representation and advancement to previously excluded groups while also redefining the state’s relation to individuals through an increasingly homogenous and libertarian scheme of negative rights. It all seemed to be working well enough—until a reassertion of market principles and market power began to break down the barriers protecting various secure domains of social life and revealed the lack of power, or will, in the democratic state to reassert their protection. V. The Poverty of Our Philosophy All of this is to emphasize the peculiar situation in which wealth is now emerging as a political issue. Unequal wealth is widely (though by no means universally) recognized as an urgent question even as the terms of the problem remain ill-defined, to the point that it is difficult to say just what is at stake in it. Much of the thought that we have about wealth and its relationship to democracy comes from the anomalous period of the mid-twentieth century, when that relationship seemed to have been resolved in practice, even as resources—intellectual and institutional—for dealing with conflicts between the two were being eroded.

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Yes, even in this theoretically impoverished situation, theories of wealth and democracy are doing a lot of work. Consider the US Supreme Court’s implicit theories of markets and democracy in its First Amendment cases concerning money in politics. The Court’s ready assimilation of money to speech assumes that there is, in principle, no conflict between political argument and economic accumulation, that these are compatible, even mutually supportive, dynamics. The Court’s embrace of for-profit corporations as essential participants in the process of American democracy also highlights its confidence that there is no contradiction between the accumulation of great wealth and the survival of effective self-rule. And why would the justices think that? The key may lie in an implicit theory of what self-rule is. The Court’s rulings holding that campaign finance regulation cannot be justified by the goal of equalizing influence among citizens or (the obverse of the same principle) avoiding “distortion” of political debate by moneyed interests indicate that its conception of democracy excludes the robust idea of equal citizenship at the heart of what I have called the utopia of sovereignty. Instead, the Court’s concerns appear basically Schumpeterian: to avoid the entrenchment of a political class through self-serving campaign laws, even at the cost of ensuring the entrenchment of a class of wealthy donor-citizens who effectively set policy—that is, in Schumpeter’s terms, facilitating elite rotation while declining the romantic idea that ordinary citizens should, or can, participate in self-government in any meaningful way. The patronage relationships that Buckley v. Valeo and Citizens United (rather more the first, despite the notoriety of the second) produce between massive donors and their preferred candidates and movements are exemplary Schumpeterian politics, intra-elite disruptors that change the menu of choices for the mainly passive voters. This is just one example of the work that implicit theories of wealth and democracy are already doing sub silentio—and, hence, one piece of evidence for the need for explicit engagement with these questions. And what might that engagement look like? Here I suggest four strategies for starting out with deficient resources for thinking through these problems—up from poverty, as it were.

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(1) Life-Cycle Analysis: This term is usually applied to assessment of industrial processes, but I mean it in a different, mischievous but also entirely serious sense. One of the most provocative, if underdeveloped, features of Piketty’s Capital is his account of the life prospects and likely priorities of young people in societies with various levels of wealth. Drawing on nineteenth-century fiction, he shows that, beyond a certain level of inequality, “careers open to talent” gives way to “marriage open to ambition,” that is, that the key to a good life is winding up in the right, highly capitalized family, whose advantages ability and hard work cannot match. In such a society, ambition, effort, and esteem all flow toward established concentrations of wealth, with predictable consequences for the quality of the professions, the hierarchy of prestige, and, to name elusive but real qualities, the texture of social sentiment and imagination.11 Now carry the same kind of question from personal life to the political activity of democracy. What kinds of leaders does a highly unequal democracy produce when wealth flows freely into campaigns? As Zephyr Teachout has emphasized in her important book, Corruption in America, the flip side of “free” spending by the wealthy is dependence on the part of candidates, who need money for political survival. The result is not usually the outright bribery that the Supreme Court classifies as “corruption”—the only evil it permits campaign spending laws to address—but a subtler reorientation of attention and concern. One might think of it by analogy to the ways one sees and hears in a crowded room: where does the eye go, which voices does the ear pick up? Who, a day later, does one remember was there? In a democracy that depends on private wealth for its basic activities of communication and mobilization, candidates see and hear the wealthy, because they need them. The careers of Bill and Hillary Clinton since the end of his presidency may serve as emblems of this economy of attention: Although they remain standard-bearers of the more egalitarian of the two major American parties, they have spent fifteen years relentlessly cultivating the company, attention, and largesse of the world’s wealthiest people. That, after all, is how things get done. (2) Disaggregating Wealth: In principle, the same disparities in purchasing power might have many different meanings, depending on certain distinctions. Of the basic goods of life, which (A)

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must be purchased, (B) are guaranteed without purchase, and (C) are protected from monetization and may not be purchased at all? The more robust a set of social guarantees (category B), such as guarantees of education, basic security in one’s person, health care, and retirement, the less wealth matters, even if it grows more unequal. Conversely, the more basic goods must be purchased on the market, the more differences in wealth put lives on divergent courses, quite apart from talent, effort, need, or whatever else one regards as an appropriate distributive criterion. Of course these categories are dynamic, and wealth produces potential demand for differentiation in such goods. This is why category C, the non-monetizable category, is so important. Particularly important is whether political influence, the basic feedback mechanism that determines revisions in these categories, is itself monetizable. Where it is, wealth will tend, other things equal, to become more salient across all categories of goods. (3) Recognizing the Primacy of Politics: The Legal Realists were right, as was Hobbesian positivism long before they wrote: Economic life takes its shape, and property rights—including claims to wealth—arise only with the legal framework that political action creates. Rough-and-ready conventions for certain resources may arise in small, tight-knit groups, particularly against a backdrop of state definition and enforcement of other claims; but where there is conflict or uncertainty beyond such a community—that is, where there is anything resembling complex economic activity— someone must decide, and that someone is sovereign. This is a decisive argument against any radical naturalization of economic claims. Of course this argument remains very far from implying that anything goes in the political creation of the economy. From Hayekian arguments concerning the informational complexity of economies to liberal claims about autonomy to conventional neoclassical economists’ worries that no system gets far without appealing to self-interest, there may be decisive reasons to organize any given area of economic life along market lines. The point is that this is a choice—a political choice. The utopia of propertyand-contract, of market sociability and reciprocity, runs through the utopia of equal citizenship, of political sovereignty, and any case for it must be made there.

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(4) The Democratic Pivot: This point returns the discussion to what remains its crux. What does it mean to submit basic economic questions to political judgment, and what is the most one might hope to accomplish there? The answers depend on how one understands political processes, and how robust a set of goals one believes democratic sovereignty, the utopia of politics, can support. These goals come in two dimensions. First is the conception of citizenship as a form of social membership: What kinds of security, empowerment, opportunity, access to institutions, and so forth should be guaranteed to every member in good standing of the social order? This political economy of citizenship, as Joseph Fishkin and William Forbath show in this volume, goes all the way back in the United States, and has a distinctive social-democratic version in the twentieth century (identified in the United States with the New Deal) whose future is now in considerable doubt. The second dimension of citizenship concerns active self-rule: how far, after the doubts that marked twentieth-century thought and demoted political judgment to an undisciplined mix of selfinterest and fantasy, can a polity actively shape its own economic life, making the rules of material interdependence a matter for choice rather than happenstance? Unless one is a thoroughgoing fatalist, it seems fair to infer from the last seven decades that there is a range of possibilities along both dimensions. The social-democratic accommodation of the mid-twentieth century represents a genuine alternative to a marketized social and political order. This is true despite whatever social democracy’s internal failures were (notably failures of inclusion), and despite the doubts that its decline raises about its sustainability in the face of marketizing pressure. As noted earlier, however, social democracy always had more to do with securing a strong form of social membership for citizens than with the active political supervision of economic life: It was, to repeat, more social than democratic. This may have been its Achilles’ heel. There may, however, be something essential to learn from social democracy about self-governance. This is the importance of organized people, as opposed to abstractly empowered individual citizens. Proposals to increase the influence of citizens—for instance, by allocating campaign contribution credits to each adult as a way of matching the influence of the wealthy—are admirable and

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likely to be helpful; but they also share the neoliberal emphasis on the choosing individual as the pivot of collective life—a decollectivized view of collective life, in which aggregating individual choice is the whole work. By contrast to this neoliberal vision, the pluralist politics of the social-democratic states rested heavily on intermediary institutions, notably labor unions, to provide virtual representation and, perhaps as important, to create bonds of identification around common interests and agendas. Such institutions may be key features of a “political sociology” that could make active self-rule a more plausible ideal for a roughly majoritarian system. Here, however, one encounters the next challenge. As discussions of Thomas Piketty’s proposed global annual wealth tax highlighted, the scale of wealth accumulation and transfer is now worldwide in its basic dynamics. Sovereignty remains almost exclusively a phenomenon on the national scale. Indeed, social democracy was marked, as much as anything, by being the mode of social life that arose when strong working-class movements in relatively rich societies could sustain their victories because capital was mostly contained within national borders. Today, inequality resembles climate change in its formal dimensions: a global problem at which national political order often flails ineffectually. As David Grewal has pointed out, because we work in circumstances more closely resembling those of the last Gilded Age than of the mid-twentieth century, we might recall that many of those who confronted the contradictions of wealth and democracy in that earlier time identified their problems and goals as international, and their movements and strategies, therefore, as internationalist.12 It would be an overreaction, though, to surrender the field of domestic politics. Here, as in other respects, we are unavoidably in a posture of experimentation. The long-neglected question is what kind of democratic relation to economic life is possible. Precisely because of the neglect, the novelty (or at least renewed sense of urgency) of the issue is the greater, and all responses are partly on unfamiliar ground.

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Inequality, as Jeffrey Winters reminds us, is very old—indeed, so far, perennial. Democracy is rather arrestingly new, mass democracy especially so. Manhood suffrage is 100–150 years old even in the “mature” democracies. Women’s suffrage is a product of the twentieth century. In the United States, effective enfranchisement of African American and Latino citizens dates to the passage of the Voting Rights Act of 1965, and policies such as denying former felons the vote continue to qualify the right. Allowing for the economic catastrophe and political turmoil of the Great Depression and the ideological bloodshed of World War II, it may be that close to half of the human experience of widespread and stable mass democracy occurred in the halcyon years when economic inequality seemed to be in abeyance, and even economic scarcity seemed on the path to being overcome. Thinking about wealth and democracy has been informed by the optimistic premises of that time, in what it has not said as well as in what it has. I have noted that the twentieth century’s experience of “actually existing democracy” coincided with sharp theoretical skepticism toward the idea that a majoritarian representative system could credibly be claimed to embody collective self-government. This might have been more troubling had it not been for optimism that inequality and scarcity, those recurrent sources of conflict, were now subject to rational and humane administration. The socialdemocratic accommodation between democracy and capitalism seemed a good-enough arrangement as long as it was stable. To the extent that inequality and scarcity could be mastered, a pluralist, administered democracy promised to be self-rule enough. The question to ask today at the intersection of wealth and democracy is not simply whether wealth might be mastered again, so that it would let democracy proceed in peace. The more basic question is whether growing social wealth could become a means to an enriched democratic future. Taking that question seriously would mean reclaiming the mid-century goal of a world after scarcity, with widely shared prosperity spurring proliferating selfdevelopment and experiments in living. The thought contained in that older goal was that twentieth-century democracy was becoming a post-materialist form of life: Individuality was more central

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than collective self-rule to this conception of democracy, but, in a world that seemed to have stabilized in a tolerable form, that was good enough. Today the dominant expressions of individuality have come apart from democracy and lodged, instead, in neoliberal, non-democratic celebrations of economic power: either the world-making creativity of the entrepreneur or the selfdevelopment and humanitarianism of the rentier. The first is the denuded economic Nietzscheanism of Schumpeter, dressed up in the style of Silicon Valley. The second is mid-century Great Society humanism without the society, a life of leisure, reflection, and intrinsically valuable activity for those who happen to have the resources (often enough inherited) to pursue them. Fred Hirsch’s analysis of positional goods gives powerful reason to believe that the end of scarcity will not come through the raw accumulation of total social wealth. Positional goods will continue to make rich people (objectively rich on the spectrum of historical human experience) feel not-nearly-rich-enough. This dynamic only becomes more intense with the marketization of essential resources for social reproduction, especially education, health care, and child care: as pressure from growing overall material wealth increases the relative cost of these labor-intensive goods, the prospect of being unable to afford them (at least in decent quantity or quality, which are of course socially relative standards) will haunt economic life, making the threat of relative scarcity acute. Hirsch’s analysis suggests, then, that making wealth more socially beneficial will require revitalized governance. There would have to be a meaningful commitment to social provision of the goods that are necessary to social reproduction and also vulnerable to intensified relative scarcity, such as health care, education, and child care. There would also have to be significant social limitation of inequality. This would mean limits on the accumulation of great fortunes, such as those of George Soros, Bill Gates, and Sheldon Adelson, who can effect their own foreign policies; but it would also mean constraints on the difference in resources and social capacity that divide roughly the “fifteen percent” of welleducated professionals and mid-level executives from the “eighty percent” that includes more or less everyone else except the actually rich. Under the present dispensation, the attack on privilege

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too often means breaking down the residual structures of security that defined the mid-century social vision, and throwing, for instance, the tenured and professionally certified onto an unregulated market. This leveling-down of traditional social protections and stabilizing institutions is a signature neoliberal move. It only intensifies susceptibility to the dynamics that Hirsch diagnoses. A more apt response would be to level up social provision and other forms of security, reducing the effect of relative scarcity, while limiting raw economic inequality to ease the pressure for differentiation in the availability and quality of these goods. At the time of writing, it is an increasingly common perception that economic inequality must be brought under control for democracy to realize, or recover, its potential. As we have seen, this claim depends on one’s conception of democracy; but it is highly plausible for any conception of democracy that aims at a meaningful version of collective self-rule, rather than simple elite rotation. The argument developed here suggests something further: that robust democracy is necessary if wealth is to realize its potential for social benefit. Indeed, democracy must be able to intervene in the definition, creation, distribution, and use of wealth precisely to make the benefits of wealth real. A political scheme of social provision, and political limitations on the scope of inequality, are the most plausible means to prevent growing wealth from undercutting its own benefits. This idea is not extremist: It simply states the logic of the mid-century social-democratic accommodation that established a measure of security and a pattern of widely shared economic growth. It does, however, insist on the priority of that political logic. The free play of the market will not deliver the goods that market-led growth in wealth is conventionally celebrated for producing. Only democracy can do that. In this sense, wealth needs democracy if it is to fulfill its humanitarian promise. The irony is that, ill-handled, wealth can also overwhelm democracy and undercut its own humane potential. Of course, these abstractions are only ways of naming human powers. We—a we that does not really exist yet, as a political matter—are the only ones who can make a better world from the braided elements of economic and political life. Both domains are, at the moment, potent, unequal, and opaque. For decades, respectable thought has regarded them with an understandable

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but also unsustainable blend of cynicism and complacency. Now they need to become more equal and more lucid, before their power is exhausted or fatally misused. Notes 1 David Singh Grewal, “The Laws of Capitalism,” Harvard Law Review 128 (2014): 626. 2 John Maynard Keynes, “Economic Possibilities for Our Grandchildren,” in Essays in Persuasion (Edinburgh: R and R Clark, Limited, 1931), 358–73. 3 John Rawls, A Theory of Justice (Cambridge: Belknap Press, 1971), 224–7. 4 Ibid., 226. 5 Rawls returned to the topic of the fair value of the political liberties in Political Liberalism (New York: Columbia University Press, 1993), 356– 63, where he also sounded a note of concern about trends to inequality: “[T]he invisible hand guides things in the wrong direction and favors an oligopolistic configuration of accumulations that succeeds in maintaining unjustified inequalities and restrictions on fair opportunity” (267). 6 Rawls, A Theory of Justice, 226–7. 7 Lyndon B. Johnson, “Remarks at the University of Michigan,” May 22, 1964, in Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1963–64, Vol. 1. Washington, DC: US Government Printing Office, 1965, 704–7. 8 David Singh Grewal and Jedediah Purdy, “Introduction: Law and Neoliberalism,” Law and Contemporary Problems 77 (2014): 1, and articles therein. 9 Wolfgang Streeck, Buying Time: The Delayed Crisis of Democratic Capitalism (Brooklyn, NY: Verso, 2014). 10 I am indebted to Tim Shenk for the observation about the spontaneity of planning. 11 See generally Thomas Piketty, Capital in the Twenty-First Century: The Dynamics of Inequality, Wealth, and Growth, trans. Arthur Goldhammer (Cambridge, MA: Belknap Press, 2014). The phrases in quotes are mine, not his. 12 Grewal, “The Laws of Capitalism.”

8 NOT SO FAST: THE HIDDEN DIFFICULTIES OF TAXING WEALTH MIRANDA PERRY FLEISCHER

Introduction Rising inequality has attracted immense political and academic attention in recent years, due in large part to Thomas Piketty’s Capital in the Twenty-First Century.1 As an antidote to increasing inequality, commentators have suggested solutions ranging from making the income tax system more progressive to strengthening the estate tax to implementing an annual wealth tax. To academics in fields other than tax, these proposals likely sound like variations on the same theme: taxing the well-off more heavily. To that end, most discussions of minimizing inequality that occur outside the tax academy ignore the very real differences among tax instruments.2 This lack of attention is unfortunate. On a theoretical level, these structures represent divergent value judgments about what counts as inequality and why it matters, which influences one’s choice of solutions in an ideal world. Consider wealth inequality. Instituting a more progressive consumption tax in lieu of taxing wealth or wealth transfers reflects a view that invested wealth is not problematic, but that consumed wealth is. An annual wealth tax implies that allowing individuals to accumulate large amounts of wealth in and of itself harms society. Estate and accessions taxes suggest that wealth per se is not problematic, but that its intergenerational transfer detrimentally impacts society. Even choosing between an estate tax (which taxes the total amount of wealth gratuitously transferred away by a decedent) and an accessions tax (which taxes the total amount of gratuitous transfers received by 261

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an individual) implies different things about what problems intergenerational wealth transfers create. On a practical level, tax instruments vary drastically in terms of administrative considerations. Not only is an annual wealth tax susceptible to constitutional challenges, for example, but such a tax would be hobbled by valuation issues. On the other hand, certain income tax reforms—such as taxing capital gains at death—are more easily administrable and less politically divisive. Taxing wealth transfers has its own challenges. Namely, the current scheme poorly reflects its most common justifications and has unintended consequences that exacerbate inequality of opportunity. These theoretical and practical differences among tax instruments mean that attacking inequality requires more than simply trying to increase taxes on the well-off, regardless of how that is accomplished. Instead, deciding whether and how to use taxes to fight inequality requires a nuanced consideration of the practical and theoretical differences among tax instruments, coupled with a more specific identification of what is meant by inequality, what causes it, and what harm it allegedly produces. Is inequality of income, wealth, or consumption the main problem? Is the concern the inequality between the very wealthiest (the top 1% or .1%) and everyone else, or between everyone else and some other group (such as the top 10% or 20%)? Do differences in human capital cause inequality, or something else? Is the harm unequal opportunities and a lack of social mobility? Unequal political influence? Discomfort with the absolute standard of living for those on the bottom? Or another concern entirely?3 To that end, this chapter examines three of the most common justifications for taxing wealth to fight inequality and identifies which, if any, tax instruments can address those concerns. These three arguments are: (1) ignoring wealth when determining one’s ability to pay taxes treats taxpayers unequally, resulting in wealthy taxpayers (however defined) not paying their fair share while overburdening the non-wealthy (“ability to pay”); (2) wealth concentrations harm the democratic system and stunt economic growth (“wealth concentrations as per se harmful”); and (3) intergenerational transfers of wealth impede equality of opportunity (“equality of opportunity”). Although the merits of these arguments are hotly contested, this chapter sidesteps those debates. Instead, it takes as given the desire

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to use the tax system to address those concerns and discusses the normative and practical considerations relevant to so doing. As this analysis shows, one’s underlying normative goal will determine the first-best policy instrument. In several cases, however, practical considerations relating to valuation, administrability, and behavioral responses render first-best choices largely ineffective. In some instances, second-best instruments may offer at least a partial solution. At other times, even second-best solutions may be futile. Taxing wealth more heavily is extremely difficult. Attempts to do so often have little more than symbolic value and at times create behavioral responses that may worsen the underlying problem. In these cases, policymakers would often be better served by focusing on nontax approaches to fighting inequality, such as improving opportunities for children born to poor families to develop their talents and abilities fully. Unfortunately, a full exploration of all the considerations relevant to taxing wealth and wealth transfers is beyond the scope of a chapter of this length. First, this chapter does not explore whether wealth, income, or consumption is the optimal base if one’s goal is simply to raise revenue. A deep body of scholarship discusses which base—and which methods of taxing each—generates the most revenue with the fewest economic distortions. Along these lines, some readers may support taxing the wealthy out of concern about the absolute standard of living of those at the bottom. This aim, however, relates more to fighting poverty (rather than inequality per se), a goal that raises its own set of questions about the optimal way to raise revenue to fund anti-poverty programs and what tax policies should apply to those at the bottom.4 Instead, this chapter assumes that there is something about wealth itself—other than its revenue-raising capacity—that renders taxing wealth (or its transfer) desirable. That said, it takes no position on whether the wealth of the top .1%, top 1%, or top 10% or 20% is the problem. This is so because the different justifications for taxing wealth suggest different focal points. Contrast the fear that large wealth concentrations damage the political or economic system with equality of opportunity concerns. Law firm partners—and even law professors—can provide advantages to their children that may exacerbate inequality of opportunity. But their wealth—such as it is—has little impact on the political

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and economic system, in contrast to the wealth of individuals like Michael Bloomberg, Mark Zuckerberg, and Bill Gates. Nor does this chapter address the broader macroeconomic impact of the proposals discussed below. In the real world, policymakers will need to address the extent to which these proposals impact economic growth and whether any such effects outweigh the egalitarian policies they are pursuing. Lastly, this chapter generally also ignores the political difficulties that would surround any of these proposals. Public discourse is hotly divided between the anti-tax right and the pro-tax left; the tax plans of the leading presidential contenders reflect this deep divide. That said, certain of the reforms discussed herein have been endorsed—across the political spectrum—by academics and policymakers removed from the political fray. Generally, these proposals—such as taxing capital gains at death—can be recast as closing loopholes instead of raising taxes, thereby making them more politically palatable. This chapter proceeds as follows. Section I briefly describes current law and the most commonly mentioned reform proposals for taxing the wealthy more heavily. Section II reviews the most common normative justifications for taxing wealth. Section III explores which of these justifications call for a wealth tax as a first-best solution, addresses the normative and practical concerns that accompany a wealth tax, and concludes that income tax reforms such as taxing capital gains at death are more viable second-best options. Section IV demonstrates how the equality of opportunity concerns triggered by wealth transfers favor an accessions tax over an estate tax as an ideal matter, discusses the complexities that render leveling down difficult and the necessity of leveling up, and concludes by arguing that funding leveling up policies does not necessarily entail taxing the wealthy. Section V concludes. I. Taxing the Wealthy Before exploring which tax instruments are best poised to combat various forms of inequality, it is useful to briefly review a few key features of our current tax system and the most discussed reforms for taxing the wealthy (however defined) more heavily.

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A. Current Law The public tends to focus on income tax rates and the availability of deductions as indicators of how heavily the wealthy are taxed. Although rates (which currently top out at 39.6% for ordinary income) and deductions are not totally irrelevant, they are less important than a variety of other structural elements in our income, estate, and gift tax systems. 1. The Income Tax With respect to the income tax system, the treatment of capital income (in contrast to ordinary income from labor and other non-investment sources) heavily influences the extent to which the wealthy are taxed. Here, the realization requirement (which requires a sale or disposition to trigger tax), basis rules (which govern the purchase price used to calculate gain or loss from property transactions), and preferential rate treatment (which taxes capital income at a lower rate than other income) play key roles. Simplifying a bit, the realization requirement holds that mere increases in value do not constitute taxable income. Suppose that Alice buys stock for $100 that increases in value over the course of a year to $450. Theoretically, Alice is better off by $350 than she was before, just as if she had received $350 as wages from her employer. A theoretically pure income tax system would tax Alice on that increase in value.5 Largely due to valuation and liquidity concerns, however, our income tax system does not tax Alice until she sells or exchanges her stock. Estimates suggest that for the top income decile, unrealized appreciation accounts for almost 40% of these taxpayers’ assets.6 What happens if Alice gifts or bequeaths her appreciated stock to Ben? Under current law, neither transaction is treated as a realization event, meaning that neither event creates any income tax consequences for Alice. Nor does receiving the stock count as income to Ben. Later sales by Ben, however, may trigger tax. If Alice makes a lifetime transfer of the stock to Ben when it is worth $450, he uses her purchase price as his basis to calculate gain when he later sells (known as “carry-over basis”).7 If Ben later sells the stock for $500, for example, he will owe taxes on a gain of $400 (his $500 sales price less Alice’s $100 purchase price).

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If Alice instead bequeaths the stock to Ben, however, he uses its fair market value at her death as his basis to calculate gain when he later sells (known as “stepped-up basis”).8 If the stock’s value at her death is $450 and Ben sells for $500, he will owe taxes on a gain of only $50. The $350 increase in value in Alice’s hands is never taxed. One can therefore avoid income taxes on a great deal of capital appreciation simply by holding onto appreciated assets until death. Unrealized appreciation comprises a large portion of the estates of wealthy decedents: an average of 33% to 36% of estates between $5 million and $50 million, and 46% of the value of estates over $50 million.9 Nor is borrowing treated as a realization event, which allows taxpayers to borrow against the value of appreciated assets without triggering any tax liability. Assume that instead of transferring the stock to Ben, Alice instead holds it and uses it as collateral for a $350 loan. If she defers repayment until her death, her estate can liquidate the stock free of tax and use the proceeds, undiminished by tax, to repay the loan (the liquidation is tax-free due to the stepped-up basis rule). In this manner, Alice benefits from the increase in value without ever paying income tax on that increase. Lastly, a preferential tax rate also applies to capital income: 23.8% (including a 3.8% surtax on investment income) as opposed to a top marginal rate of 39.6% on labor and other ordinary income above $418,400.10 Not surprisingly, this difference encourages taxpayers to convert what would otherwise be ordinary income into capital income. Many investment fund managers, for example, are able to characterize as capital income the profits interest that they receive for their management services.11 Data suggest that for the .5% of highest-income taxpayers, realized capital gains exceed 20% of their incomes, and in 2010, households in the top 1% of the income distribution accounted for almost 70% of realized capital gains.12 2. The Estate and Gift Taxes Extremely wealthy individuals face not only the income tax but also the estate and gift taxes, which are excise taxes on the transfer of wealth. Together, these taxes tax individuals who make cumulative transfers exceeding $5,490,000 at a rate of 40%, regardless of whether the transfers are lifetime gifts or testamentary bequests.13

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Alice, who makes a $6 million lifetime gift to her son, is taxed at a rate of 40% on the excess of her transfer over $5,490,000. So is Ben, who leaves a $6 million bequest in his will to his daughter. Chloe, who makes a $3 million lifetime gift to her son in addition to leaving him a $3 million bequest, is also taxed at 40% once her total transfers exceed $5,490,000.14 Estimates suggest that for 2015, only 2 out of every 1,000 decedents will be subject to the estate tax.15 Because the estate and gift taxes focus on the total amount of wealth transferred out by a decedent, they generally ignore the identity of the recipient. Transfers to spouses and charities, however, are usually free of tax, while transfers to grandchildren and younger generations are subject to an additional tax. This generation-skipping transfer tax is designed to reflect an ideal that estate or gift tax should be imposed every generation, and that transferors who make transfers directly to their grandchildren (instead of to their children who later make transfers to the grandchildren) are there by “skipping” a level of tax. Each individual has a $5,490,000 lifetime generation-skipping tax exemption in addition to their gift and estate tax exemption.16 In addition to these lifetime exemptions, taxpayers may also use the annual exclusion to gift substantial assets free of transfer tax. The annual exclusion allows each taxpayer to give $14,000 per recipient per year to as many individuals as she likes, without these transfers counting toward her lifetime exemption amount.17 Alice, for example, can give her five children and their spouses each $14,000 a year—$140,000 total—without eating into her exemption amount. If she makes these gifts for, say, twenty years, she is able to transfer wealth of $2,800,000 without paying any gift, estate, or generation-skipping tax. Alice’s spouse also has his or her own annual exclusion, and can also gift the same recipients $14,000 a year each. In some cases, the annual exclusion allows taxpayers to establish substantial trusts free of tax; although beneficiaries may owe income tax on distributions, no gift or estate tax would be triggered. Readers have likely heard the popular critique that the estate and gift taxes “double-tax” assets that have already been taxed under the income tax system. This critique is only true to the extent that one’s wealth comes from salary or other ordinary income items or from realized capital gains; the step-up in basis

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described in section II.A means that untaxed capital appreciation in one’s estate is never taxed under the income tax system. Given the $5,490,000 transfer tax exemption, much of this appreciation also remains untaxed under the estate and gift tax. B. Instruments for Taxing the Wealthy More Heavily Assuming that one finds the current tax treatment of the wealthy insufficient, a variety of reforms could theoretically tax them more heavily.18 Building on our current system, we could change the income tax treatment of the wealthy by raising rates on ordinary income, removing the capital gains preference, completely or partially repealing the realization requirement, expanding minimum tax requirements, replacing stepped-up basis with carryover basis, or making death a realization event. We could also strengthen existing estate and gift taxes by raising rates, lowering the exemption amount, or closing loopholes; or strengthen the corporate income tax. Other instruments are a departure from current practice. For example, we could impose a federal wealth tax, just as states and municipalities impose property taxes on real property. Alternatively, we could replace the existing transfer tax system with some type of inheritance or accessions tax, which focuses on amounts received by donees. Lastly, as Ed McCaffery suggests, we could abandon the effort to tax wealth and instead institute a highly progressive consumption tax.19 II. Why Tax the Wealthy? Which of the foregoing options—if any—that one chooses will reflect one’s motivation for taxing the wealthy, coupled with an understanding of the practical difficulties of so doing. One common purpose is simply to raise revenue, and wealthy taxpayers have the most money. Other times, the desire to tax the wealthy stems from concern about the absolute standard of living of those at the bottom. This goal, however, is more about fighting poverty (which requires raising revenue and implementing other tax and other policies that aid the poor) than inequality per se. In these cases, choosing one instrument over another to raise revenue will not reflect any normative judgments concerning

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the source or use of one’s income or wealth. Policymakers could therefore ignore the theoretical underpinnings of the available policy options and instead focus solely on their revenue-raising consequences. If taxpayer behavior remained constant, how much revenue could theoretically be raised and at what administrative cost? What avoidance mechanisms might taxpayers dream up? Would behavioral responses create unintended consequences that dampen economic growth and decrease overall tax revenues in the future? Such is largely the goal of the optimal tax literature. As explored in more detail below, however, social goals other than revenue frequently motivate proposals to tax the wealthy more heavily. In those cases, one’s purpose for taxing wealth will influence the choice of first-best structure. Given our non-ideal world, however, practical and administrative considerations also impact various tax instruments’ abilities to achieve a given normative goal. Policymakers must therefore consider both theoretical and practical differences among tax instruments when deciding whether and if so, how, to use tax as a tool for achieving their aims. Why might one wish to tax the wealthy more heavily? Recent calls for higher taxes on the wealthy generally invoke rising wealth and income inequality. As an initial matter, it is frequently unclear which of wealth inequality and income inequality is the concern. Although the two are often related, some wealthy individuals have little current income, and some high-income individuals have a low net worth. Take Dov, a first-generation immigrant who is now a lawyer at a New York law firm, drawing a high six-figure salary. Dov supports his wife, four children, and his parents on his salary. Because he needs to repay student loans and live within a reasonable commute of New York City in a house large enough for eight people, his expenses eat up much of his salary and his mortgage offsets much of his housing value. Compare Dov with Elese, whose grandparents founded a successful hotel chain. Elese is the beneficiary of a substantial trust fund. She lives in a penthouse purchased for her by her parents, has no student or other debt, and finances a lavish lifestyle via the trust fund. Although Elese has substantial wealth, her income is relatively low. From the standpoint of equality, who is the problem, Dov or Elese? Let’s assume, given this volume’s topic, that the wealth inequality exemplified by Elese is the problem. Unfortunately, many

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discussions of wealth inequality assume that the fact of inequality demonstrates its moral harm and do not specifically identify what harm flows from wealth inequality as such.20 Other commentators frequently conflate a variety of justifications that in reality are conceptually distinct.21 When one looks closely, however, three general justifications for taxing wealth to fight inequality (other than raising revenue) predominate. (1) Ability to Pay. One common motivation for increasing taxes on the wealthy is to improve the fairness of the tax system by better tying one’s tax burden to one’s ability to pay.22 Underlying this justification is the intuition that one’s realized income often understates one’s ability to pay taxes and that one’s net worth should also be considered. Consider Facebook founder Mark Zuckerberg, whose net worth is an estimated $37.7 billion but whose taxable compensation income, including his $1 salary, was roughly $600,000 in 2014.23 Many observers look at Zuckerberg and others with relatively low incomes but much wealth—including trust fund children such as Paris Hilton—and argue that taxing only their income understates their ability to pay and as a result, they do not bear their fair share of the collective tax burden. This stems from the tax policy concept of horizontal equity, generally meaning that similarly situated individuals should face similar tax bills. Looking only at Zuckerberg’s income suggests that his ability to pay is comparable to that of a junior partner at a law firm, which clearly isn’t the case. Broadening the tax base to include one’s wealth, these commentators argue, would better tie one’s tax burden to one’s ability to pay. In contrast, not taxing wealth allows the wealthy to pay less than their fair share while simultaneously overburdening the non-wealthy. (2) Large Wealth Concentrations Damage Democracy and Hinder the Economy. A second common justification for taxing the wealthy more heavily is that large wealth accumulations impede democratic functioning and economic growth. Under these views, taxing wealth is akin to taxing carbon: Both are examples of Pigovian taxes that seek to minimize negative externalities by taxing the activity generating the externality.24 First consider the democratic argument.25 Jim Repetti has outlined the myriad ways that wealth provides individuals opportunities

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to influence the political process.26 One can influence the media’s news and editorial coverage by owning media outlets directly (witness Rupert Murdoch), or by buying or refusing to buy advertising. The wealthy have a greater ability to make substantial, albeit limited, contributions directly to candidates, parties, and political committees. They can also make unlimited contributions to §501(c) (4) organizations that engage in some campaign intervention activities and unlimited lobbying and issue advocacy, which allows them to place certain issues on the political agenda. Wealthy individuals often enjoy greater access to elected officials already in office,27 and can more easily run for office themselves.28 Wealth also gives its holder indirect influence. Elected officials often consult economic leaders not only for economic advice, but also for noneconomic advice in order to protect jobs in their areas.29 Lastly, business leaders often become civic leaders, shaping the goals and priorities of a community from the ground up. The second alleged externality from large wealth accumulations is their negative impact on economic growth. Several studies show, for example, a large correlation between high income concentration (about which more data exist than wealth concentration) and low economic growth.30 Although a number of possible explanations exist, two seem most likely. First, high amounts of income inequality may lead to underinvestment in education on two levels: Poor families are less able to invest in education, and upperincome families are less willing to support policies that advance educational opportunities for the poor. Secondly, social instability associated with high inequality may deter economic growth.31 (3) Combatting Dynastic Wealth (Usually an Awkward Way of Saying Equality of Opportunity). A final common justification for taxing wealth—or, more precisely, for taxing the transfer of wealth—is to prevent “dynastic wealth.” What exactly that is and why it is bad, however, is somewhat unclear. Some commentators argue that wealth transfers should be taxed to impede the accumulation of wealth, equating the buildup of wealth within families with wealth accumulation as such and ascribing to both the same political and economic harms.32 Because these arguments mirror those just described, I shall not address them again. As I shall discuss momentarily, this concern calls for a tax on wealth itself, not a tax on the transfer of wealth, as a first-best solution.

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Other scholars, however, identify harms specifically related to the transfer of wealth as distinct from its concentration or possession. The most common of these reflects ex ante equality of opportunity ideals, meaning that the chance circumstances of one’s birth should not govern life outcomes. Instead, one’s choices and abilities should determine success in life, and divergent outcomes due to choice, but not chance, are tolerated.33 In tax scholarship, the interpretation of these ideals known as resource egalitarianism predominates. Under this view, the ability of some parents but not others to pass along financial advantages to their children upsets equality of opportunity. This is so because individuals born to families of differing financial circumstances have varying opportunities to develop fully their talents and pursue their visions of the good life. Some parents pay for tutors, expensive music lessons, and sports camps; others cannot. Some children participate in prestigious internships arranged by their parents or take educational trips to Europe during the summer; others must work one or more jobs to help pay the rent. Wealth transfer taxation, the reasoning goes, is appropriate to level the playing field so that one’s education, occupation, and social class are not determined by the chance circumstance of being born into a rich or poor family. A final, albeit less common, justification for minimizing large intergenerational wealth transfers stems from an aversion to hereditary economic and political power. Recall the myriad ways wealth translates into political influence. Regardless of one’s opinion about the effects of earned wealth on democracy, being able to transfer political power and influence to one’s heirs is antithetical to this country’s democratic ideals.34 * * * The above-mentioned arguments are, of course, hotly contested.35 For example, the optimal tax literature largely suggests that consumption is the best measure of ability to pay, given that income and wealth taxes burden later consumption more heavily than immediate consumption without any normative justification for so doing.36 Other literature contests the validity of the alleged harms discussed above. Some scholars argue, for example, that heavy political spending does not impact the democratic process, or that large wealth

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concentrations are merely correlated with, not a cause of, poor macroeconomic performance.37 Others dispute the resource egalitarian interpretation of equality of opportunity ideals, or argue that addressing inequality is beyond the proper role of government.38 Lastly, some argue that wealth that is invested, instead of used to finance personal consumption, is being put to productive use and therefore should remain untaxed.39 This chapter sets those debates aside. It takes as a given the desire to use the tax system to fight wealth inequality and instead focuses on designing tax instruments to do so. Of the foregoing concerns, the first and second suggest that taxing wealth itself via a wealth tax is a first-best solution. The third, however, implies that taxing the intergenerational transfer of wealth is the ideal solution. Of course, minimizing wealth accumulations in the hands of a given individual (as a wealth tax does) necessarily limits his or her ability to transfer wealth to his or her heirs. Likewise, restricting a given individual’s ability to transfer wealth to his or her heirs necessarily limits the ability of those heirs to accumulate their own wealth. Choosing either a wealth tax or a wealth transfer tax as a firstbest solution, however, signifies what one views to be the more pressing problem—wealth accumulations themselves, or their transfer. Even when practical or other considerations render firstbest instruments unworkable, working from a theoretically pure starting point leads to better second-best solutions. The remainder of this chapter examines the first-best solutions suggested by the justifications for taxing wealth discussed above, along with various practical ramifications of those instruments. III. Taxing Wealth Itself Of the foregoing arguments for taxing wealth, the ability-to-pay concern and the argument that large wealth concentrations negatively impact the political and economic systems each call for taxing wealth itself as an ideal solution. This contrasts with taxing wealth transfers and with strengthening income taxes. Taxing only the transfer of wealth leaves it untouched in the hands of its initial owner, thereby neither reflecting his or her ability to pay nor directly combatting any political or economic ills associated with wealth inequality. And even though an income tax is economically equivalent to a wealth

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tax in certain circumstances,40 strengthening income taxes sends a political signal that income, not wealth, inequality is the problem. This section begins by addressing what wealth taxes designed to reflect either the ability-to-pay or negative externality concerns would look like. It then discusses the practical considerations that likely render such taxes unworkable in the real world, and explores second-best alternatives. A. An Ideal Wealth Tax The theoretically best way to tax wealth as such is to impose an annual wealth tax, much like cities impose annual property taxes. In designing such a wealth tax, the two rationales for taxing wealth as such do not lead to great structural differences other than those related to the size of the exemption amount. If one’s goal is to better reflect one’s ability to pay, the tax’s scope would presumably have a reach similar to today’s income tax. In contrast, if the concern is the impact of large fortunes on the political or economic system, a much larger exemption suggests itself. A trust fund of $1 million, for example, affects its holder’s ability to pay but probably does not impact the political or economic system. To that end, a wealth tax designed to fight the political and economic externalities associated with large fortunes would likely have an extremely high exemption amount—at least several million dollars and perhaps as high as $10 million or $20 million—while one reflecting ability-to-pay principles would have a much lower exemption. Which types of assets would count toward one’s net worth? Thomas Piketty, whose proposed global tax on capital recently popularized the idea of wealth taxes, spends little time discussing his ideal base other than saying that his tax would apply to “all types of assets . . . real estate, financial assets, and business assets—no exceptions.”41 David Shakow and Reed Shuldiner’s proposed comprehensive wealth tax is similar but more detailed.42 Their wealth tax base would include the value of one’s financial holdings; farms and other businesses; nonfinancial investment assets such as real estate and art; consumer durables over an exemption level of somewhere between $10,000 and $50,000; and the net value of housing above $1 million. For administrative reasons, the base would exclude the value of term life insurance (if any) but include the value of whole

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life policies; it would also exclude the value of contingent liabilities (such as a pending claim against an alleged tortfeasor). For political reasons related to their current favorable income tax treatment, Shakow and Shuldiner’s plan would also exclude the value of qualified retirement assets. Lastly, their plan would account for outstanding debt, so that net, not gross, values are taxed. Such a tax could be levied either annually or less frequently, though Piketty and Shakow and Shuldiner all favor the former. Although Shakow and Shuldiner suggest a flat rate of 1.57%,43 Piketty proposes a progressive tax, although he is somewhat unclear about exactly how progressive it should be. He envisions taxing fortunes between 1 and 5 million Euros at 1% and those over 5 million at 2%, and perhaps taxing those with very large fortunes of more than 500 million or 1 billion Euros at rates as high as 5% or 10%, depending on the rate of return. Moderate wealth (under 1 million Euros) would be exempted, or taxed at much lower rates of 0.1% for wealth of up to 200,000 Euros and 0.5% for wealth of between 200,000 and 1 million Euros.44 These choices—of exemption levels, the appropriate base, the rate, and any relief provisions for taxpayers with illiquid assets— are the most important structural decisions a policymaker would face when implementing an ideal wealth tax. Of course, he or she would also face a number of more technical decisions, such as the treatment of discretionary interests in trust and powers of appointment. Those details, however, are beyond this chapter’s scope. B. The Problems with a Federal Wealth Tax The foregoing appears simple: Policymakers will define the base, choose rates, and decide upon an exemption level. In reality, however, practical and administrative considerations suggest that implementing a wealth tax is more difficult than it appears. 1. Valuation Issues The main problem with an annual wealth tax is the necessity of annual valuations. (This problem also plagues an income tax with no realization requirement, as section III.C. discusses). Annual valuations are costly, complicated, and encourage taxpayers to employ a variety of avoidance strategies to artificially deflate value, thereby

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undercutting the effectiveness of an annual wealth tax.45 As Deborah Schenk and Noël Cunningham have remarked in a similar context, “[a]ny system requiring appraisals is likely to be a loss for the government because it does not have the resources to win.”46 Those of us whose income comes largely from academic salaries may wonder what’s so hard about valuation. Momentarily setting aside real estate, valuing the assets of salaried professionals— which generally consist of cash, life insurance, and retirement and other brokerage accounts largely containing bonds and publicly traded stocks—is fairly straightforward. If the portfolios of wealthy taxpayers differed from ours solely in size and value, then valuation difficulties would be less problematic (although incentives to hide assets or artificially deflate value would still exist). The holdings of the wealthy, however, also differ in kind. Many “somewhat” wealthy individuals that would be targeted by an abilityto-pay wealth tax (perhaps those with net worths of $500,000 or $1 million) are small business owners or own real estate. As discussed below, valuing such assets is a difficult and imprecise task. Moving from somewhat wealthy individuals to very wealthy individuals, their portfolios become even more difficult to value. According to recent estimates by David Kamin, roughly half of the assets owned by the wealthiest 1% of Americans are not easily valued, as shown in table 8.1. Table 8.1. Shares of Gross Wealth for Taxpayers with Wealth over $2 Million (2007) Neither publicly traded nor easily valued: Real estate Closely held stock Noncorporate business assets Farm assets Private equity and hedge funds Other (Other limited partnerships, art, etc.) Publicly traded or easily valued: Publicly traded stock Bonds Retirement assets Cash Mortgages and notes Other (mutual funds, insurance, other assets) Source: Kamin, How to Tax the Rich, at 123.

49% 22% 12% 7% 3% 3% 2% 51% 19% 9% 9% 8% 2% 4%

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As any seasoned estate tax practitioner will attest, most estate tax litigation is not about whether a given asset is included in a decedent’s estate. Instead, disagreements more frequently concern the value of an asset that everyone agrees is includible. This complexity stems from a variety of causes. Methods The first area of dispute is what valuation method to use. Current law determines value objectively, using a willing buyer–willing seller standard that seeks to identify “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”47 Identifying that price is easy when identical or similar assets are routinely bought and sold on public markets; to value publicly traded stock, for example, all one need do is identify the trading prices on the valuation date.48 The portfolios of the wealthy, however, often contain assets that are either unique (art, some real estate) or not publicly traded (closely held stock). In these cases, a variety of techniques— each potentially yielding different results—could be used. Closely held businesses. To illustrate, consider various methods for valuing a closely held business. The simplest approach is to look at the company’s balance sheet, add up the value of all the assets, and subtract outstanding liabilities. In most cases, however, this method undervalues the company because balance sheets frequently exclude intangibles such as goodwill, going concern value, customer lists, trademarks, and the like. Moreover, an asset’s value as shown on a balance sheet rarely corresponds with its actual fair market value. For these reasons, this method is mainly used to value investment and real estate holding companies.49 Two other valuation approaches predominate for active businesses that sell goods or services; the first is to look at the sale of comparable publicly traded companies in the same or similar industries. Identifying a comparable publicly traded company, however, involves weighing a host of factors: size, market share, geographic location, diversification of assets, and financial security. Even when two companies are in the same industry, differences in these factors can cause significant disparities in value. One might also identify publicly traded companies in the same industry that have earnings similar to the closely held business being valued,

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determine the price/earnings ratio of the former, and apply that ratio to determine an estimated value for the latter.50 The second approach often used for active businesses is to estimate the income stream of the business being valued, and then to estimate the present value of that income stream. Estimating both the expected income stream and its present value require a number of judgments. Consider the expected income stream. Which of net profits, cash flow, or gross revenue (each of which will have different results) should be used? Is the company’s past performance a reliable indicator of future performance, or are future changes in the company’s circumstances indicated? Likewise, determining that income stream’s present value requires determining the appropriate discount rate, which depends on the current risk-free rate of return, general economic volatility, the economic characteristics of the business’s industry, and some attributes of the specific company being valued. Although appraisers frequently use studies that use survey data to estimate discount rates for various industries, they must still determine to what extent the business being valued is similar to the industry as a whole.51 Real estate. Similar difficulties arise when valuing real estate. For example, most local property tax systems use comparable sales to determine a home’s value, which raises its own set of questions. What time period should be used to determine relevant sales? What homes are comparable? Some comparisons are objective, such as square footage and lot size, but many are not. How should neighborhood quality and curb appeal be measured? How should the value of improvements such as kitchen and bath remodels be accounted for?52 While real estate appraisers have developed sophisticated databases and formulas to wrestle with these and other factors, taxpayers and the government alike have access to these. Both sides to assessment disputes therefore present huge amounts of information, much of it subjective. Often, adjudicators reject both sides’ estimates and pick their own.53 Taxpayers have no incentive to reveal what they believe to be the value of their properties, or to challenge valuations that they believe to be low. For these reasons, most commentators believe that real property assessments are inaccurate, even after appeals and disputes.54

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Valuation Discounts (and Premiums) The second area of dispute is the applicability of discounts and premiums when valuing jointly owned assets such as closely held businesses. Imagine that Frank owns all 1,000 shares of X. Corp., whose total value is $100,000 or $100 per share. This value presumably reflects the fact that Frank, as sole shareholder, has sole control of X Corp. and its assets. He selects the board of directors, who in turn decide who to hire (often Frank himself), whether to pay dividends, and so on. As sole shareholder, Frank will also be able to decide whether to liquidate, sell corporate assets, merge with other corporations, or amend corporate documents.55 Assume that Frank sells 200 shares to each of Georgia and Henry, keeping 600 shares for himself. Because neither Georgia nor Henry controls a majority of X Corp.’s stock, each of their shares is less valuable than each of Frank’s shares. Their lack of control is reflected in a “minority interest discount.” Courts often apply discounts of 20–30% when valuing minority interests, meaning, for example, that Georgia’s shares might be valued at $70 or $80 instead of $100 a share. Had Frank sold more than 50% of his holdings (perhaps 26% to each of Georgia and Henry), his retained shares would likewise be eligible for a minority discount. Alternatively, Frank could have created a partnership in which he holds a 1% general partnership interest and Georgia and Henry each own a 48.5% limited partnership interest. As limited partners, Georgia and Henry’s partnership interests would be eligible for a lack of control discount because Frank, as general partner, would still control the partnership. This would be true even if Georgia alone owned a 99% limited partnership interest, which lacks control even though it is a majority interest. And although Frank’s interest will trigger a control premium, the value of what he owns is far less than when he alone owned the entire business because he only owns 1% of its assets. A third discount (which applies to both corporations and partnerships) is a lack of marketability discount. Often, closely held businesses restrict owners’ abilities to transfer their shares or liquidate. Even if the organization’s governing documents do not contain such a restriction, an outsider is less likely to buy into a closely held corporation than into one with broad public ownership. This

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discount frequently reduces the value of ownership interest by an average of an additional 15%.56 In many instances, both the division of ownership and marketability restrictions result in a real diminution of value. This is especially true when the business in question is an ongoing enterprise requiring active management decisions, since unrelated parties face high transaction costs in dealing with one another to make these decisions. Families, however, frequently leverage the foregoing discounts in two ways. First, because the buyer and seller in the willing buyer–willing seller valuation standard are hypothetical individuals, the foregoing discounts are calculated as if the relevant parties were unrelated individuals. Imagine that Father owns 40% of X Corp., with Son and Daughter each owning 30%. Perhaps Son and Daughter get along famously and decide to make decisions together so that they, not stodgy Father, effectively control X Corp. Even so, Son and Daughter’s shares are valued in isolation, ignoring the fact of their unity. Of course, family members do not always have identical interests, and in many cases will behave the same as unrelated individuals. Nevertheless, it is quite likely that family members will act in concert more often than non-family members and that minority and lack of control discounts are frequently overstated when all interests are owned by related parties.57 Second, these valuations apply even when the business enterprise in question does nothing more than hold real estate or other investment assets. Imagine that Father owns $1 million worth of publicly traded stocks in a variety of companies. When Father alone owns those shares outright, the stocks are easily valued. If Father makes an outright transfer of one-third of the stocks to Son and one-third to Daughter, keeping one-third for himself, the value of each person’s resulting holdings is also easily identifiable. Imagine instead, however, that Father creates a limited liability company (known as a family limited liability corporation or “FLLC”) to hold the stocks, and transfers one-third of the shares in the FLLC to Son and one-third of the shares to Daughter. Or perhaps Father creates a partnership (known as a family limited partnership or “FLP”) in which he retains a general partnership interest and gives Son and Daughter limited partnership interests.

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Further assume that the organization’s governing documents contain liquidity restrictions. Now the holdings of Father, Son, and Daughter are eligible for the discounts just discussed, and each interest will be valued at less than $333,333. This is true even if the family enterprise does nothing more than hold publicly traded stocks. Assume, for example, that one of the stocks in the FLLC’s portfolio distributes dividends. As a legal matter, no single shareholder of the FLLC can require it in turn to distribute those dividends to the FLLC’s shareholders. Technically, therefore, the interests of Father, Son, and Daughter each warrant a minority interest discount. Simply placing assets in an FLLC or FLP therefore allows the wealthy to diminish the value of their property. As shown, this diminution is often artificial when the enterprise is controlled by family members and does nothing more than hold investment assets. Given the prevalence of such techniques to reduce estate and gift taxes, one would assume an annual wealth tax would further increase their use. Anti-abuse Mechanisms? To be sure, Congress could pass legislation curbing some of these techniques, for example, by requiring attribution of ownership among family members when determining whether to apply a minority or lack of control discount.58 Attribution rules, however, are not a cure-all. In many cases, especially where the enterprise is nothing more than a holding company for real estate and other investment assets, taxpayers will simply team up with individuals not covered under the attribution rules. Iris, for example, might form an LLC with her friends Jordan and Katherine, to which each contributes an equal amount of stock. Each shareholder’s portion of the LLC will be valued at less than the fee simple value of the stock. Moreover, attribution rules do not address other limitations that can diminish the value of LLC or partnership interests, such as liquidation restrictions that trigger lack of marketability discounts. As responses to the estate and gift taxes show, taxpayers exhibit unlimited creativity in crafting transfers and ownership structures that artificially diminish value. If Congress curbed the use of minority discounts, taxpayers would quickly create new LLC

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and partnership restrictions to trigger other discounts, still rendering valuation of these interests administratively burdensome. The Importance of Valuation At first glance, one might wonder whether the valuation difficulties just described would play as large a role under a wealth tax as they do in the current estate and gift tax system. After all, the current system’s top rate is 40%, compared to the much lower rates in most wealth tax proposals. Recall that Shakow and Shuldiner suggest a flat 1.57% rate. Piketty is less specific about his top rate, first mentioning a top rate of 2% but later suggesting a rate of 5% to 10%, depending on the rate of return, for the very largest fortunes. One might therefore assume that a wealth tax creates fewer incentives to challenge valuations or deflate asset values than the current estate and gift tax systems. Comparing the low nominal rate of an annual wealth tax, however, to the higher nominal rate of a one-time transfer tax is misleading. Assume that Laura holds an asset for a thirty-year period during which time the discount rate is a constant 6%. Jim Repetti has shown that an annual 1.57% tax (as proposed by Shakow and Shuldiner) during that thirty-year period is equivalent to a one-time tax of 23% in Year 1 if the asset does not appreciate in value and a one-time tax of 47.10% in Year 1 if the asset appreciates at 6%.59 Saul Levmore similarly demonstrates that the higher rates proposed by Piketty often exceed the rate of return net of income taxes, which means that one’s assets won’t generate enough income to pay the wealth tax and must therefore be liquidated to do so. Consider a 33% income tax coupled with a 6% wealth tax and assume that Laura earns $1 million, which she invests at 6%. As Levmore has shown, the income tax reduces Laura’s after-tax rate of return to 4%; which is less than the amount of income needed to pay the 6% wealth tax. “Slowly but surely,” Levmore notes, “the two tiers of taxation would confiscate the original income.”60 This example demonstrates how high the stakes are in terms of valuation disputes. If Laura can convince the government that her asset is worth less than $1 million, she lessens the bite of the wealth tax. Reconceptualizing the tax rate in this manner more clearly shows that the incentives to challenge valuations and artificially deflate asset values are just as strong in a wealth tax as in

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the current estate tax. The number of property tax valuation challenges that occur whenever localities reassess values further illustrates how important the stakes are to taxpayers: frequently, onequarter to one-third of homeowners challenge the new valuations, and appeals have increased in many municipalities over the past decade, given the swings in the housing market.61 Further, an annual wealth tax would almost certainly generate a much higher number of valuation disputes than the current estate tax system. This is so for a variety of reasons. First, because everyone with wealth above a given exemption level—and not just decedents or individuals who make inter vivos gifts—would be subject to the tax, the pool of individuals responsible for valuing their assets in a given year would be larger. To illustrate, under current law, with its $5,490,000 per-decedent exemption, only an estimated 0.2% of decedents’ estates in a given year must file estate tax returns and deal with valuing assets.62 In the mid-1990s, when the per-decedent exemption was much lower—$600,000—at most about 2% of estates (roughly 30,000 estates) were subject to the estate tax.63 Even then, noted Tax Court Judge Theodore Tannenwald quipped that we “already have more valuation cases than we know what to do with.”64 The number of decedents with a given wealth level is much smaller than the number of living individuals with that same wealth level who would need file wealth tax returns— even if the tax was limited to the wealthiest 1% or 2% of the population. Reaching deeper into the population, of course, would further increase the number of annual returns. Moreover, the annual nature of a wealth tax—as opposed to the one-shot nature of the gift and estate tax system—will also lead to an increased number of disputes. If a taxpayer loses on a valuation issue in an estate tax dispute, once the appeals process is over, that’s generally it. The valuation stands. But if they lose a valuation dispute in Year 1 of a wealth tax, they may well try to challenge the valuation again in Year 2. Although courts are generally hesitant to adopt new valuation methods once one has been established for a given asset,65 it is not inconceivable that taxpayers may attempt a challenge nonetheless. Consider the valuation of a small business. To name just a few, if any of general economic conditions, conditions in that specific market, or technology change, a taxpayer may

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feel he or she has grounds for a challenge. The government faces similar incentives if it loses in Year 1. Finally, valuation challenges frequently take years to resolve. Although this may delay the closing of an estate, it will only occasionally spill over into a later dispute about a separate estate. But with a wealth tax, the outcome of a valuation challenge in Year 1 will almost certainly affect that asset’s valuation in Year 2. A lengthy challenge over Year 1’s valuation thus creates a ripple effect impacting the taxation of the asset in later years. For these reasons, policymakers should take administrability concerns related to valuation seriously. 2. Constitutional Issues In addition to implementation difficulties, a wealth tax faces an additional hurdle: It is likely unconstitutional. The Constitution prohibits direct taxes unless they are “apportioned among the states,” which means that each state’s overall tax burden is proportionate to its population.66 Consider Maryland and Missouri, each of which (rounding a bit) is estimated to contain roughly 1.9% of the total population.67 The Apportionment Clause requires that Maryland and Missouri residents each bear 1.9% of any direct tax’s total burden—regardless of the extent to which the tax base in each state differs. To illustrate, assume that an income tax was a “direct tax” subject to the Apportionment Clause. (To be clear, the Sixteenth Amendment excepts an income tax from the Apportionment Clause.) If it was subject to the clause, however, then Missouri residents (median income $57,917) would have to be taxed at a much higher rate than Maryland residents (median income $86,056) for the two states’ income tax burdens to be equal.68 Designing a tax in this manner is clearly absurd, ruling out the use of federal direct taxes.69 Are wealth taxes “direct taxes” subject to the Apportionment Clause? Most likely. The phrase “direct taxes” is generally thought to mean “property taxes,” and that is precisely what a wealth tax is.70 It taxes property, albeit a broader class of property than the local real estate taxes to which we are accustomed. As such, a wealth tax would likely need to be apportioned among the states in order to be constitutional.71 To be sure, some commentators argue otherwise. Bruce Ackerman, for example, contends that jurisprudence over the past 100

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years suggests that courts do (and should) interpret the phrase “direct taxes” too narrowly to cover a wealth tax. In his view, Pollock v. Farmers’ Loan & Trust Co., which held (prior to the Sixteenth Amendment) that an income tax was a direct tax requiring apportionment, is an aberration that has been repudiated by later precedent. His argument rests in part on the clause’s origins; it was a compromise over slavery during the Constitutional Convention. As he explains, “the South would get three-fifths of its slaves counted for purposes of representation in the House and the Electoral College, if it was willing to pay an extra three-fifths of taxes that could be reasonably linked to overall population.”72 For similar reasons, Calvin Johnson argues that the clause applies only to head taxes, and that courts should reject apportionment in other cases where its application creates absurd results.73 Lastly, Joseph Dodge takes the middle ground, contending that the clause would apply to taxes on real and tangible personal property, but not intangible property like stock.74 As recently as 2012, however, the Supreme Court indicated that the Apportionment Clause was still relevant. In upholding the Affordable Care Act’s tax penalty, it noted that the penalty “does not fall within any recognized category of direct tax” and was “plainly not a [direct] tax on the ownership of land or personal property.”75 The Court’s discussion, moreover, points to its 1895 decision in Pollock as a break with its prior jurisprudence, which had interpreted the clause narrowly.76 In contrast to Ackerman’s analysis, this language implies that the Court will continue to interpret the clause broadly and would likely consider a wealth tax to be a direct tax.77 In any case, the possibility that a wealth tax is unconstitutional would likely play a large role in the political discourse surrounding its enactment, suggesting that policymakers might be wise to search for alternatives lacking the taint of possible unconstitutionality.78 C. Second-Best Options Given the practical drawbacks of an annual wealth tax, those seeking to tax wealth itself will likely need to consider second-best options. Here, the policymaker faces two options: altering the income tax system’s treatment of wealth and capital, or adopting

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some type of transfer tax. Neither is a perfect proxy for a wealth tax. Consider an estate tax. By focusing on the transfer of wealth at death, it implies that first-generation wealth is not harmful. It leaves that generation’s wealth untouched, although its imposition theoretically slows the buildup of wealth by younger generations by reducing after-tax amounts transferred to them. (If the first generation’s motive for amassing wealth is to pass it on, however, it might plausibly respond to a wealth transfer tax by accumulating a larger fortune than in a no-tax world.) In contrast, strengthening the income tax reflects a normative judgment that the initial buildup of wealth in the first generation should be slowed. Wealth comes from somewhere. Its appearance and growth constitute income as a theoretical matter, regardless of its source. This is easy to see when the source of wealth is one’s salary, since we are used to conceiving of salary as income. It is also true, however, when one’s wealth comes from the increase in value of one’s stock portfolio. As discussed in Section II.A, this increase is technically income (even if not currently taxed) because it renders one better off. And by minimizing what the first generation accrues, a stronger income tax would also mean less was available to pass down to later generations (subject to the same caveat mentioned above about one’s motives for amassing wealth). Thus, if one’s concerns are wealth concentrations as such or ability-to-pay principles, of the second-best options, a stronger income tax is a more theoretically pure tool than a wealth transfer tax. This section briefly discusses various options for strengthening the income tax system and their major practical ramifications, concluding that the best second-best option is to treat death as a realization event in conjunction with removing the preferential rate treatment for capital gains. 1. Ordinary Income and the Rate Structure Those not steeped in tax generally fixate on ordinary income rates as indicators of how heavily the wealthy are taxed. Under current law, the highest marginal rate that applies to labor and other ordinary income is 39.6%. For comparison, top marginal rates from 1965 to 1980 were 70%; in the 1950s and early 1960s, top rates exceeded 90%.79 This contrast—coupled with America’s almost unprecedented and widely shared economic growth during the

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mid-1900s—has led many to call for an increase in ordinary tax rates as a means of fighting inequality. These numbers, however, mask the fact that in reality the top rates affected very few Americans. Many taxpayers who would otherwise have been in the top brackets took advantage of an unprecedented number of deductions, exemptions, and exclusions, many made possible by the proliferation of the tax shelter industry. Thus, the nominally high tax rates of the past hide much lower effective tax rates. In fact, income tax revenue as a share of gross domestic product has been relatively flat since the 1950s, despite wide variations in the rate structure.80 Moreover, boosting rates on ordinary income will do nothing but increase taxpayer efforts to convert ordinary income into capital gains unless the treatment of capital income is changed as well.81 Lastly, much of the wealthy’s income is capital in nature, to which current law applies preferential rates. Even in the unlikely scenario that increased rates on labor income did not trigger conversion techniques, those rates would not apply to a substantial portion of the wealthy’s income. 2. Changing the Treatment of Capital Income Given the large proportion of capital income in the wealthy’s portfolio, the most effective way to strengthen the income tax is to change the tax treatment of capital income. Of possible such reforms, making death a realization event is superior to other possibilities. Increasing the Capital Gains Rate One option, for example, would be to raise the rate applicable to capital gains. Although so doing would limit the use of techniques that convert ordinary into capital income, standing alone, it would still be largely ineffective in increasing taxes on the wealthy due to the realization rule. This is so because decisions about when to realize capital income—such as how long to hold capital assets— are among the most sensitive to changes in tax rates.82 Abandoning the Realization Rule in Whole or in Part In that case, why not also abandon the realization rule? In such a system—sometimes called an accretion-based or a mark-to-market income tax—increases in the value of one’s assets are treated as

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income, even if the assets are not sold by the taxpayer. The necessity of annual valuations, however, means that the same valuation, administrative, and liquidity problems that plague an annual wealth tax would also afflict an accretion-based income tax. Practical considerations therefore render this approach unworkable. That said, one possible method of taxing the wealthy more heavily would be to adopt mark-to-market taxation for easily valued assets such as publicly traded stock, which would solve some of the administrative problems that vex a broad accretion-based tax.83 As with a wealth tax, taxable assets below a given level (depending on whether the tax targeted the merely wealthy and above, or only the ultra-wealthy) could be exempted. While this approach has some promise, its ability to reach the very wealthy (as opposed to those with a few hundred thousand or one or two million dollars) is limited. Namely, less than half the portfolios of taxpayers with wealth over $2 million would be taxed under this approach. David Kamin estimates that for such taxpayers, publicly traded stock comprises an average of 19% of their portfolios, with bonds and retirement assets each making up another 9% and retirement assets constituting less than 4%.84 Moreover, such an approach would likely cause taxpayers to reallocate their portfolios to increase the percentage held in exempt assets.85 Changing the Tax Treatment of Capital Gains at Death The most promising option to address the preferential treatment of capital income (in conjunction with discarding its preferential rate treatment) is to fix the gap that allows unrealized appreciation at death to escape taxation forever. Recall Alice, who purchases stock at $100, dies when it is worth $450, and bequeaths it to Ben. When Ben later sells the stock, he will owe tax only on any increase in value above $450. The $350 increase in value in Alice’s hands is never taxed, due to the stepped-up basis rule. Two reforms could potentially close this gap, both of which could be pursued even if lawmakers retained preferential rates. First, the carryover basis rule currently applied to gifted property could be applied to property received by bequest. If so, Ben would take Alice’s $100 basis and be taxed at sale on any increase in value over $100. Such a solution presents its own challenges, namely, involving the difficulties of keeping basis records when decades

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might pass between the decedent’s purchase of the assets and the sale of such assets by heirs.86 This is less of a problem when carryover basis is applied to gifts, since the donor is alive at the time of the gift. Further, this rule could create lock-in incentives on the part of donees to hold onto assets received by bequest for long periods of time to avoid tax, even if the property’s highest and best use is in someone else’s hands. Notably, Congress passed legislation implementing carryover basis at death in 1976, but repealed it in 1980 before it had taken effect.87 Alternatively, death (and possibly gift) could be treated as a realization event, whereby Alice would be taxed on the stock’s increase in value in her hands whenever she transfers it to Ben. This approach has several advantages over implementing carryover basis at death. First, as a symbolic matter, it taxes the original holder of the appreciated assets, instead of his or her heirs. This reflects—at least on a theoretical level—that the concern is with the existence or accumulation of wealth and not just its transfer. Moreover, making death a realization event sets the taxable event sooner (at the decedent’s death) rather than later (if and when the recipient sells, as would be the case with carryover basis). This imposes earlier limits on the amount of wealth that can be accumulated by the next generation, even if it does not limit such accumulation in the hands of the initial holder as a practical matter. Lastly, it minimizes the lock-in incentives associated with the current system or those that would accompany carryover basis at death.88 Although valuation and liquidity problems would still exist, their magnitude would be much smaller than under either an accretion-based income tax system or an annual wealth tax because the tax event would occur roughly once per generation, instead of annually. Moreover, heirs already face the necessity of valuing assets at death in order to determine their basis for later sale. In that sense, the administrability concerns from making death a realization event are roughly equivalent to those in the current income, estate, and gift tax systems, with one exception: The decedent’s basis would have to be determined in order to calculate her gain or loss. This is also true, however, in the case of implementing carryover basis for bequests, and would be somewhat less difficult if death was a realization event since less time will have elapsed

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between the decedent’s acquisition of an asset and its taxation. Moreover, executors would not have to worry about equitably distributing basis among heirs, as they would with carryover basis.89 As with the current estate and gift tax system, a threshold amount of gains per decedent could be excluded from tax (depending on the tax’s target), easing some of the concerns just identified. Moreover, this option could be pursued regardless of whether capital gains continue to enjoy preferential rate treatment. Of course, treating death as a realization event would require working out a number of additional technical details, many of which have been thoughtfully addressed elsewhere.90 3. Death as a Realization Event Compared to an Estate Tax How, one might wonder, is making death a realization event any different from imposing an estate tax? Both treat death as a taxable event, after all. As an initial matter, the two have very different normative and political implications. Locating the taxable event in the income tax system, rather than the transfer tax system, better reflects that the greater concern is the accumulation of wealth as such, rather than its transfer. Making death a realization event also has political advantages. Namely, it fixes a gap in the income tax system, instead of layering an entire second tax system upon the income tax system. It is thus completely immune from charges that it is double taxation. Moreover, intellectually honest academics and policymakers who oppose wealth or wealth transfer taxes admit that the current treatment of gains at death creates a loophole that benefits the wealthy.91 Although anything that is viewed as increasing taxes faces a high political bar, making death a realization event at least has theoretical roots that serious, apolitical thinkers across the political spectrum agree is fair. The two also have slightly different technical implications. The most serious is that an estate or accessions tax only requires knowing an asset’s fair market value at death, whereas making death a realization event also requires knowing the asset’s basis. Because the decedent is dead, this obviously requires reliance on his or her records. It is true that some individuals may currently fail to keep adequate basis records during their lifetimes in anticipation of the fair market value step-up at death. That said, were death to become a realization event, it is likely that most taxpayers would

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begin keeping basis records going forward. In cases where no such records are available, alternative methods of establishing basis could be used, including various methods for estimating basis. Moreover, basis problems have not undermined Canada’s system of taxing gains at death.92 A last matter is the question of rates and exemption levels. Based on current law, one might assume that an estate tax would necessarily have higher rates of tax than a system of taxing gains at death. Current estate and gift tax rates are 40%, for example, compared to top capital gains rates of 23.8%. Current practice need not govern a new system, however. If the goal is taxing wealth more heavily, there is no reason that treating death as a realization event could not be coupled with repealing the preferential rates for capital gains. Under current law, this would mean that a top rate of 39.6% would apply to gains realized at death. Moreover, a certain amount of gains per decedent could be exempted from taxation at death; this exemption could be set at whatever level best matched the rationale for taxing gains at death. If the rationale was ability to pay, the exemption level would likely be rather low—a few hundred thousand dollars, perhaps. If the rationale was that large wealth concentrations harm the political or economic system, the exemption would likely be much larger, at least several million dollars. IV. Taxing Wealth Transfers As described in section II, a third common justification for taxing wealth—minimizing dynastic wealth—actually encompasses two distinct notions. The first, rooted in equality of opportunity ideals, is that it is unfair for one’s life prospects to turn on the chance circumstances of one’s birth. The second concern is that the ability of some families to pass economic and political power down to younger generations contradicts the democratic ideal that such power should be earned, not inherited. Although I have extensively discussed the latter elsewhere,93 this section shall focus on the equality of opportunity ideal, as it is the more common interpretation. This concern suggests a tax on the transfer of wealth, which could be done in three ways: an estate tax that taxes transferors, an accessions tax that taxes recipients, or requiring recipients

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to include gifts and bequests in income. As discussed below, taxing recipients of gratuitous transfers via a cumulative progressive accessions tax best reflects equality of opportunity concerns. A. An Ideal Accessions Tax Inspired by Equality of Opportunity The equality of opportunity ideal, broadly speaking, holds that the chance circumstances of one’s birth should not govern life outcomes. Under this view, the ability of some families to pass along financial advantages to their children upsets equality of opportunity ideals because children have varying opportunities to develop fully their talents based on the economic circumstances of their birth.94 Some children are born into families that can afford tutors, expensive music lessons, and sports camps; others are not. Some children must work multiple jobs during the summer to help pay the rent, while others participate in prestigious internships or take educational trips to Europe. Proponents of this ideal argue that wealth (or wealth transfer) taxation is appropriate to level the playing field so that one’s education, occupation, and social class are not determined by the chance circumstance of being born into a rich or poor family. 1. The Basics of an Equality of Opportunity Focused Accessions Tax A transferee-focused accessions tax better demonstrates these concerns as a theoretical matter than either of an annual wealth tax, inclusion of gifts and bequests in income, or our current, transferor-oriented estate tax.95 Consider our transferor-oriented estate tax. Recall that under current law, wealthy individuals are taxed on the total amount of wealth that they gratuitously transfer over the course of their lifetimes. The recipient’s identity is largely irrelevant, unless the recipient is a spouse or charity. If Moira dies with $5 million, she is taxed the same whether she leaves all $5 million to Nathan or splits up her estate into twenty bequests of $250,000 each to Nathan and nineteen other friends or relatives. From an equal opportunity perspective, Moira’s choice has very different implications. Receiving $5 million drastically alters Nathan’s options. He can choose to stop working and travel the

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world permanently, to use the bequest as substantial seed money for a business, or to make substantial political contributions. In contrast, a bequest of $250,000 will also likely alter Nathan’s life, but not to the same extent. Perhaps he pays off his mortgage or buys a lake cottage; maybe he repays his student loans or assists his own child with tuition. He could make small upgrades to his business, or perhaps take some time off of work for several lavish vacations, but likely cannot quit his job altogether. An accessions tax that applies increasing marginal rates based on a transferee’s total cumulative receipts reflects these differences better than an estate tax for two reasons. First, the extent to which a bequest alters Nathan’s ability to pursue his life plans depends on the amount received by Nathan, not the total amount transferred out by Moira. By focusing on the former instead of the latter, an accessions tax better reflects equality of opportunity ideals. Whether Nathan receives $5 million or $250,000, the tax burden should depend on what he receives, regardless of whether Moira makes additional transfers to other individuals. That said, the total amount of gratuitous transfers received by Nathan over the course of his lifetime—in addition to the bequest from Moira—should also affect Nathan’s tax burden. If Moira’s $250,000 bequest to Nathan comes a year after he receives a $1 million gift from another relative, Nathan’s tax burden should be higher than if Moira’s bequest is the only gratuitous transfer he receives. The more Nathan receives over the course of his lifetime, the greater the impact on his opportunities. A cumulative accessions tax with increasing marginal rates, rather than either an annual inheritance tax or an inheritance tax based solely on the size of each individual transfer received, encapsulates this intuition. This also precludes Moira from simply splitting up her transfers to Nathan over time; the impact on Nathan’s opportunity (setting aside for now the time value of money) is the same whether he receives one bequest of $250,000 or five gifts of $50,000. Second, assuming Moira is tax-sensitive, an accessions tax contains incentives for Moira to divide her estate into a greater number of smaller transfers rather than a smaller number of larger ones. This is so because each recipient will have his or her own exemption level and trip up the progressive rate schedule. Consider the hypothetical rate schedule provided in table 8.2.

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Cumulative Amount of Transfers Received $0– $250,000 $250,000– $500,000 $500,000– $750,000 $750,000– $1,000,000 Over $1,000,000

Tax 0 20% on amount above $250,000 $50,000 plus 30% on amount above $500,000 $125,000 plus 40% on amount above $750,000 $225,000 plus 50% on amount above $1,000,000

In this hypothetical rate structure, each recipient has a lifetime exemption of $250,000. Assume that the recipients of Moira’s largesse have received no other gratuitous transfers. By splitting her estate into twenty bequests of that amount, Moira could hypothetically avoid tax on her transfers. In contrast, if she leaves one $5 million bequest, she’ll be taxed on transfers of $4,750,000. Of course, Moira’s transfers will not be tax-free if the recipients have already exceeded their individual exemption amounts. As long as the recipients have not yet reached the top rate, however, Moira’s transfers will trigger less tax if split up among many individuals because each recipient gets his own trip up the rate ladder. Assume, for example, that she leaves twenty bequests of $250,000 to individuals who have each already received $250,000. The total tax will be $1 million (20% of $250,000, or $50,000, for each of the twenty recipients). Next consider what happens if she leaves $5 million to one person who has already received $250,000, meaning that they have already used up their zero rate and the first dollar of this transfer will be taxed at a rate of 20%. In this case, the total tax will be $2,350,000 ($50,000 on the first $250,000; $75,000 on the amount between $250,000 and $500,000; $100,000 on the amount between $500,000 and $750,000; and $2,125,000 on the remaining $4,250,000). A cumulative accessions tax also better reflects equality of opportunity than including gratuitous transfers in one’s income.96 In a cumulative accessions tax, the tax burden increases as one’s gratuitous receipts increase, reflecting the notion that the greater the gratuitous transfers received, the greater one’s opportunities increase. In contrast, having recipients include such receipts in their income does not reflect this concept, for their tax burdens would turn in part on their other sources of income. Consider two

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heirs who each inherit $1 million. Due to the income tax marginal rate structure, Oliver, who also has salary income of $500,000, will face a larger tax burden on his inheritance than Penelope, who only has salary income of $100,000. If the goal is minimizing gratuitous transfers of wealth, why should the tax burdens of two heirs differ based on their earned income? Moreover, the annual nature of the income tax means that tax could be minimized simply by splitting up transfers over time, in order to take advantage of multiple trips up the rate schedule. 2. Structural Details Anne Alstott has offered the most comprehensive exploration of an accessions tax designed specifically to further equality of opportunity ideals to date.97 As she discusses, it would contain three additional features generally not found in other accessions tax proposals. First, in contrast to most past proposals and the current estate tax, an accessions tax based on equality of opportunity would not contain generation-skipping penalties. Consider a grandfather who leaves $1 million to his son, who enjoys the income but later leaves the $1 million principal to the grandson. Here, two people—son and grandson–enjoy the increased opportunities the $1 million brings, and tax should therefore be imposed twice. But if grandfather leaves the $1 million directly to the grandson, “skipping” his son, only one person—the grandson—enjoys increased opportunities. Thus, only one level of tax is appropriate, not two.98 In contrast, if the goal of the estate tax or an accessions tax is to act as a periodic levy on wealth in order to slow its accumulation, then taxes should be imposed at regular intervals regardless of how many times it is transferred. In that case, a generationskipping penalty may be warranted, so that grandfather cannot minimize the family’s taxes by skipping the son.99 Secondly, an accessions tax reflecting equality of opportunity ideals would tax transfers received earlier in life more heavily than those received later in life. If Oliver receives a $1 million bequest when he is 21, it will likely alter his life plans more than if he receives that bequest at age 55. At age 21, the bequest opens more educational and career opportunities to him, and provides a large cushion for purchasing his first house and starting a family if he so chooses. By age 55, however, much of his life’s path is set and

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the bequest, although generous, will likely alter his life plans to a lesser extent.100 Without any adjustments, however, a graduated accessions tax does precisely the opposite. Due simply to the time value of money, someone who receives a gratuitous transfer later in life will face a heavier tax burden than someone who receives that same bequest earlier in life. Compare Oliver (who receives $1 million at age 21) and Penelope (who receives $1 million) at age 31. Although the bequests are nominally the same, the two differ when the time value of money and the recipient’s life cycle are taken into account. Receiving $1 million at age 31 is not the same as receiving $1 million at age 21. Assuming a 5% discount rate, the present value at age 21 of receiving $1 million ten years hence is only $613,913. Without an adjustment, Oliver and Penelope would pay the same tax, even though what Oliver receives is more valuable in equal opportunity terms than what Penelope receives. To that end, Anne Alstott has proposed an accessions tax that uses a “look-back” model, where the present value at age 21 of a transfer would be determined, tax calculated, and interest on the deferred payment added.101 Using the rate schedule in table 8.2, Oliver’s tax bill would be $225,000 and Penelope’s would be $137,110 ($84,173.90 tax due on a bequest of $613,913 plus 5% interest, totaling to $137,110). The third and final unique feature of an accessions tax that reflects equal opportunity ideals is that transfers received from close relatives would be taxed more heavily than those from friends and distant relatives. This contrasts with the structure of most accessions tax proposals and state inheritance taxes (which typically tax the former not at all or less heavily than the latter) and may seem counterintuitive. If the amount one receives (and the timing of that receipt) is what affects one’s life opportunities, why should the transferor matter? Recall the underlying goal of the equality of opportunity ideal: One’s choices—not the arbitrary, chance characteristics of one’s birth—should determine life courses; outcomes that differ due to choice but not chance should be tolerated. If Quinn toils away while Rachel sunbathes, Rachel has no right to complain that the fruits of Quinn’s labor give her a more comfortable life. An

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accessions tax built upon these ideas therefore seeks to minimize gratuitous receipts that are arbitrary, the product of chance and not choice. Consider the difference between a bequest from a parent to a child and a bequest from one friend to another. Although neither relationship is solely a product of either choice or chance, chance likely predominates in the familial relationship, whereas choice likely dominates the friendship. In that respect, gratuitous transfers received from those with whom one has built a relationship by choice—such as friends or distant relatives—are not as much a product of arbitrary chance than gratuitous transfers from, say, one’s parents. To that end, the former should be taxed more lightly than the latter. Of course, the foregoing discusses only a few features of an accessions tax designed to further equality of opportunity ideals.102 Even this brief sketch, however, illustrates how the underlying normative reason for taxing wealth transfers should influence the design of that tax. B. The Limits of Tax Policy’s Impact on Equality of Opportunity Although the foregoing may sound appealing to resource egalitarian theorists in practice, its real-world impact on equality of opportunity principles is limited for a number of reasons. Consider the various types of advantages that parents with financial resources pass along to their children: Some parents transfer directly to them large sums of money, enough to start a business they otherwise would not, or to live a life of leisure (let us call these children the “ultra-advantaged”). Other parents do not directly transfer huge amounts of assets to their children, but instead fund a variety of programs for their children that enable them to develop their talents and abilities: tutors, music lessons, private school, college and graduate education, help with down payments, and so on. (We will call these the “merely advantaged.”) Focus first on the former, whose numbers are fairly low. Could a well-designed accessions tax catch these types of transfers? For the most part. Consider the valuation and administrative problems discussed above in connection with an annual wealth tax. Although a well-designed accessions tax could not erase such difficulties completely, it could minimize them (for example, by

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requiring attribution of family members’ interests when determining discounts). At worst, they would be no greater than under the current estate tax—somewhat of a sieve, but not large enough to undermine the whole system. That said, although large gratuitous transfers among ultraadvantaged families contribute to the pulling away of the very high end from everyone else, these types of transfers are not the main drivers of inequality of opportunity. Revenue needs aside, what Paris Hilton and her ilk do with their lives does not greatly impact the life opportunities of others without such resources. Taxing such transfers therefore reflects equality of opportunity ideals by doing some leveling down, but does little to bring the disadvantaged to the starting line. In contrast, consider how the activities of the merely advantaged do impact the life opportunities of children without similar resources. The high school student whose parents pay for expensive sports camps in the summer has a leg up on a poorer teammate who must work over the summer. Students who take expensive SAT prep classes likewise have an advantage over students who cannot afford such classes when it comes to college admissions. Young couples whose parents help buy their first house can outbid competitors. And so on. An accessions tax designed to reflect equality of opportunity principles would therefore reach well into the upper-middle classes, perhaps further than it did before the 2001 tax cuts (at which time the exemption amount was only $675,000). One complication, as Ed McCaffery has argued, is that when wealth transfers are taxed, individuals may well respond by consuming more. And in the case of upper-middle class families, much of that consumption—private schools, fancy camps, family trips to Europe, and so on—exacerbates inequalities in opportunity.103 Some would therefore argue that much of the private spending by upper-middle classes on the development of human capital should be taxed.104 Although others argue that taxing such transfers interferes with liberal ideals concerning the family,105 set that debate aside and assume that a decision has been made to tax such transfers. Could that be done? Not without great difficulty—how would an accessions tax system distinguish between allowable support

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and taxable transfers? Perhaps one could tax the payment of private school tuition (unlike the current system, which exempts such payments from the gift tax system).106 But what about buying a more expensive house in a neighborhood with good schools? How could a tax system distinguish between hiring a math tutor to give your child an advantage in school and hiring one simply to help them stay afloat? Some might argue that making such a distinction is unnecessary, on the grounds that the ability of some parents, but not others, to help their children stay afloat upsets equality of opportunity ideals. Helping one’s child stay afloat, however, strikes many as the very essence of what parents should do. Taxing such expenditures would likely generate unprecedented political opposition on the grounds that so doing interferes in intimate and fundamental family matters. Crafting a workable distinction between support and providing advantages is therefore necessary but essentially impossible. A second complication is that many of the advantages that better-off parents provide to their children—reading and talking to one’s child, providing a stable two-parent family in a safe neighborhood, modeling qualities that help children succeed in school and the workplace—are not financial and cannot be taxed. These complications have two implications for designing an accessions tax to reflect equality of opportunity ideals. First, in theory, the inability to distinguish between support and advantages highlights the importance of taxing those types of transfers that most clearly go beyond support. This might include limiting the use of the annual exclusion, which—at $14,000 per recipient per donor—exceeds most families’ notions of everyday birthday and holiday gifts. It may also include allowing K-12 and college tuition payments to remain nontaxable gifts (as under current law), but redefining graduate school tuition as outside the norm of familial support and therefore to be a taxable gift. The second complication is that even if parental spending that conferred advantages could be taxed more broadly, so doing simply limits the head start of the advantaged without necessarily bringing children born to financially disadvantaged households to the starting line. Both the possibility of increased consumption and the extent of nonfinancial advantages, however, exacerbate the difficulties of limiting the head start of the advantaged. For

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policymakers interested in equality of opportunity, these difficulties mean that policies that engage in leveling up—giving children born to poorer families the same opportunities as their wealthier peers—are also necessary to implement these ideals. The following section explores this latter concept of leveling up and its relationship to taxing the wealthy. C. Progressive Spending Does Not Require Progressive Taxation In addition to the leveling down with which tax policy is most frequently concerned, many scholars have recognized that fostering equality of opportunity also requires leveling up efforts.107 In many ways, using policies that level up to fight inequality raises the same tax issues as fighting poverty: both require raising revenue to fund such efforts, and both require closely examining how the tax system incentivizes various behaviors of those on the bottom.108 Contrary to what one might think, progressive spending policies do not require progressive tax policies to fund them.109 Indeed, many Scandinavian countries with generous and progressive spending policies do not have progressive tax policies. Eric Zolt argues that such countries shy away from heavily taxing the rich due to both revenue concerns and fears of exacerbating political opposition to social spending programs that help the poor.110 Taxing wealth as such more heavily, therefore, is not necessarily a precondition to increasing opportunities for the poor, and may hinder such policies by increasing political opposition to government spending. Instead, policymakers who want to fund leveling up efforts would be better served by relying on the insights of the optimal tax literature regarding which tax bases and structures can yield the most revenue with the least distortions. Exploring that literature, however, is beyond the scope of this chapter. V. Conclusion Taxing wealth is a daunting task. Although nontax scholars tend to speak in general terms about taxing the wealthy to fight inequality, using the tax system to do so requires careful consideration of various normative and practical concerns, some of which are at odds with each other. Certain normative goals (ability-to-pay and

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wealth concentrations as per se harmful) suggest taxing wealth itself via an annual wealth tax as an ideal solution. Even if such a tax were held constitutional, however, it would be hobbled by administrative and valuation concerns. A plausible second-best solution would be to treat death as a realization event (in conjunction with ending the preferential rate treatment for capital gains), thereby closing the loophole that allows unrealized gains held at death to escape taxation. By fixing a widely recognized loophole in the income tax system, such a solution is more politically feasible than other second-best options for taxing wealth per se, such as imposing a separate tax on wealth transfers. In contrast, the normative concern of equality of opportunity counsels taxing wealth transfers as an ideal matter. A close analysis of this concern, however, demonstrates that a transfereeoriented accessions tax best reflects these ideals, in contrast to the current transferor-oriented estate tax. Because such a tax would be imposed roughly once per generation—not annually— administrative and valuation concerns would play a less prominent role than in a wealth tax. That said, wealth transfer taxes often spur families to engage in greater consumption, much of which may exacerbate inequality of opportunity. This increases pressure on policymakers concerned about equality of opportunity to close loopholes allowing certain direct transfers of financial assets to go untaxed while simultaneously engaging in greater leveling up efforts. Notes I would like to thank Jordan Barry, Noël Cunningham, Victor Fleischer, Dov Fox, Jack Knight, Jim Repetti, Melissa Schwartzberg, Dan Shaviro, Mila Sohoni, and Larry Zelenak for valuable feedback, as well as participants in the Boston College Law School Tax Policy Workshop and the UCLA Law School Colloquium on Tax Policy and Public Finance. I also thank Ana Menshikova and Dan Bremer for helpful research assistance. 1 Thomas Piketty, Capital in the Twenty-First Century: The Dynamics of Inequality, Wealth, and Growth, trans. Arthur Goldhammer (Cambridge, MA: Belknap Press, 2014). 2 Welcome exceptions in the tax literature include Anne L. Alstott, Equal Opportunity and Inheritance Taxation, 121 Harv. L. Rev. 469 (2007); Joseph Bankman and Daniel Shaviro, Piketty in America: A Tale of Two Lit-

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eratures, 68 Tax L. Rev. 453 (2015); Lily L. Batchelder, What Should Society Expect From Heirs? The Case for a Comprehensive Inheritance Tax, 63 Tax L. Rev. 1 (2009); Edward J. McCaffery, The Uneasy Case for Wealth Transfer Taxation, 104 Yale L. J. 283 (1994); Eric M. Zolt, Inequality in America: Challenges for Tax and Spending Policies, 66 Tax L. Rev. 641 (2013). 3 For a discussion of these questions in conjunction with Capital in the Twenty-First Century, see Liam Murphy, Why Does Inequality Matter? Reflections on the Political Morality of Piketty’s Capital in the Twenty-First Century, 68 Tax L. Rev. 613 (2015). 4 See David Kamin, Reducing Poverty, Not Inequality: What Changes in the Tax System Can Achieve, 66 Tax L. Rev. 593 (2013). 5 See Deborah H. Schenk, A Positive Account of the Realization Rule, 57 Tax L. Rev. 355, 357–58 (2004). 6 Brian K. Bucks et al., Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances, 95 Fed. Res. Bull. A1, A36 (2009). 7 I.R.C. § 1015. 8 I.R.C. § 1014. 9 Robert B. Avery et al., Death and Taxes: An Evaluation of the Impact of Prospective Policies for Taxing Wealth at the Time of Death, 68 Nat’l Tax J. 601, 617 fig.1 (2015). 10 This sum represents the point at which the highest marginal rate begins in 2017 for unmarried individuals; it is adjusted for inflation annually. Rev. Proc. 2016-55 (Oct. 25, 2016). 11 Victor Fleischer, Two and Twenty: Taxing Partnership Profits in Private Equity Funds, 83 N.Y.U. L. Rev. 1 (2008). 12 Deborah H. Schenk, The Luke Effect and Federal Taxation: A Commentary on McMahon’s The Matthew Effect and Federal Taxation, 45 B.C. L. Rev. 1129, 1130 (2004); Tax Policy Center, Distribution of Long-Term Capital Gains, T09–0490 (Dec. 11, 2009), www.taxpolicycenter.org. 13 I.R.C. §§ 2001; 2010; 2501; 2505. The exemption amount is indexed for inflation annually. Rev. Proc. 2016-55 (Oct. 25, 2016). 14 The main difference between the tax treatment of gifts and bequests concerns whether the funds used to pay the tax are considered part of the transfer (and therefore part of the tax base). To illustrate, imagine that Anna has used up her exemption amount and makes a taxable gift of $1 million. Because the gift tax is tax-exclusive, she will pay the $400,000 tax out of her own pocket, and the donee will receive the entire $1 million. In contrast, the estate tax is tax-inclusive, meaning the funds used to pay the tax are considered part of the transfer. If she dies with a taxable estate of $1 million (after using her exemption amount), her estate will pay the $400,000 tax from that sum and her heirs will only

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receive $600,000. This parallels the tax-inclusive nature of the income tax: We pay income tax out of the funds used to calculate our taxable income. 15 Joint Committee on Taxation, History, Present Law, and Analysis of the Federal Wealth Transfer Tax System 29–30 (JCX-52–15), March 16, 2015. 16 I.R.C. §§ 2601; 2631. This amount is also indexed for inflation. Rev. Proc. 2016-55 (Oct. 25, 2016). 17 I.R.C. § 2503(b). This amount is also indexed for inflation. Rev. Proc. 2016-55 (Oct. 25, 2016). 18 See David Kamin, How to Tax the Rich, 146 Tax Notes 119 (January 5, 2015) (providing a useful overview of these options); Bankman and Shaviro, Piketty in America, at 504–11 (discussing various possibilities for taxing the returns to human capital more heavily). 19 McCaffery, The Uneasy Case for Wealth Transfer Taxation. 20 See, e.g., Bankman and Shaviro, Piketty in America, at 455 (noting that “Piketty does not entirely specify exactly what is wrong with rising high-end wealth concentration”); Murphy, Why Does Inequality Matter?, at 628–29 (also critiquing the view that wealth inequality is prima facie morally harmful). 21 See, e.g., Alstott, Equal Opportunity and Inheritance Taxation, at 471 (arguing that scholarship often conflates equality of opportunity ideals with goals that are distinct from such ideals). 22 See, e.g., Batchelder, What Should Society Expect From Heirs? at 2– 3; Murphy, Why Does Inequality Matter?, at 628; David Shakow and Reed Shuldiner, A Comprehensive Wealth Tax, 53 Tax L. Rev. 499, 500 (2000). 23 U.S. Executive Compensation Database: Mark Zuckerberg, Morningstar, Inc., LEXIS (2016); Rachel Gillett, Mark Zuckerberg Reveals Why He Only Makes $1 a Year, business insider.com (June 30, 2015). Unfortunately, data concerning Zuckerberg’s 2014 investment income, if any, was unavailable. It is likely, however, that any such income is relatively small. In 2012, Zuckerberg exercised stock options that allowed him to purchase 60 million Facebook shares then trading at $42 a share for a mere 6 cents each. These transactions did generate substantial taxable compensation income, creating a hefty billion-dollar tax bill for Zuckerberg in 2012. The realization requirement, however, means that any future increase in value is not taxable to Zuckerberg unless and until he sells his shares. There seems to be little reason for Zuckerberg to do so, given that he can borrow against them to obtain liquid funds tax-free. And if he dies holding those shares, that appreciation will never be taxed under the income tax system. Edward J. McCaffery, Zuck Never Has to Pay Taxes Again, available at cnn. com (April 9, 2013). 24 See Bankman and Shaviro, Piketty in America, at 455, 471–72, 511.

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25 See, e.g., James R. Repetti, Democracy, Taxes and Wealth, 76 N.Y.U. L. Rev. 825 (2001); Eric Rakowski, Can Wealth Taxes Be Justified?, 53 Tax L. Rev. 263, 291–94 (2000) (describing and critiquing this justification). 26 See Repetti, Democracy, Taxes and Wealth, at 841–49. 27 Ibid. See also Miranda Perry Fleischer, Charitable Contributions in an Ideal Estate Tax, 60 Tax L. Rev. 263, 278–79 (2007). Recent comments by 2016 Republican presidential candidate Donald Trump illustrate the effect of large contributions. When asked why he made a number of contributions to Democratic candidates, he answered that “I give to everybody. When they call, I give. And you know what, when I need something from them two years later, three years later, I call them. They are there for me.” Jill Ornitz and Ryan Struyk, Donald Trump’s Surprisingly Honest Lessons About Big Money in Politics, ABC News (Aug. 11, 2015) available at http://abcnews.go.com. 28 Witness Donald Trump, Michael Bloomberg, and Ross Perot. 29 See Fleischer, Charitable Contributions in an Ideal Estate Tax, at 279 n. 75. After public outcry from a number of large corporations, for example, Arizona governor Jan Brewer vetoed a bill that would have protected the right of religious business owners to refuse service to same-sex couples. Cindy Carcamo, Arizona Gov. Jan Brewer Vetoes So-Called Anti-Gay Bill, L.A. Times (Feb. 26, 2014). 30 See Repetti, Democracy, Taxes and Wealth, at 831–35 (collecting studies). 31 Ibid. at 838–40. 32 See, e.g., Repetti, Democracy, Taxes and Wealth; William D. Andrews, Reporter’s Study of the Accessions Tax Proposal § A2, in AM. LAW INST., FEDERAL ESTATE AND GIFT TAXATION 446, 460–68, 475 (1969); David G. Duff, Taxing Inherited Wealth: A Philosophical Argument, 6 Can. J. L. and Jur. 3, 19–20, 25–26 (1993). 33 See, e.g., Alstott, Equal Opportunity and Inheritance Taxation; Duff, Taxing Inherited Wealth, at 45–46; Miranda Perry Fleischer, Equality of Opportunity and the Charitable Tax Subsidies, 91 B. U. L. Rev. 601 (2011). 34 See Miranda Perry Fleischer, Divide and Conquer: Using an Accessions Tax to Combat Dynastic Wealth Transfers, 57 B. C. L. Rev. 913, 918–920 (2016). 35 See, e.g., Joseph M. Dodge, Replacing the Estate Tax with a Reimagined Accessions Tax, 60 Hastings L. J. 997, 1003–04 (2009); Duff, Taxing Inherited Wealth, at 58–62; Rakowski, Can Wealth Taxes Be Justified?, at 264–66. 36 See, e.g., Bankman and Shaviro, Piketty in America, 459–66. 37 See, e.g., Stephen J. Dubner, How Much Does Campaign Spending Influence the Election? A Freakonomics Quorum (Jan. 17, 2012, 7:40 AM), freakonomics.com (discussing whether campaign spending affects electoral outcomes); Jared Bernstein, Center for American Progress, The Impact of

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Inequality on Growth 1–3 (Dec. 2013), www.americanprogress.org (noting that proof of inequality’s impact on growth is elusive). 38 See, e.g., John Rawls, A Theory of Justice (Cambridge, MA: Harvard University Press, 1971), pp. 65–75 (comparing careers open to talents with resource egalitarianism, which he terms “fair equality of opportunity”); Harry G. Frankfurt, On Inequality (Princeton: Princeton University Press, 2015), pp. 68–71; Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), pp. 235–38. 39 Edward J. McCaffery, The Meaning of Capital in the Twenty-First Century, 32–37 (USC Law Legal Studies Paper No. 16-11, 2016), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741315. 40 See, e.g., Noël B. Cunningham, The Taxation of Capital Income and the Choice of Tax Base, 52 Tax L. Rev. 17, 44 (1996); Deborah H. Schenk, Saving the Income Tax with a Wealth Tax, 53 Tax L. Rev. 423, 435–41 (2000). 41 Piketty, Capital, at 517. 42 Shakow and Shuldiner, A Comprehensive Wealth Tax, at 532–46. Although Shakow and Shuldiner propose that their wealth tax—in conjunction with a flat tax on wages—replace the existing income tax (ibid. at 499–500), their proposal nonetheless illustrates what a wealth tax designed to accompany, not replace, the income tax might look like. 43 Ibid. at 529. 44 Piketty, Capital, at 517, 529. 45 James R. Repetti, It’s All About Valuation, 53 Tax L. Rev. 607, 608 (2000). 46 Noël B. Cunningham and Deborah H. Schenk, Taxation Without Realization: A “Revolutionary” Approach to Ownership, 47 Tax L. Rev. 725, 743 n.78 (1992). 47 Reg. §§ 20.2031–1(b); 25.2512–1. 48 Reg. § 20.2031–2(b)(1). 49 Ray Madoff, Practical Guide to Estate Planning 11,012 (2012). 50 Ibid. at 11,014–15. 51 Ibid. at 11,013–14. 52 Stewart E. Sterk and Mitchell L. Engler, Property Tax Reassessment: Who Needs It?, 81 Notre Dame L. Rev. 1037, 1068–70 (2006). 53 Edward A. Zelinsky, For Realization: Income Taxation, Sectoral Accretionism, and the Virtue of Attainable Virtues, 19 Cardozo L. Rev. 861, 882 (1997). 54 Sterk and Engler, Property Tax Reassessment, at 1070; Zelinsky, For Realization, at 882; William Doerner and Keith Ihlanfeldt, An Empirical Analysis of the Property Tax Appeals Process, 10 J. of Prop. Tax Assessment and Admin. 5 (Federal Housing Finance Agency, Florida State University, 2014). 55 James R. Repetti, Minority Discounts: The Alchemy in Estate and Gift Taxation, 50 Tax L. Rev. 415, 426–27 (1995).

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56 See, e.g., Paul L. Caron and James R. Repetti, Revitalizing the Estate Tax: 5 Easy Pieces, 142 Tax Notes 1231, 1232 n.8 (March 17, 2014). 57 Ibid. at 1233–34. 58 Ibid. at 1235. 59 Repetti, It’s All About Valuation, at 610. 60 Saul Levmore, Inequality in the Twenty-First Century, 113 Mich. L. Rev. 833, 851 (2015). 61 Sterk and Engler, Property Tax Reassessment, at 1067, 1071; Doerner and Ihlanfeldt, Empirical Analysis, note 55, at 5. 62 Joint Committee Report, Federal Wealth Transfer Tax System, at 30. 63 Ibid. at 25. 64 Sheryl Stratton, Estate Tax Valuation Proposal Makes Judge Tannenwald Cringe, 69 Tax Notes 1442, 1442 (Dec. 18, 1995); quoted in Repetti, It’s All About Valuation, at 612. 65 Repetti, It’s All About Valuation, at 610. 66 U.S. Const., art. I, § 9, cl. 4; Bankman and Shaviro, Piketty in America, at 489. 67 US Census Bureau, American Fact Finder, available at factfinder.census.gov (author’s calculation, using 2015 estimates). 68 US Census Bureau, Median Family Income in the Past 12 Months (in 2011 Inflation-Adjusted Dollars) by Family Size, available at www.census.gov. 69 See Bankman and Shaviro, Piketty in America, at 489; Bruce Ackerman, Taxation and the Constitution, 99 Colum. L. Rev. 1,1 (1999). 70 Bankman and Shaviro, Piketty in America, at 489. 71 See Erik M. Jensen, The Apportionment of “Direct Taxes”: Are Consumption Taxes Unconstitutional?, 97 Colum. L. Rev. 2334, 2350–97 (1997) (discussing the apportionment clause in the context of consumption taxes). 72 Ackerman, Taxation and the Constitution, at 4–6. 73 Calvin H. Johnson, Apportionment of Direct Taxes: The Foul-Up in the Core of the Constitution, 7 Wm. and Mary Bill Rts. J., 1, 4–5, 72 (1996). 74 Joseph M. Dodge, What Federal Taxes Are Subject to the Rule of Apportionment Under the Constitution?, 11 U. Pa. J. Const. L. 839, 843, 933–34 (2009). 75 National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566, 2599 (2012). 76 Ibid. at 2598. 77 Bankman and Shaviro, Piketty in America, at 489–90 n. 140. 78 Ibid. at 491–92. 79 Tax Foundation, Historical Highest Marginal Income Tax Rates (2015), available at www.taxpolicycenter.org. 80 Tax Policy Center, Historical Source of Revenue as Share of GDP, available at www.taxpolicycenter.org.

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81 See Kamin, How to Tax the Rich, at 127–28. 82 Ibid. at 120–21. 83 Our current system already applies mark-to-market taxation to a select group of assets, such as securities held by traders and certain types of bonds. 84 Kamin, How to Tax the Rich, at 123. 85 Ibid. 86 See Laura E. Cunningham and Noël B. Cunningham, Realization of Gains Under the Comprehensive Inheritance Tax, 63 Tax L. Rev. 271, 276–78 (2009). 87 Senate Budget Committee, Tax Expenditures, Compendium of Background Material on Individual Provisions 431 (Dec. 28, 2012). The scheduled one-year repeal of the estate tax in 2010 also included carryover basis provisions; retroactive legislation maintaining the tax gave the estates of 2010 decedents a choice between paying the estate tax or using carryover basis. Joint Committee Report, Federal Wealth Transfer Tax System, at 10–11. 88 Cunningham and Cunningham, Realization of Gains, at 278–79. 89 See Lawrence Zelenak, Taxing Gains at Death, 46 Vand. L. Rev. 361, 368 (1993). 90 See generally ibid. 91 See, e.g., Richard A. Epstein, Death by Wealth Tax, available at www. hoover.org. 92 Zelenak, Taxing Gains at Death, at 389–95. 93 See Fleischer, Divide and Conquer. 94 See, e.g., Alstott, Equal Opportunity and Inheritance Taxation, at 516. 95 This discussion of equality of opportunity and an accessions tax borrows heavily from Alstott, Equal Opportunity and Inheritance Taxation. 96 For a thoughtful discussion of such a system based on welfarist ideals, see Batchelder, What Should Society Expect From Heirs? 97 Alstott, Equal Opportunity and Inheritance Taxation. 98 Ibid. at 518–19. 99 See, e.g., Andrews, Reporter’s Study, at 475. 100 See Alstott, Equal Opportunity and Inheritance Taxation, at 525–26. 101 Ibid. at 521–27. 102 For a fuller account, see Alstott, Equal Opportunity and Inheritance Taxation. 103 McCaffery, Uneasy Case. 104 See Bankman and Shaviro, Piketty in America, at 512 (discussing the ability of transfer taxes to address the transmission of human capital). 105 Thomas Nagel, Liberal Democracy and Hereditary Inequality, 63 Tax L. Rev. 113, 120 (2009). 106 IRC § 2503(e).

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107 See Alstott, Equal Opportunity and Inheritance Taxation, at 489–92; Bankman and Shaviro, Piketty in America, at 512; Zolt, Inequality in America, at 690–91. 108 See Kamin, Reducing Poverty, Not Inequality. 109 See, e.g., Edward D. Kleinbard, We Are Better Than This: How Government Should Spend Our Money (Oxford: Oxford University Press, 2015), pp. 336–71. 110 Zolt, Inequality in America, at 643–44.

INDEX

the 1%: complexity of wealth of, 276; extreme economic inequality of the, 2–3, 16, 196, 199, 203, 262–64, 266; global wealth of, 160–2; taxation of, 191–3, 197, 283. See also economic inequality: scale of contemporary; Occupy movement; relationship between economic and political inequality 2008 financial crisis, 45, 57, 202–3 abolitionism, 51, 52, 79, 80, 83, 118n74. See also Reconstruction; slavery Ackerman, Bruce, 58, 284–85 Adams, John, 64. See also Federalists Adelson, Sheldon, 258. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality affluence, 241–42, 243; measurement of, 16, 19–21, 30. See also power of material resources; property; wealth Affordable Care Act (Obamacare), 106, 108, 151, 285. See also healthcare; Medicaid; National Federation of Independent Businesses v. Sebelius; Obama, Barack Alstott, Anne, 295–96. See also inheritance of property; tax on wealth; tax on wealth transfers American Tradition Partnership v. Bullock, 106–7, 150–51. See also campaign finance; Citizens United v. Federal Election Commission; relationship between economic and political inequality

antidiscrimination law, 52, 95, 96, 98. See also racism antitrust law, 103, 105, 110 Appleby, Joyce, 65. See also democracy of opportunity tradition: in the Early American Republic; Jefferson, Thomas Apportionment Clause, 284–85. See also federal income tax; Sixteenth Amendment; tax on wealth: constitutional concerns and; tax rates Aristotle, 5, 68, 176–77, 187, 212n27 Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, 106. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality austerity, 2 autocratic government, 92 Bacon’s Rebellion, 230, 233n17 Barber, Sotirios, 149–50. See also U.S. Congress: constitutional discourse focused on constraints on Bates, Robert, 172. See also Grief, Avner; Singh, Smita; wealth defense: violence and Bell, John, 77–78. See also democracy of opportunity tradition: in the Jacksonian Era Bloomberg, Michael, 264, 304n28. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality Broome, John, 28. See also environment; limitarianism

309

310 Brown v. Board of Education, 52, 58, 101. See also civil rights movement; democracy of opportunity tradition: inclusion and; U.S. Supreme Court: court-centered framework for civil rights and economic opportunity Bryan, William Jennings, 191–92. See also democracy of opportunity tradition: the Gilded Age and Buckley v. Valeo, 252. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality bureaucracy, 11, 153, 175, 245 Calhoun, John C., 75. See also slavery campaign finance, 7, 9, 48, 106–8, 110, 128n123, 145n48, 252. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality capital: appreciation of, 266; income from, 265, 287; international transformation of, 256; rate of growth of, 136–39. See also Piketty, Thomas; wealth capital gains tax, 105, 268; at death, 262, 264, 266, 286, 290–91, 301; reducing economic inequality with, 286–90. See also capital; tax on wealth; tax on wealth transfer capitalism, 74, 75, 87, 206, 207n4, 208n10, 236; interaction of democracy and, 236, 243–44. See also economic inequality; Grewal, David Singh Casal, Paula, 14. See also limitarianism; sufficientarianism Christian democracy, 250–51. See also social democracy Christiano, Thomas, 6–8. See also campaign finance; Citizens United v. Federal Election Commission; democracy of opportunity tradition; relationship between economic and political inequality

Index Citizens United v. Federal Election Commission, 106–8, 150–51, 252 citizenship, 86, 155, 211n23, 236, 252, 254–55; equality of, 57–59, 82, 88–91, 98, 248–52; political economy conception of, 85, 255. See also constitutional discourse; happiness Civil Rights Act of 1866, 80, 84. See also Reconstruction Civil Rights Act of 1964, 52, 98, 101, 102. See also civil rights movement civil rights movement, 52–53, 58–59, 60, 63, 101–2; conception of equal citizenship and the Great Society, 95– 97. See also democracy of opportunity tradition: inclusion and; King, Martin Luther; racism; Rustin, Bayard Clay, Henry, 75 climate change, 11, 33–34, 140, 155, 256. See also environment Clinton, Bill and Hillary, 253 Coelho, Duarte, 175. See also donatários; indigenous Americans; slavery; wealth defense: slavery and Commerce Clause, 50, 124n137, 147, 151. See also Affordable Care Act Communism, 191–92, 197. See also Marx, Karl Community Reinvestment Act, 105. See also 2008 financial crisis; Obama, Barack concentrations of economic power and political power, 6–10, 46, 59–61; Early American understanding of, 63–65, 71–75; theorization of, 159; extreme concentration of wealth, 162. See also economic inequality; limitarianism; political inequality; relationship of economic and political inequality; tax on wealth; wealth defense consequentialism, 10, 13, 142n17 conservative politics in the United States, 52, 55–56, 79, 81, 88, 92, 94, 189, 191–93, 214n37; rejection of constitution of opportunity tradition and, 97–100. See also New Deal; U.S.

Index Supreme Court: court–centered framework for civil rights and economic opportunity Constitutional Convention of 1787, 70–71, 165, 177, 179, 209n13, 285; wealth defense and the, 180–89, 213n31, 214n37. See also Hamilton, Alexander; Madison, James constitutional discourse, 46, 60–61, 68, 77, 119n75, 146. See also constitutional political economy; democracy of opportunity tradition; U.S. Constitution constitutional political economy, 45– 50, 55–62, 111, 112n14, 147; in the Jacksonian era, 75, 77, 79; in the New Deal, 92–7; in the 1960s, 100–2; in the late 19th and early 20th century, 87, 90. See also constitutional discourse; democracy of opportunity tradition; Democratic Equality Argument constraints on wealth: justification of, 125–27. See also Democratic Equality Argument; limitarianism; power of material resources; sufficientarianism Cooley, Thomas, 84–5. See also democracy of opportunity tradition: the Gilded Age and; Lochner v. New York; U.S. Supreme Court, court-centered framework for civil rights and economic opportunity. Corak, Miles, 59, 135. See also Great Gatsby Curve; Piketty, Thomas cosmopolitanism, 133 credit, 50, 73, 88, 104–5, 110, 125, 178 Cunningham, Noël, 276, 301n. See also Schenk, Deborah; tax on wealth: valuation problems and; tax on wealth transfer: valuation and debt, 71, 178–80; contemporary economic inequality and, 74, 87, 104, 108–9, 142n4, 208n8; racial injustice and, 231; tax law ethics and, 266, 269, 275, 293. See also economic inequality, contemporary scale of

311 Declaration of Independence, 47, 64, 68, 70, 92, 148. See also Declaration of the Rights of Man and the Citizen; democracy of opportunity tradition; happiness; Jefferson, Thomas; property Declaration of the Rights of Man and of the Citizen, 69–70. See also Declaration of Independence. democracy: equality and, 6–10, 31, 44n57, 134–39; value of, 6, 40n14; deliberative, 24–25; wealth stratification and, 158–65. See also, constitutional political economy; democracy and capitalism; democracy of opportunity tradition; Democratic Equality Argument; relationship of economic and political inequality; and social democracy. democracy and capitalism, 236–37; liberal understandings of, 237–45; right–wing understanding of, 245– 47; historical understanding of in the Western tradition, 247–51; contemporary, 251–60. See also relationship between economic and political inequality: failure of philosophy and democracy of opportunity tradition, 47–48, 49–50, 153; civil rights, the Great Society, and, 95–100; distributive commitments of, 47–48; in the Early American Republic, 63–75, 146–49; forgetting of, 53–59; the Gilded Age and, 85–92; inclusion and, 50–53, 152–54, 155; in the Jacksonian Era, 75–79; the New Deal and, 92–94; Reconstruction and, 79–85; regionalism and, 152–54, 155; in the 21st century, 59–62, 101–11, 150–51. See also democracy: equality and; limitarianism; relationship between economic and political inequality: failure of philosophy and; U.S. Supreme Court, court-centered framework for civil rights and economic opportunity

312 Democratic Equality Argument, 125–27, 141nn1, 2; implications of, 127–28, 139–41; mutual concern and, 128–34. See also democracy of opportunity tradition; limitarianism Democratic Party: contemporary, 152; historical, 58, 72, 75–76, 83, 191. See also Clinton, Bill and Hillary; Jackson, Andrew; Johnson, Lyndon Baines; Obama, Barack; Roosevelt, Franklin Delano; Sanders, Bernie Democratic Republican Party, 71, 73, 147. See also Jefferson, Thomas; Madison, James deregulation, 100. See also Reagan, Ronald dignity, democratic value of, 24, 54, 89, 93, 95, 132. See also Democratic Equality Argument disability rights movement, 95. See also civil rights movement; dignity, democratic value of; gay rights movement; physical disability; racism; women’s movement discrimination, 132. See also civil rights movement; disability rights movement; gay rights movement; racism; women’s movement distributive justice, 1, 31, 34, 38; in democracy of opportunity tradition, 70, 73, 147, 151; focus on wealthy in ideals of, 1–2, 13–14, 21. See also limitarianism; tax on wealth Dixiecrats, 56, 93–94 Dodge, Joseph, 285 donatários, 174–75. See also Coelho, Duarte Duane, William, 74 dynastic wealth, 67, 289–90, 295, 302n14; combatting, 271–73. See also economic inequality economic growth, 54, 136, 259, 286; economic inequality and, 237– 44, 262, 270–71; rate of growth of capital compared to rate of, 136–39;

Index taxation and, 264, 269. See also economic inequality; Piketty, Thomas economic independence, 89, 104, 149–55 economic inequality, 236; abolition of privileges as insufficient to address, 64–65; capital gains tax and, 286–90; economic growth and, 237–44, 262, 270–71; the environment and, 4, 26, 28–29, 58–59, 237; estate tax and, 261–64, 291–95, 298, 301; growth of, in America, 189–90; Hamilton, Alexander, and, 186, 214n37, 215n46; historical resistance to, 168; Jefferson, Thomas, and, 65–71; justifications of, 245–47; liberalism and, 140, 163, 193–200, 206–7; limits on, 134; Madison, James, and, 63, 70–73, 80, 114; meritocracy and, 144n39; neoliberalism and, 256, 258; oligarchy and, 38; origins of, 164; Rawls, John, and, 238– 39, 242, 260n5; Reagan, Ronald, policies of and, 99–100, 194; role of debt in contemporary, 74, 87, 104, 108–9, 142n4, 208n8; scale of contemporary, 2–3, 16, 59–60, 126, 135–39, 158–64, 196–203, 232–33, 251, 260n5, 262–64, 266; social justice and, 25, 144n39. See also democracy of opportunity tradition; limitarianism; political inequality; property; redistribution; relationship between economic and political inequality; wealth defense economic institutions, 30, 34 education: economic inequality and, 9–12, 271; as an ideal, 242, 251; marketization of, 100, 258; as a positional good, 243; as a right, 26, 131, 132, 254; as a tool to combat economic and political inequality, 52–53, 65–68, 82, 93, 96, 98, 103–4, 110, 125, 127, 145n48, 147, 242. See also Jefferson, Thomas egalitarianism 3, 5, 204, 207n1; resource, 272, 305n38. See also democracy; dignity, democratic value of; redistribution

Index

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employment, as essential to political equality, 52, 56, 59, 94–99, 241. See also democracy of opportunity tradition; entrepreneurship entrepreneurship: inequality and, 36, 159, 209–10n15; idealization of, 171, 258. See also employment environment: economic inequality and, 4, 26, 28–29, 58–59, 237; regulation of, 43n50. See also climate change Epps, Garrett, 80. See also Reconstruction Equal Protection Clause, 50, 76, 91, 147. See also civil rights movement; Reconstruction; U.S. Supreme Court: court–centered framework for civil rights and economic opportunity equality of opportunity: as justification for taxation, 262–64, 271–72, 273, 291–97, 300–301; limits on tax policy and, 297–300; taxation and, 292–94. See also democracy of opportunity tradition; tax on wealth; tax on wealth transfer estate tax, 267, 277, 302–3n14, 307n87; compared to an annual wealth tax, 283–84, 286; compared to taxation of death as realization event, 290–91; as tool to fight economic inequality, 261– 64, 291–95, 298, 301. See also tax on wealth; tax on wealth transfer; tax rates

Federalists, 71–75, 150, 190, 193–94. See also Adams, John; Hamilton, Alexander; Morris, Gouverneur; Washington, George Federalist Papers, 148–49, 209n13. See also Hamilton, Alexander; Madison, James feminism, 52, 153, 154–55. See also gay rights movement; women’s movement Fifth Amendment, 147, 149, 151 First Amendment, 48, 50, 56, 106–7, 147, 252 Flannery, Kent, 167–70, 207n1, 209n15, 211n20. See also Marcus, Joyce; wealth defense: slavery and Frazier, Garrison, 82. See also Reconstruction: African American leaders and; redistribution Free Labor, 80–85, 102, 119n80, 148, 153, 155, 227, 231. See also democracy of opportunity tradition; employment; Lincoln, Abraham Free Soil Party, 84. See also Cooley, Thomas Freedom House, 159–60 freedom of contract, 49–50, 90. See also Lochner v. New York Fugitive Slave Clause, 230. See also slavery Fuller, Melville, 192

Fair Housing Act of 1968, 52, 102. See also Great Society Fair Labor Standards Act (FLSA), 93. See also New Deal federal income tax: as a democratic redistribution of wealth, 191–93; turned against middle class, 216n50; wealth defense and, 216–17n53. See also Apportionment Clause; Sixteenth Amendment; tax on wealth: constitutional concerns and; tax rates federalism, 46, 71, 151–52; class and race and, 110. See also separation of powers

Galbraith, John Kenneth, 240–42; pressure on views of, 245; in opposition to Friedrich Hayek, 256–57. See also democracy and capitalism; wealth Gates, Bill, 208–9n11, 258, 264. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality gay rights movement, 95, 101; marriage and, 103, 241, 304n29. See also civil rights movement; disability rights movement; discrimination; feminism; women’s movement

314 Gilded Age, 45, 81, 86–92, 102–3, 189, 208n10, 256; today as a second Gilded Age, 45, 100. See also democracy of opportunity tradition; economic inequality: scale of contemporary Gilens, Martin, 152 Girard, Stephen, 189–90 Grant, Ulysses S., 83, 84. See also Civil War; Lincoln, Abraham; Reconstruction Great Depression, 193, 196, 202, 257. See also 2008 financial crisis; New Deal Great Gatsby Curve, 135. See also Corak, Miles Great Society, 53–55, 63, 101, 103, 242, 245–46, 258; democracy of opportunity tradition and the, 94–100. See also civil rights movement; Johnson, Lyndon Baines Grewal, David Singh, 247–48, 256. See also capitalism; democracy and capitalism Grief, Avner, 172. See also Bates, Robert; Singh, Smita; wealth defense: violence and Gross Domestic Product (GDP), 136– 38, 287. See also economic growth; Gross National Happiness Gross National Happiness, 154. See also Gross Domestic Product Hamilton, Alexander: economic centralizing policy of, 70–73, 147; economic inequality and, 186, 214n37, 215n46. See also Federalist Papers; Federalists happiness: as an American ideal entwined with democratic economic opportunity, 63–70, 93, 111, 113–14n21, 147–50; as meaningful in life, 14, 19, 26, 241. See also democracy of opportunity tradition; limitarianism; sufficientarianism

Index Hardoon, Deborah, 160–62. See also economic inequality: scale of contemporary Hayek, Friedrich, 245–47, 254. See also neoliberalism health insurance, 48, 57, 93–94, 108– 10, 125. See also Affordable Care Act; Medicaid Henry, James, 202. See also economic inequality, scale of contemporary; tax on wealth, valuation problems and; wealth defense Hilton, Paris, 270, 298. See also dynastic wealth Hirsh, Fred, 242–46, 258–59. See also positional goods; wealth Hobbes, Thomas, 248–49, 254. See also democracy and capitalism Holland, Breena, 4, 43n50. See also limitarianism; sufficientarianism homelessness, 11, 13, 33. See also housing housing: as essential right, 15, 52, 93, 96, 98; market, 140, 283; as property, 269, 274. See also homelessness Howard, Merrimon, 82. See also Reconstruction: African American leaders and Human Development Reports, 11–12 human rights, 140 Hume, David, 248–49 IMF, 197 indigenous Americans: of the Central Mississippi Valley, 169–70; removal of, 79, 169–70; slave labor of, 175, 187, 233n7. See also slavery individualism: equality and, 97, 100, 203–4. See also Free Labor; neoliberalism industrialization, 85, 148; deindustrialization, 100 inequality. See economic inequality; political inequality inheritance of property, 14, 268, 293–95; distinction between

Index supporting and advantages through, 299. See also dynastic wealth; estate tax; tax on wealth transfer; wealth defense International Labor Union, 86 invested wealth, 138, 140, 261. See also capital; wealth Jackson, Andrew, 74–75, 80, 180. See also democracy of opportunity tradition; in the Jacksonian Era; Democratic Party; Jacksonianism Jacksonianism, 49, 54, 70, 72, 75–79; equal protection, 84; laissez–faire economics and, 81, 85. See also democracy of opportunity tradition: in the Jacksonian Era; Jackson, Andrew Jefferson, Thomas, 63–74, 114n28, 115n38, 116n43; economic inequality and, 65–71. See also Declaration of Independence; slavery; wealth defense Jim Crow, 57–58, 91, 110, 231. See also civil rights movement; discrimination; racism Johnson, Calvin, 285. See also Apportionment Clause; tax on wealth: constitutional concerns and Johnson, Lyndon Baines, 53, 54, 230, 242. See also civil rights movement; Democratic Party; Great Society Kamin, David, 276, 288. See also tax on wealth, valuation problems and Key, Elizabeth, 229–30. See also slavery; wealth defense: slavery and Keynes, John Maynard, 237–42. See also democracy and capitalism; economic growth; redistribution King, Martin Luther, 98, 101. See also civil rights movement; Great Society Klarman, Michael J., 190. See also wealth defense

315 Knights of Labor, 86, 90, 102. See also democracy of opportunity tradition: the Gilded Age and Krueger, Alan, 135. See also Corak, Miles; economic inequality: scale of contemporary; Great Gatsby Curve; Piketty, Thomas Ku Klux Klan, 83, 91. See also racism; white supremacy Kuznets, Simon, 237, 239. See also democracy and capitalism; Galbraith, John Kenneth; Keynes, John Maynard labor movement, 54, 59, 76, 79, 83, 85–91, 93, 96–97, 100, 102, 105, 153– 54, 196–97, 236, 238, 256. See also democracy of opportunity tradition; Free Labor Lafayette, Gilbert du Montier, Marquis de, 70. See also Declaration of the Rights of Man and the Citizen. laissez–faire economics in the U.S., 78, 81, 85, 88, 237, 246, 248–50. See also, Hayek, Friedrich; Hume, David; neoliberalism; Reagan, Ronald; Smith, Adam Lane, Frederic, 171–75, 199. See also Volkov, Vadim; wealth defense legal positivism, 150 legal realism, 254 leisure: as part of a good life, 26, 33, 89, 240–22, 258; inherited wealth and, 297. See also happiness; wealth liberalism, 140, 298; economic inequality and, 140, 163, 193–200, 206–7; in the U.S., 48, 54–59, 100, 246; race and, 84–85, 91. See also Galbraith, John Kenneth; Great Society; Keynes, John Maynard; New Deal; neoliberalism libertarianism, 239–40, 251; interpretation of the U.S. constitution and, 49–50, 88, 147, 151; the New Deal and, 60. See also Hayek, Friedrich

316 limitarianism, 1–4; as a moral and political doctrine, 30–32; capability justification of, 4, 20–21, 24, 25, 27, 42n38; democratic justification of, 5, 6–10; implications of 37–39; intrinsic, 4–5; non–intrinsic, 5–6; objections to, 32–37; unmet urgent needs justification of, 5, 10–14. See also democracy of opportunity tradition; poverty; sufficientarianism; tax on wealth; tax on wealth transfer; wealth limited liability corporation, 280–81 Lincoln, Abraham, 80–82, 85, 118n74, 119n80. See also Civil War; Free Labor; Reconstruction; slavery Lippmann, Walter, 245 Lochner v. New York, 80; era of, 50, 56, 100, 108. See also Cooley, Thomas; freedom of contract; libertarianism Locke, John, 68–69. See also property lynching, 231. See also Ku Klux Klan; racism; white supremacy Madison, James: economic inequality and, 63, 70–73, 80, 114; wealth defense and, 180–86, 190, 209n13, 214n36, 215n45. See also Federalist Papers; Federalists Mankiw, Greg, 3. See also neoliberalism Manning, William, 68–69 Marcus, Joyce, 167–68, 170, 207n1, 209n15, 211n20. See also Flannery, Kent; wealth defense: slavery and Marx, Karl, 241, 250–51. See also communism Mason, George, 68–71. See also Federalists McCaffery, Ed, 268, 298 McCulloch v. Maryland, 74, 150 McKay, Stephen, 16, 19 McMillin, Benton, 192 McNeill, George, 86 Medicaid, 48, 94, 109–10, 153. See also Affordable Care Act; Great Society; health insurance mental health care, 11, 20, 26, 33

Index meritocracy: as necessary to U.S. Constitution’s functioning, 148; undermined by economic inequality, 144n39. See also democracy of opportunity tradition. Mesopotamia; wealth defense and, 159, 167, 210n17. See also Sumer4 middle class: America as a nation of, 45–48, 54–56, 79–80, 87–90, 92–98, 147–48; contemporary economic inequality’s effects on, 104–10, 162; distinguishing between rich and, 17, 26, 29, 39n6; effect on political inequality, 6–7, 152–53, 155; health care and, 108–10; growth of after World War II, 3, 54, 58, 95, 155, 238, 257; importance of a large, 50–53, 59–64, 71, 101–4, 125–27, 134, 136, 141n2; requirements to address economic inequality, 2–3; taxation and, 198, 298. See also democracy and capitalism; democracy of opportunity tradition; economic inequality: scale of contemporary; tax rates Milanovic, Branko, 138 Mill, John Stuart, 239–40 Miller, Richard, 127–34, 142n8, 142–43n17, 144n36. See also mutual concern; Singer, Peter Montesquieu, 177, 187. See also U.S. Constitution Morris, Gouverneur, 190. See also Federalists Murdoch, Rupert, 271. See also Citizens United v. Federal Election Commission; relationship between economic and political inequality mutual concern, 125, 128–34, 142n17, 144n36. See also Miller, Richard National Association for the Advancement of Colored People, 58. See also civil rights movement; Randolph, A. Philip; U.S. Supreme Court: courtcentered framework for civil rights and economic opportunity

Index National Labor Relations Act (NLRA), 93. See also New Deal Nedelsky, Jennifer, 188–89, 193–94. See also wealth defense neoliberalism, 245–50; economic inequality and, 256, 258; spread of, 8, 245–50. See also Hayek, Friedrich; laissez–faire economics in the U.S. New Deal, 90–95; democracy of opportunity tradition and, 46, 50, 54–57, 60, 90, 100, 104, 106–7, 255; racism and, 112n9; Supreme Court “switch in time,” 55; wealth defense and, 193–95, 216n50. See also democracy of opportunity tradition; Roosevelt, Franklin Delano National Federation of Independent Businesses v. Sebelius (NFIB v. Sebelius), 49, 106, 109–10, 150. See also Affordable Care Act; Obama, Barack Nineteenth Amendment, 51. See also feminism; women’s movement Obama, Barack, 59, 98. See also Affordable Care Act; Community Reinvestment Act Occupy movement, 2–3. See also economic inequality: scale of contemporary; the 1%; relationship between economic and political inequality oil, 17, 155, 189. oligarchy: as degeneration of democracy due to economic inequality, 38; in the democracy of opportunity tradition, 45–48, 50–54, 76–79, 101, 107–8, 119n75, 146–48, 153–54, 177. See also democracy and capitalism; democracy of opportunity tradition; relationships of economic and political inequality. optimal tax theory, 36–37, 269, 272–73. See also tax on wealth; tax rates overpopulation and economic inequality, 4, 29 Oxfam, 12, 160–62. See also Hardoon, Deborah

317 Page, Benjamin, 152 Paine, Thomas, 69. See also Federalists; U.S. Constitution Panic of 1819, 76. See also Jackson, Andrew “paper system,” 74–76. See also Jackson, Andrew; U.S. Bank Paris Commune, 85 Pernambuco, 175. See also Coelho, Duarte; wealth defense, slavery and Pessen, Edward, 187, 189, 213n30. See also wealth defense physical disability, 20, 41n35. See also disability rights movement Piketty, Thomas, 3, 59, 135–39, 147, 194–96, 235, 253, 303n20; rate of growth of capital versus growth of economy thesis of, 136–39, 144n39; critique of methods of, 136, 235, 252, 256; taxation proposals of, 256, 261, 274–75, 282. See also democracy and capitalism; economic growth; economic inequality: scale of contemporary; relationship of economic and political inequality; tax on wealth; tax on wealth transfer; wealth defense plutocracy, 38. See also oligarchy; relationship between economic and political inequality Polanyi, Karl, 249–51. See also democracy and capitalism police power: concept of, 68–70, 88, 113–14n21, 119n75; wealth defense and, 172–73 political equality: democracy of opportunity tradition and, 77–78, 87, 92; economic inequality as a threat to, 3, 6–10, 35–37, 140, 176, 178; as requirement for democracy, 40n14, 125–27, 134–36, 148. See also democracy of opportunity tradition; Democratic Equality Argument; limitarianism: democratic justification of; political inequality; relationship of economic and political inequality

318 political inequality: economic inequality and, 36, 59–60, 239, 254, 262, 270; education and, 6–7, 152–53, 155; privileges and, 70, 151–52, 258–59. See also Citizens United v. Federal Election Commission; democracy of opportunity tradition; economic inequality; privileges; relationship between economic and political inequality; wealth defense political parties: funding of, 7; growth of in the U.S., 72, 79, 150, 181; views of economic inequality and, 2. See also Democratic Party; Democratic Republican Party; Federalists; relationship between economic and political inequality; Republican Party political sociology, 239, 256 Pollock v. Farmers’ Loan and Trust, 192, 285 Populist Movement in the U.S., 54, 86–87, 90–92, 97, 102–3, 153, 191. See also democracy of opportunity tradition positional goods, 242–44, 258. See also Hirsh, Fred post–industrialization, 11, 29 post–World War II: economic thought of era, 240–42, 251; equality of wealth, 238. See also middle class; Piketty, Thomas; World War II poverty: American democratic vision of, 112n9, 238; capability perspective on, 20; class awareness and, 164; extreme, 63 98, 86; as goal of taxation, 268, 300; global, 10–13, 140; measurement of, 2, 15–18, 21, 22–23, 25, 30, 42n38; political consequences of, 193–94; reducing strategies, 11, 33, 41n22, 93, 98–99, 103, 126–30, 133–34, 263. See also limitarianism; sufficientarianism; wealth; wealth defense power of material resources (PMR), 21–24; account of riches, 25–28; objections to account of riches,

Index 28–30. See also limitarianism; property; wealth privileges: economic opportunity and, 46–47, 77–78, 80, 232; inherited, 169; of the rich, 25, 63–64; political inequality and, 70, 151–52, 258–59. See also relationship of economic and political inequality Progressive movement, 54–59, 81, 86– 92, 105, 106–8. See also democracy of opportunity tradition property: broad distribution of, 65, 80–83, 85, 92; de-emphasis of importance of ownership of productive, 89, 153–54; rights, 68–70, 75, 80–82, 90, 93, 116n44, 116n48, 131, 147, 149, 164, 170–71, 181, 187–88, 189, 209n13, 250, 254. See also debt; democracy of opportunity tradition; economic inequality; happiness; housing; inheritance of property; limitarianism; middle class; power of material resources; poverty; redistribution; relationship between economic and political inequality; tax on wealth; tax on wealth transfer; wealth; wealth defense racial justice: as unfinished goal in the U.S., 52–55, 58, 84–85,141; U.S. judicial system and, 57–58. See also civil rights movement; feminism; racism; United States v. Carolene Products racism: exclusion and, 93, 166; as motivation in U.S. politics, 79, 91–94, 96, 152; poverty and, 112n9; racial discrimination in lending, 105; Social Security and, 109, 152–53; as source of inequality in the U.S., 141n2; wealth defense and, 230, 231. See also civil rights movement; feminism; racial justice; United States v. Carolene Products Randolph, A. Philip, 98. See also civil rights movement; King, Martin

Index Luther; National Association for the Advancement of Colored People Randolph, Edmund, 184–85, 215n41 Rawls, John: difference principle of, 1, 34, 37; economic inequality and, 238–39, 242, 260n5; justice and, 31; uses of philosophy of, 147; veil of ignorance, 142n8 Reagan, Ronald: policies of and economic inequality, 99–100, 194. See also deregulation; neoliberalism Reconstruction, 79–85; abandonment of, 56–57, 230; African American leaders and, 82–83; Amendments, 55, 83–85; civil rights movement and, 99–100; democracy of opportunity tradition and, 51–53, 63, 76, 79–85, 101–2; U.S. Supreme Court and, 230–31 Redeemers. See white supremacy redistribution, 125; as contemporary political issue, 158; fear of and the U.S. Constitution, 187–89; global poverty and, 11, 34; Great Society and, 54; Lochner and, 100–101; of opportunity, 98; Reagan Era and, 193–95, 197–98, 205; Reconstruction and, 82, 101–2; as tool of wealth defense, 193; U.S. government role in, 191, 193. See also democracy of opportunity tradition; economic inequality; Nedelsky, Jennifer; political inequality; relationship between political and economic inequality; tax on wealth; tax rates; wealth defense refugee, 17 relationship between economic and political inequality, 5, 6–10, 36, 45– 53, 59–60, 86, 141n2, 200, 203, 239, 250, 254, 262, 270, 272: economic inequality as threat to political equality, 3, 6–10, 35–37, 140, 176, 178; economic inequality as threat to the U.S. Constitution, 45–46; failure of philosophy and, 251–52,

319 257–60; in the Early American Republic, 63–75, 113n21, 114n28; in the Roman Republic, 162, 166, 208n10, 210n17, 212–13n28; laid aside in the Great Society, 95–96, 98–99; rule of law and, 176, 227, 235. See also democracy of opportunity tradition; economic inequality; limitarianism; political inequality; wealth defense religion: ethical values and, 42n40, 244, 249; economic inequality and, 141n2; good life and, 25–6; political rights and, 58, 69; wealth defense and,168 rentier, 235, 258. See also Piketty, Thomas Repetti, Jim, 270–71, 282 Republican Party: Reconstruction and, 51–52; in the twentieth century, 56, 93. See also Democratic Republican Party; Free Labor; Lincoln, Abraham; Reconstruction; Reagan, Ronald; Stevens, Thaddeus; Sumner, Charles; Trump, Donald republicanism: economic inequality protected by; endangered by economic inequality, 46, 63, 65–66, 77–79, 86, 113–14n21; large middle class and, 87, 147, 149; racism and, 63–64, 155; requires equal economic opportunity, 64–65, 67, 82, 186. See also democracy; democracy and capitalism; democracy of opportunity tradition; U.S. Constitution; wealth defense Rescue Principle, 12 Revolution of 1800, 73 right to work, 56 the Roman Republic, economic inequality in, 162, 166, 208n10, 210n17, 212–13n28 Roosevelt, Franklin Delano, 76, 89, 93, 94, 96. See also Democratic Party; New Deal Rousseau, Jean–Jacques, 247 Rowlingson, Karen, 16, 19

320 Rubenstein, William D., 189–90, 208– 9n11, 213n30, 217n55 rule of law, 11; economic inequality and, 176, 227, 235 Rustin, Bayard, 98. See also civil rights movement Sanders, Bernie, 59–60. See also democracy of opportunity tradition; Democratic Party; economic inequality: scale of contemporary Sanders, Elizabeth, 153, 154 Scandinavian economic equality, 135, 300. See also middle class Scanlon, Thomas, 12–3. See also limitarianism; Rescue Principle; Singer, Peter Schenk, Deborah, 276. See also Kamin, David Schultz, Paul, 136. See also Piketty, Thomas; Schenk, Deborah Schumpeter, Joseph, 245, 252, 258 Scott, James C., 202. See also economic inequality: scale of contemporary; Piketty, Thomas Second Bill of Rights, 56, 93, 94, 98. See also democracy of opportunity tradition; New Deal; Roosevelt, Franklin Delano segregation: class, 19; racial, 85. See also racism separation of powers, 46, 49, 50, 147; political branches as site of democracy of opportunity argument, 49, 57, 61, 103. See also rule of law settlement theory, 150. Shakow, David, 274–75, 282, 305n42. See also Piketty, Thomas; Shuldiner, Reed Sherman, John, 192 Sherman, William Tecumseh, 82. See also Civil War; Grant, Ulysses S.; Lincoln, Abraham Shuldiner, Reed, 274–75, 282, 305n42. See also Piketty, Thomas; Shakow, David

Index Singer, Peter, 12–13, 142–43n17. See also limitarianism; Miller, Richard; Scanlon, Thomas Singh, Smita, 172. See also Bates, Robert; Grief, Avner; wealth defense: violence and Sixteenth Amendment, 191–93, 285. See also federal income tax slavery, 79, 240; Ancient Rome and, 162, 208n10; Christianity and, 229; end of in U.S., 147–48; Free Labor and, 153–54; importance of in the U.S., 226–27, 228–31, 232n2, 232n5; indigenous Americans and, 175, 233n7; political engagement of ex–slaves, 81–84; as punishment in the U.S., 233n9; Reconstruction and, 51; support for in U.S., 76, 79, 155, 190, 215n41, 228–31, 232, 233n15; U.S. Constitution and, 63, 285. See also abolitionism; property; racism; Reconstruction; wealth defense Smith, Adam, 132, 212n27, 247–49. See also democracy and capitalism; Hume, David social democracy, 250–51, 255–56; requirements of, 125, 127–34, 141n2, 142n8, 142–43n17. See also Christian democracy; Miller, Richard; mutual care; social justice; wealth social justice: economic inequality and, 25, 144n39. See also disability rights movement; feminism; racism Social Security Act, 93–94, 104, 109; racism and, 93–94, 109, 153–54. See also New Deal Soros, George, 258–59. See also Citizens United v. Federal Elections Commission; relationship between economic and political inequality Spending Power, 48, 110. See also U.S. Congress; U.S. Supreme Court: court–centered framework for civil rights and economic opportunity Stanton, Edwin, 82. See also Civil War

Index Stevens, Thaddeus, 82, 84, 230, 231. See also Reconstruction; redistribution; slavery Stiglitz, Joseph, 59. See also Corak, Miles; Piketty, Thomas Stone, Harlan F., 58. See also United States v. Carolene Products Streeck, Wolfgang, 247 sufficientarianism, 2–3, 14, 39n5, 44n67. See also limitarianism Sumer, 168. See also Mesopotamia; wealth defense, origins of Sumner, Charles, 80, 84. See also Reconstruction; slavery; Stevens, Thaddeus Sunstein, Cass, 47, 111n4. See also democracy of opportunity tradition; Second Bill of Rights Tannenwald, Theodore, 283 tariffs, 191 tax instruments, 261–62; as reflection of goals, 261–62; administrative considerations and, 262, 269; to tax wealthy more heavily, 268; justification for progressive; income tax, 261, 268. See also tax on wealth; tax on wealth transfer; tax rates tax on wealth, 256, 261, 268, 273–91, 305n42; as a direct tax, 285; capital gains and, 287–91; constitutional concerns and, 284–85; cumulative accessions, 292–95; ideal version of, 274–75; justification for, 125, 268– 73, 292–93, 300–301; need for an amendment to the U.S. Constitution in order to, 105; problems with, 275– 85; valuation problems and, 275–84. See also economic inequality: scale of contemporary; Piketty, Thomas; tax instruments; tax on wealth transfer; tax rates; wealth tax on wealth transfer, 105, 262, 265, 266–68, 291–300, 302n14; as a tool to combat economic inequality, 281, 290–91; death as a realization event in, 264, 288–91; equal opportunity

321 focused, 272, 291–300; valuation and, 282, 289. See also Apportionment Clause; estate tax; inheritance of property; tax on wealth; and wealth tax rates: allocation of, 270, 284, 286–87, 293–94; current, 197–98, 265–68; ideal income, 35–37; income tax rates after WWII, 197, 216n50, 286–87; progressive, 32, 100, 114n28, 145n48, 201, 275, 300; stepped–up basis rule, 266, 268, 288. See also Apportionment Clause; federal income tax; Piketty, Thomas taxation: progressive social programs and, 300 Teachout, Zephyr, 253. See also democracy and capitalism; democracy of opportunity tradition; relationship of economic and political inequality Tilly, Charles, 165–66, 167 Treaty of Guadalupe Hidalgo, 232. See also wealth defense: territory and Trump, Donald, 304nn27, 28. See also relationship of economic and political inequality; Republican Party United States v. Carolene Products, 57–58, 76 Urban, Patricia, 169 U.S. Bank, 71, 74, 75; democracy of opportunity tradition and, 76–78. See also, Hamilton, Alexander; oligarchy U.S. Civil War, 51, 52, 80, 191; wealth defense and, 189, 230. See also Grant, Ulysses S.; Lincoln, Abraham; Reconstruction; Sherman, William Tecumseh; slavery; and Stanton, Edwin U.S. Congress: affirmative duties of, 56–58, 81, 85, 88, 149, 151; constitutional discourse focused on constraints on, 48–49, 58–59, 78, 106–10, 124n135, 124n137; slavery and, 76. See also Great Society; New Deal; Reconstruction; separation of powers

322 U.S. Constitution: affirmative arguments from, 49–50; constitutional precepts not in, 47; economic inequality as threat to, 45–6; formal equality and, 52–3; Preamble of, 55, 148, 149, 155. See also Constitutional Convention; constitutional political economy; democracy of opportunity tradition; slavery, U.S. Constitution and; U.S. Congress: constitutional discourse focused on constraints on; tax on wealth: constitutional concerns and; U.S. Supreme Court; wealth defense, U.S. Constitution and U.S. Supreme Court: anti–oligarchy principle and, 107–8; court-centered framework for civil rights and economic opportunity, 58, 102, 151, 155; campaign finance jurisprudence of, 48, 106–7, 203, 252, 253; labor law and, 88; the New Deal and, 92–93; Reconstruction and, 91, 230; taxation and, 285; wealth defense and, 192. See also First Amendment; Citizens United v. Federal Election Commission; U.S. Congress, constitutional discourse focused on constraints on; United States v. Carolene Products utopia: of affluence, 16, 240–42, 246; conflict between economic and political utopias, 247–51, 252, 254–55. See also democracy and capitalism; Galbraith, John Kenneth; Grewal, David Singh; Hayek, Friedrich; Hobbes, Thomas; Hume; David; Keynes, John Maynard; Marx, Karl; Smith, Adam Van Buren, Martin, 72–73, 75. See also Jacksonians Virginia Declaration of Rights, 68, 113n21. See also Declaration of Independence; Jefferson, Thomas; Mason, George virtue ethics, 5, 31

Index Volkov, Vadim, 171–73, 211n21, 211n23, 212n26. See also Lane, Friedrich; wealth defense Voting Rights Act, 52, 102, 257. See also civil rights movement; Great Society; racism; Reconstruction; relationship of economic and political inequality; segregation Wallace, George, 97. See also civil rights movement; racism War on Poverty, 54, 99. See also Great Society; Johnson, Lyndon Baines; poverty Warren Court, 58. See also U.S. Supreme Court. Washington, George, 184, 190, 214– 15n40. See also Federalists wealth, 39n2, 44n62; consumption of, 261; disaggregating from goods of life, 253–54; political influence and, 272; positional goods and comparativeness of, 242–44; riches lines and comparative measurement of, 15, 18, 24–29; slavery as, 226–31; socially constructed nature of, and tendency to create economic and political inequality, 72; theories of democracy and, 252; as within reach for all in mid–twentieth century thought, 237–42. See also Galbraith, John Kenneth; inheritance of property; Keynes, John Maynard; limitarianism; positional goods; poverty; tax on wealth; tax on wealth transfer; wealth defense wealth defense, 163–65; association with complex civilization, 159–60; association with liberal democracy, 160–62; control of labor and, 168, 169, 174–75, 197, 227–232; difference between violence and coercion in, 173–74; justification of, 165, 166, 168, 201, 203, 212n27; as key to contemporary economic inequality, 158–64, 196–203; morality and, 227;

Index political inequality and, 158, 163–64, 205–7, 244; religion and, 168; role in historical creation of wealth inequality, 165–76; sexism and racism and, 203–4; slavery and, 226–27; territory and, 163, 168–75, 202, 211n23, 231– 32, 233n17; in the U.S., 176–203; U.S. Constitution and, 48, 213n31; violence and, 158, 163, 164, 169–75, 183, 204, 210n18; wealth redistribution as a tool of, 158, 193. See also democracy and capitalism; economic inequality; liberalism; relationship of economic and political inequality; Wealth Defense Industry Wealth Defense Industry, 165, 204–5, 206, 217n56; growth of, 194–200, 202, 216–7n53. See also wealth defense Webster, Noah, 64–65 welfare, 1, 9, 18, 128, 246–47; democracy of opportunity tradition and, 148–49, 155, 189; mutual care and, 128–31, 143–44n30; private system of, 57. See also welfare state

323 welfare economics, 38, 42n41 welfare state: democracy of opportunity tradition and, 91, 94, 99, 111n4, 112n9, 148–49, 155, 189; wealth defense and, 193–98 white supremacy, terrorism and, 51, 90–91, 102, 230. See also Ku Klux Klan; racism women’s movement, 95, 122n113. See also civil rights movement; feminism World Bank, 197 World War I, 98, 216n50 World War II, 90, 257. See also middle class, growth of after World War II; post–World War II. Zolt, Eric, 300 Zuckerberg, Mark, 264, 270, 303n23. See also Citizens United v. Federal Election Commission; economic inequality, scale of contemporary; relationship between economic and political inequality