I heard the same NPR story this morning as Dean Baker, and the closing quote struck me the same as it did him. Went the NPR story:

And that, Jackson says, illustrates one of the underlying problems in designing a foreclosure prevention plan: "We're really just trying to figure out who bears the loss. Do we want the government to bear it all, or do we want some of it to be pushed onto investors?"

As Baker is forced to incredulously ask, this is the take-home message NPR is pushing, the assumption that the government must eat much, most, or all of the losses of the private investors? Baker uses the opportunity to recommend his own proposal for dealing with the housing situation, one that "has the advantage of requiring no tax dollars, no new bureaucracy, and could take full effect the day that Congress passes it."

My reaction is to renew the call for a tax on wealth, and not just the estate tax, but an annual tax just like the income tax, only set to much more progressive rates. So there would be no tax levied on the first, say, $5 million of wealth; a small tax (maybe 0.5%) wealth between $5 million and $10 million; and rising taxes on those with more than that, up to, say, 4% on the top bracket (maybe those with over $50 million). Such a tax would affect only slightly more than 1% of the population, counted as households. (For that, see Ed Wolff's working paper "Recent Trends in Household Wealth in the United States," table 6 on page 21.) Since, historically, investments bring in much more than 4% per year, these richest-of-the-rich would still grow yet richer in most years, even after forking over a chunk to the government. (By the way, these numbers are offered only for sake of example. Others who have studied the subject more closely can suggest better numbers.)

Here's my reasoning. The excuse perpetually given–since the age of Adam Smith, at least–is that those who take greater risks with their assets deserve to keep whatever over-sized gains they manage to receive. There's a tremendous amount of bunk to this excuse, when it's compared to the reality of how people live and what kinds of risks people are actually taking, but anyway, there you have it. It makes a kind of sense in the context of our culture. But then, again and again, we see that the biggest "risk takers" are not actually taking risks after all. That's what's happening now with the bank bailouts and such. From Bush and Paulson to Obama and Geithner, every effort possible is being made to ensure that the investors are protected from the downside of the risks they've taken. It's an old game that's been exposed and named numerous times before: "privatize the gains, socialize the losses." That is, let the rich get richer through the private market when they can, and when they can't, use tax dollars to protect their riches when the market fails them.

Of course, not every individual rich person or institution has such a happy ending, but as a system, that's how it goes. And it goes that way with a cherry on top when the whole system starts flailing about in a major way.

It'd be great, probably, maybe, if we had some kind of revolutionary overhaul of the system, like that now being recommended by David Korten in his new book. (And, of course, like those recommendations offered by hundreds or thousands of others for nigh on several centuries and counting.) Then we might actually escape from this vicious cycle.

But for the time being that we remain in the cycle, a wealth tax is a sensible reform. The rich are being protected by the government from the negative effects of their own worst actions, so they should pay a reasonable fee for such a valuable service. If nothing else changes, a wealth tax would serve as a kind of insurance policy to fund the bailouts that are happening anyway.

For what it's worth, and even though it would effect only a tiny smidgen of the population, such a tax would generate an a heck of a lot of money. Wikipedia lists "America's richest billionaires" (which implies the phenonenal situation that there are billionaires who are not "richest"!), last updated on September 17, 2008. If we assume a measly 1% wealth tax on just these 204 individuals, the tax would add up to $12.4 billion. Now, at the moment, that doesn't seem like much relative to the size of the bailouts and stimulus, but remember, this would be a tax that is levied each year, so over time it would really add up. If the tax were a measly 1% and applied only to the top 1% of households–a little more than 1 million households which had an average net worth of $14.7 million in 2004–it would come out to something like $171.5 billion each year. [Sources: average net worth from Wolff, table 4 on page 15; number of households from the Census Bureau, Current Population Survey (March 2007), table H1.]

Added benefit: this would not only make up for the pillaging bailouts that are ongoing, it would help put some brakes on the ever-growing and grotesque levels of economic inequality, which among other things, as Kempf (and others) argue, is a key factor in the distorted, ecologically destructive direction of the global economy. There'd be other benefits as well, which I'll leave to the fine folks at inequality.org.

But I won't hold my breath.

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