Type to search

The Stiglitz Code: How Taxing Capital Can Counter Inequality

Economy Memo Pad

The Stiglitz Code: How Taxing Capital Can Counter Inequality


Nobel-winning economist Joseph Stiglitz argues that tax reform is the key to addressing inequality in a new Roosevelt Institute paper released today. Click here to listen to Stiglitz describe the key arguments of the paper. Click here to read his recent congressional testimony on why inequality matters and what can be done about it.

The American economy is at a crossroads. One of the questions that will determine which path we take is whether and how the government can use taxes to meet social needs. In recent years there have been countless calls to overhaul the tax code, but few have offered a robust set of objectives framed around providing and supporting public goods. The vision of active and effective government in support of the economic common good that President Franklin D. Roosevelt advanced through the New Deal is fading from sight.

That changes with today’s release of “Reforming Taxation to Promote Growth and Equity” by Roosevelt Institute Senior Fellow and Chief Economist Joseph Stiglitz. In this transformative new white paper, the Nobel-winning economist who foresaw the economic crisis and the rise of the Occupy movement sets out to reshape the debate around the role of taxation in our society.

The ideas proposed in the paper are premised on core economic principles – taxing bads, encouraging goods – on which the vast majority of economists agree. The policy toolkit Stiglitz describes applies across the entire economic landscape. With growing wealth inequality and the political power of the top 1 percent in the spotlight thanks to the success of Thomas Piketty’s bestseller Capital in the Twenty-First Century, Stiglitz calls for taxing capital as if it were regular income and boosting inheritance taxes. He overhauls corporate taxation for the age of globalization and international tax havens, bringing money back to where it was made. He also proposes taxes on negative externalities to ensure that those whose actions do harm, whether in the form of environmental pollution or a financial crisis, pay the price.

The specifics are cogent and compelling. Stiglitz’s truly innovative idea is that we can raise tax revenue while also creating a better, more equal and just economy that works for all – the kind of economy that FDR believed in and fought for. Stiglitz makes the case that tax policy can and should counter some of the country’s biggest challenges: runaway inequality, the threat of climate change, and a business sector warped by bad incentives.

This will not be easy. The transition to a smarter, better tax code would require careful implementation. Tax expenditures would need to be replaced with a better mechanism to ensure that homeowners build equity and that the tax code doesn’t just subsidize the rich. The financial sector, too, would be subject to new taxes that, according to Stiglitz, “would not only raise substantial revenues, but also encourage that sector to better serve the needs of society.” Lobbyists would be out in force to resist and undermine these policy changes, as they have done with the new regulations imposed by Dodd-Frank.

But in an era when the debate over taxation is still dominated by austerity economics and a slash-and-burn approach, Stiglitz lays out a tax policy that would grow the economy. And instead of treating taxation as value-neutral or a necessary evil, he tells us that it can be a means to address important problems. This represents a fundamental and long-overdue shift in our public dialogue about the economy. The American people deserve a tax code that works for them. With this paper, we have the blueprint to create it.

Felicia Wong is the President and CEO of the Roosevelt Institute. Follow her on Twitter @FeliciaWongRI.

Cross-posted from the Roosevelt Institute’s Next New Deal blog.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo: InnovationNorway via Flickr

Want more economic analysis? Sign up for our daily email newsletter!



  1. TZToronto May 28, 2014

    There is a fundamental problem with Stiglitz’ ideas. They assume that serving the needs of society is something that all people are in favor of. It is apparent that those who currently control the economy have no interest whatsoever in serving the needs of society. Rather, their goal is to serve the needs of themselves. However, this does not mean that Stiglitz is wrong, only that there will be very stiff opposition to moving in the direction he suggests. I think the words “kicking and screaming” aptly describe how those in control will have to be moved to Stiglitz’ concept of equality. “Over their dead bodies” would also work.

    1. Elliot J. Stamler May 29, 2014

      Changing capital gains rates is one thing-taxing capital as if it is income is another. It will never happen–even if Grover Norquist disappears. And it shouldn’t happen. I respect Prof. Stiglitz a lot but this idea is not ever going to fly and in setting tax policy which does need changing it’s as radical as the right-wing flat tax pipe dream.

      1. TZToronto May 29, 2014

        Oh, I agree that taxing capital is a bad idea. That’s why it’s called capitalism. It would discourage the accumulation of capital and destroy initiative. However, the idea of serving the needs of society rather than one’s selfishness is a good idea. Certainly, one does not want to create a society in which all people are interchangeable and where the death of one person is irrelevant since someone is being born to replace the deceased. Without an individual raison d’etre, individual accomplishment would be non-existent, and what’s left of society would be ripe for a despot ruling over . . . a bunch of ciphers.

    2. dana becker May 29, 2014

      “Over their dead bodies” would also work.

      Works for me too. Let’s start with the Kochs and move on to the Republican party.

  2. toncuz May 29, 2014

    Taxing assets would most certainly work as long as taxes on income are at ZERO. Taxing assets destroys all asset bubbles and stops the great recessions we endure every 15 to 20 years. See “Georgism” and the “Single Tax”. (tax assets, never income)

    Taxing income chases away capital. Taxing assets incentivizes capital to create more business with those assets to recoup those taxes paid. Unemployment could hit zero by taxing assets like franchises, monopolies etc…to raise ALL revenue. Homestead exemption per individual for perhaps 1500 sq ft of housing should be the only exemption.

  3. herchato May 29, 2014

    Getting even a little of this by the wealthy will make the war against terrorism seem like childs play.

  4. ExRadioGuy15 May 29, 2014

    As I wrote in response to someone on a comment thread about the asset tax (that’s what the guy on the comment thread called it): it is a fascinating idea. I also wrote the same things that the author of this article wrote, such as the fact that the wealthy and Republicans will either fight to the death to make sure it never happens OR, even worse, write the tax law with so many exemptions and loopholes (along with the deductions, those three things have already sabotaged our current tax code and turned it from Progressive to Upside-Down) that there are very little taxes paid at all, therefore giving the Starve the Beast and Fascism enthusiasts exactly what they want, no government or a government so small that it can be overthrown. So, the author is correct: if we’re going to do this, we have to be very careful to not allow ANY (or have very few, like two or three) exemptions and loopholes that would sabotage the system in the first place. The definition of an “asset” is absolutely key here.
    An example of an exemption could be allowing a person to exempt their house, the one in which they actually live. You would only be able to exempt ONE home…that’s it.

    1. toncuz May 29, 2014

      Except…the asset tax MUST be applied with a zero tax on income to encourage wealth creation. This is how America became an economic powerhouse since income taxes were only introduced in 1913 (as well as asset bubbles and Great Depressions).

      The “Single Tax” was explained to William Buckley as well as Chomsky (two diametrically opposed ideologues) and they BOTH loved the idea.

      Progressives love the idea of taxing those who actually control the economic means (assets) while conservatives love the staunch protection of private property and zero taxes on wealth creation (income).

      It’s basically what the founding fathers said in the first place, “if you control the land (wealth) than you pay ALL the taxes”.

      1. ExRadioGuy15 May 29, 2014

        Cons don’t love the idea of an asset tax unless it doesn’t apply to them. You see, to them, their assets should never be taxed. It’s how they get around paying taxes in the first place, especially in these days of the Upside Down tax system. Again, it comes down to how “assets” or capital are defined. A true asset or capital tax would penalize these greedy bastards who love to hoard and offshore their income, which turns that income into assets.
        What I wrote previously stands as the logic here: Conservative Republicans would try their damnedest to poison the asset tax and retain their wealth without taxation. Again, the author of the article is correct: we have to be careful in establishing an asset/capital tax. Very careful.
        And, yes, I completely agree with the fact that a well-written asset/capital tax law would have to accompany an elimination of the income tax.

        1. toncuz May 29, 2014

          The economic benefits are not the only thing here. There’s political expediency and the conservative voter may very well be divided completely if the Democrats pushed the “Single Tax” as an economic platform, which would be great since they haven’t had one in fifty years.

          Imagine the progressive movement actually stating an economic policy that the voter can get behind. Imagine progressives calling to end the IRS as income taxes would be banned.

          This is what the GOP does every few years with a re-branding of trickle-down and the voter falls for it each and every time. Simply arguing the merits of an economic platform means nothing if the voters understand and love it in it’s simplest form.

          Will any of it come to pass? Who knows. I’ll settle for having the bulk of conservatives thrown out of office because their base is divided on the “Single Tax”

          1. ExRadioGuy15 May 29, 2014

            Okay, then, toncuz….the abolition of the IRS is mostly a Libertarian argument. Sure, the GOP would like to see it abolished, but, it’s generally a Libertarian argument. But…..
            Here’s my argument against the so-called “Fair Tax” or a flat tax, which can be applied here, as well: if there’s no mechanism to assess any type of tax nor a mechanism to collect the taxes, the automatic default is that taxation would become a “honor system” policy.
            That’s a pathetically naive position to take. Without a mechanism to lay and collect taxes, no matter from whom or what you collect them, there is no taxation system. This is one of several reasons why I correctly call Libertarian policies “utter nonsense”.
            If you’re really claiming that the honor system will work and a mechanism to lay and collect taxes is not needed, I pity you for taking such a position. In the best case scenario, such a position is extremely naive. In the worst, UTTER NONSENSE.
            Here’s something I tell the “Firebaggers” (Libertarians) to do when they spout their nonsense: go sell your Firebagger snake oil elsewhere. Those of us who actually live in the REAL world are busy trying to come up with real-world solutions to real-world problems 🙁 ssmdh

          2. toncuz May 30, 2014

            And your thinking is why the progressive movement has gone backwards for 30 years straight. The GOP has been pushing “nonsense” every election cycle for two decades and the voter has given them a Congressional majority and a Supreme Court that is devastating this nation.

            Call it a gimmick if you want but every “Contract for America” and “new pledge” to the voter is a gimmick that works again and again. It’s about time progressive politicians learned to play the game…and end their pie-in-the-sky naivety. You don’t need to abolish collecting taxes…just the IRS as we know it spending billions to collect income taxes…Why is that so hard to comprehend. You can’t hide your 10,000 acres in an off-shore tax evasion scheme. You can’t sell product in the USA without a paper trail.

            You act as if the current system is working so well, heaven forbid we try something new and we need it to be perfect after years of debate.
            No one ever debated “smaller government, lower taxes” (the result of which is trickle-down)…It sounded like the perfect bamboozle and the GOP ran with it for 30 years. Time to end the gutless approach. We need winners thinking for the progressive movement…not gutless defeatists.

          3. ExRadioGuy15 May 30, 2014

            LMAO….you’re not really addressing the baseline issue of your plan: if there’s no mechanism to lay and collect the tax for which you advocate, how will that tax be levied and collected?
            Obfuscating the issue with doubletalk is something the GOP and Libertarians love to do. You’re doing the same thing the Libertarians did when I questioned their idiotic “Fair Tax” idea. When I began asking basic questions about how it would work, they essentially did the same thing you’re doing now, toncruz: “trust us, it’ll work”.
            BTW: I’m not an optimist and I’m not a pessimist; I’m a pragmatist/realist. Right now, your words criticizing me for asking basic questions about how the asset/ capital tax would work is, to use a ranching term, “all hat and no cattle”.
            Allow me to reiterate my concerns about the tax:
            .1. the law would have be well-written so as to disallow the wealthy and big corporations to “poison” it with deductions, exemptions and loopholes. If the law is poisoned, it’s no better than any other badly-written law;
            2. there has to be a mechanism that levies and collects the tax. If there’s no mechanism to do that, the law is useless.
            The most ridiculous comment you made, toncruz, is the one where you made the unwarranted supposition that I act as though the system now works great. LMAO When and where did I say/write that? It’s idiotic doublespeak like that that proves that you’re no Progressive. At best, you’re a Firebagger (Libertarian); at worst, you’re a Fascist GOP Con or Teaidiot 🙁 ssmdh
            For the record, toncruz and others: our Upside-Down federal tax system is the worst system of taxation known to man: you can’t even call it regressive; in actuality, it’s Fascist, Reverse Robin Hood and Upward Wealth Redistribution. “Flat Taxes”, where everyone pays the same rate regardless of income, is a “regressive” tax because those with more income and wealth are more able to pay it. Finally, the best taxation system is known as “Progressive”: the more you earn, the higher percentage of effective tax rate you pay. Our federal tax system is supposed to be Progressive, but, because the GOP has loaded it down with thousands of loopholes, deductions and exemptions (aka, the Bush 43 tax policies), the system is now Upside Down.
            The asset/capital tax, if written and enforced correctly, has a chance to be a Progressive tax. But, as I’ve written at least a few times before, the wealthy and big corporations would react to the proposal in one of two ways: either they’d try to “poison” it with deductions, loopholes and exemptions, or, they’d fight to the death to make sure it never happens.
            This debate has now reached its logical conclusion. There’s no need to say/write anything else about it, unless your aim is to foist a propaganda campaign to disparage anyone who calls for the law to be well-written and enforced properly. If that is your aim, by all means, keep flapping your gums…..

          4. toncuz May 30, 2014

            Hey fool….If you’re too fucking lazy or STUPID to google the “Single Tax” I can’t help you…no one can.. You immediately attack anyone that disagrees with your assumptions as Fascist…how Glenn Beck of you. You automatically assume that nothing can work because the big bad Republicans will fight it tooth and nail. You’re a defeatist period…who likes to whine but get nothing done. The Progressive movement truly needs to purge the weak-link thinking of your type. This is what people mean when they say Democrats have no spine.

            And this nation had zero income taxes BEFORE 1913 and raised revenue through state PROPERTY taxes and excise taxes and the nation became an economic powerhouse…so much for the rich stopping everything.

            Instead of asking people to write a manual for you, again, google and search for what has been around for the past one hundred fucking years and the actual economic platform of the Progressive Party, when it existed. Ever hear of them? Didn’t think so. I’ll give you more help…you’ll need it. See Henry George “Progress And Poverty”. See Land Value Tax. Learn something first, then ask more ridiculous questions.

          5. ExRadioGuy15 May 30, 2014

            You just proved my point, toncuz….time to stop talking….

  5. ExRadioGuy15 May 29, 2014

    Okay, everybody: the philosophy behind an asset/capital tax is sound: don’t tax income but tax assets/capital. That would spur more spending and investment, spending because it would stop your wealth from skyrocketing and paying higher taxes on it and investment because the income from capital gains, if it doesn’t become wealth, won’t be taxed.
    But, I reiterate: we’d have to be very careful in writing an asset/capital tax law, especially if we’re going to abolish the income tax. We’d still have to make very sure that there are few, if any, deductions, loopholes and exemptions from the law.
    For those who say/write that wealthy people would only allow this “over their dead bodies” are correct…the wealthy would take one of two tacks in response to this…either, one, they’d try to poison the asset/capital tax law with deductions, exemptions and loopholes so as to retain their wealth WITHOUT paying ANY taxes or, two, they’d fight to the death against it.
    Like any good idea that can become law, it has to be written, interpreted and enforced correctly. The problem we see now with rules and laws is that many of them suffer from one or more of three problems: writing the law well and passing it (legislative); enforcing the law correctly (authorities) and interpreting the law correctly (judicial). If even one of those three things in the process is corrupted, it doesn’t matter what the intention of the law is, it’s been corrupted. That’s the reason why I’ve taken a lot of criticism from my online friends about my correct statement that the Equal Rights Amendment is unnecessary. Laws already exist, even in the Constitution, that disallow discrimination on the basis of gender. So, the legislative segment did their jobs. But, the enforcement and interpretation segments haven’t done their jobs.

  6. howa4x May 29, 2014

    The 1% will fight this with every republican they can buy. They see themselves as blessed by god not by some mortal tax code. It will be interesting to see how bad things have to get before we get some republicans on board. My guess is pretty bleak

  7. ralphkr May 29, 2014

    I remember when my solid Republican uber-conservative state decided that since we all had to pay property tax on our farms, homes, etc. that bank deposits should also be subject to property tax (this was before WW2 & before lobbyists were in control of governments). That tax was never collected because the state legislators were mobbed by all the bankers screaming about money being withdrawn from their banks and being deposited in neighboring states so the tax was immediately repealed.

    If a tax on capital (savings & investments) is passed you may count on two things: there shall be ways for the top 20% to avoid the taxes either through loopholes or by removing the money from the US and only those of us in the bottom 80% shall be subjected to the tax. OK, there shall be a third thing happening if such a tax were passed. Every body with a savings, checking, or investment account will vote against those politicians who authorized the tax.

  8. dpaano June 6, 2014

    Yeah, but this blueprint is WAAAAY too logical for a Republican (or Norquist) to understand! The Republicans will NEVER allow taxes to be raised as long as Norquist is around. We need to remind our “representatives” who pays their paychecks and who they actually work for (and it isn’t Norquist or the Koch’s)! If that’s not sufficient for them, they can always be impeached for treason against their constituents and sent back to their states in disgrace! Just my opinion for all it’s worth!

  9. ExRadioGuy15 September 15, 2014

    Taxing capital is a fascinating idea. But…
    If the tax has too many exemptions and/or loopholes, it’s no better than our current Upside-Down federal tax system.
    Plus, the Firebaggers’ anti-IRS philosophy makes the chances that the tax will be properly administered very slim.


Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.