Does the Wealth Tax Benefit the Working Class?

Lecturer Allen Sanderson and former Alderman Ameya Pawar debate the potential effects of the wealth tax

By Gustavo Delgado, Contributor

On January 22, the UChicago Political Union (UCPU) hosted a debate between senior lecturer Allen Sanderson and former Alderman and IOP Fellow Ameya Pawar on the proposal made by several Democratic presidential candidates to create a federal wealth tax.

Senators Bernie Sanders and Elizabeth Warren, two of the prominent Democratic candidates, have proposed different versions of a wealth tax that would create a new tax on those with a net worth starting anywhere from $32 million to $50 million. Their plans also propose a greater tax on billionaires.

Pawar argued that the economy is too reliant on the laissez-faire theories of Adam Smith and self-interest. “There isn’t a single person here, or a faith-based institution, or anyone’s aunt or uncle that would raise their children to have a belief that you have to be selfish all the time,” Pawar said.

Pawar criticized public policy that does not prioritize the needs of the poor. “We talk about the idle poor, a narrative in public policy to create really prejudiced policies in social welfare, but we don’t talk about the idle rich,” Pawar said.

Pawar also pointed out the negative effects of having a large amount of wealth concentrated in the hands of a few people. “We have money that is aggregated at the very top that is not moving, and we know that money moving through the economy has a stimulating effect,” he said. “But if it’s just clustered at the top and is being passed down generation after generation, how do we actually expect people to get ahead.”

Sanderson, who has taught at the University since 1984, opposes a wealth tax. He said that “not one single faculty member, even on the liberal side, has ever mentioned the wealth tax as a way to address poverty.”

According to Sanderson, Warren’s wealth tax proposal does not take from the rich and give to the poor. Sanderson asserts that it creates revenue for the government. “The wealth tax deep down is not about helping the poor. It’s about helping the government grow,” Sanderson said.

Sanderson said that the greatest power in the economy is incentives. With a wealth tax, there is no longer any incentive for the wealthy to donate to charity. “I would actually rather have Bill and Melinda Gates making decisions about where their money goes than the average congressman,” he said.

During the debate, Sanderson gave Pawar a copy of Milton Friedman’s Capitalism and Freedom. This book is often given as a gift to newcomers to campus, not academics such as Pawar who have a long-standing relationship with UChicago.

Pawar asserted that indicators like the Dow Jones are not truthful measurements of the state of the economy when considering the average American’s relationship with their income and the economy. “While we may be close to full employment, most of the jobs we are creating are terrible. Creating an army of gig workers and part-time employees is not a healthy indicator of where we are,” he said. “It’s how people can work two to three jobs and still be on welfare.”

Pawar added that in the contemporary economy, money equals the power to make policy decisions, which produces structures that keep the poor in the state of poverty. “The average net worth of a Black woman between 18 and 35 is five dollars. That doesn’t happen without structural impediments that are put in place by society and people who are benefitting by keeping her poor,” said Pawar. “There are people at the top who benefit from the status quo.”

Sanderson disagreed with Pawar’s assertion that money equals power. During the debate, Sanderson said that “half of the wealth of this country is up here” while pointing to his head. “It’s human capital and that is very much more equal redistributing,” he said.

Despite their differences on the question of a wealth tax, both candidates agree that it is necessary to distribute more of the economy’s resources to the poor. Sanderson and Pawar found common ground with this point, bringing up plans like earned income tax brackets or universal basic income.