Why America Needs Stronger Taxes on Capital:

Lead sentence:
As inequality has risen to levels unseen in modern American history, the verytax institutions designed to counterbalance that inequality have steadilyweakened.

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1. The Disappearing Progressivity of the U.S. Tax System

For much ofthe 20th century, the U.S. tax system played a stabilizing role: it restrainedextreme wealth concentration and linked economic growth to shared prosperity.
Today, that stabilizing function has eroded.

Despitesoaring inequality, the U.S. tax system has become less progressive,particularly at the top.
Three pillars of progressivity—the individual income tax, the corporateincome tax, and the estate tax—have all grown weaker.

The topmarginal federal income tax rate, once 70% or more between 1936 and 1980, hasfallen to 37% by 2018.
Corporate taxes, which are progressive because they tax profits—a highlyconcentrated form of income—once claimed roughly 50% of U.S. corporateprofits in the 1950s and 1960s. By 2018, they accounted for only 16%(Saez & Zucman 2019).

And the estatetax, intended to prevent the buildup of hereditary economic dynasties, nowapplies to fewer than 0.1% of estates.

A system oncebuilt to counterbalance concentrated economic power has become permissive ofit.

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2. The Quiet Loophole of Low Realized Income

One of themost striking features of the American tax structure is that it taxes realizedincome, not true economic income.

Families withsubstantial wealth—especially those holding stocks, private equity, realestate, and business assets—can legally report very little income simply by notselling their assets.
They can live off loans collateralized by their wealth, pass assets to heirswith stepped-up basis, and realize gains only when rates are favorable.

In effect, thewealthiest households often pay lower effective tax rates than middle-classworkers whose income is fully reported, fully taxed, and impossible to defer.

A well-enforcedwealth tax would directly target this gap.
By taxing the stock of wealth—not just the flow of realized income—it wouldincrease the effective tax burden on families who generate tremendous economicresources but report little taxable income.

This is notabout punishing success; it is about aligning the tax system with economicreality.

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3. Capital Is Where Inequality Lives

The nature ofinequality in today’s United States is unmistakably capital-driven.

Labor incomehas stagnated for most workers, while returns to capital—profits, capitalgains, dividends, business equity—have surged. The wealthiest householdsincreasingly derive their economic power not from annual salaries but fromaccumulated assets.

When the taxsystem privileges capital income over labor income, it reinforces this dynamic:

• corporate profits grow faster     than wages
• capital gains are taxed     lightly or deferred indefinitely
• large estates pass from one     generation to the next with minimal taxation
• shareholders and executives     accumulate wealth faster than the economy grows

To rebuildprogressivity, capital must be taxed more effectively, more consistently,and more fairly.

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4. Strengthening Capital Taxation: The Path Forward

A coherentapproach to restoring fairness requires reinforcing multiple parts of thesystem simultaneously:

1. A Modern Wealth Tax

A modest,well-administered tax on extreme concentrations of wealth would ensure that therichest households contribute in proportion to their economiccapacity—especially those who pay little through traditional income taxation.

2. Revitalizing the Corporate Income Tax

Corporateprofits are one of the most concentrated income sources in the U.S. economy.
Strengthening corporate taxation—limiting avoidance, ensuring global minimumrates, and closing loopholes—directly addresses the heart of America’sinequality engine.

3. Reforming Capital Gains and Dividend Taxes

Taxing capitalgains at lower rates than wages sends a clear signal about what the systemvalues. Aligning these rates, and eliminating opportunities for indefinitedeferral, would restore balance between labor and capital.

4. Restoring the Estate Tax

The estate taxis one of the few tools that directly prevents the rise of entrenched,hereditary wealth. Reinvigorating it—through lower exemptions and effectiveenforcement—strengthens intergenerational mobility.

Capitaltaxation is not a single instrument but an ecosystem.
To function, it must be comprehensive.

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5. A More Ethical Vision of Shared Prosperity

The argumentfor stronger capital taxation is fundamentally an ethical one.

A society thatrewards productivity, innovation, and effort must also ensure that prosperitydoes not concentrate so narrowly that mobility collapses and democracy weakens.
Taxation is not just a fiscal tool; it is a civic expression of what Americabelieves opportunity should look like.

Rebuildingprogressivity is not about penalizing the successful.
It is about restoring the conditions under which broad-based progress ispossible and ensuring that the American economy works for more than asmall, insulated fraction at the very top.

The next eraof American tax policy must acknowledge a simple truth:
to confront capital-driven inequality, we must tax capital itself.‍