Leon Cooperman: Wealth Tax Won't Solve US Inequality

Hedge fund magnate Leon Cooperman warns that imposing a wealth tax won’t solve U.S. inequality, but argues that eliminating waste and income tax loopholes are better options.

“Several Democratic presidential contenders, most notably Elizabeth Warren, have called for a wealth tax and it has been embraced by more than a few members of the very group that would be hit hardest by such a levy,” the chief executive and chairman of Omega Family Office wrote for the Financial Times.

“Proponents such as George Soros, Chris Hughes and Abigail Disney argue that such a tax could raise trillions of dollars over a decade, money that might be used to address myriad social challenges such as climate change, crumbling infrastructure, student loan debt relief, structural poverty and universal childcare. They claim in an open letter that a wealth tax is patriotic and would strengthen our democratic freedoms, and that arguments against the tax ‘are mostly technical and often overstated,’” he wrote

“As a taxpaying American businessman with more than a passing familiarity with the ways of Washington, I disagree. I question whether an explicit wealth tax is the best path forward for the country and whether the federal government is currently up to the task of allocating those tax resources efficiently,” he wrote.

“It would be more constructive to eliminate government waste, redirect existing resources to social exigencies and remove biases built into the tax code that frustrate the objective that everyone pay their ‘fair share,’” he wrote.

“I know that cut-the-bloat doesn’t fire up the Democratic political base the way soak-the-rich does, but it would go a long way to closing the looming budgetary gap and make any later proposals to raise taxes a lot more credible and palatable.”

Meanwhile, the number of billionaires in the United States has more than doubled in the last decade, from 267 in 2008 to 607 last year, according to UBS.

“The rich have gotten richer and they’ve gotten richer faster,” said John Mathews, Head of Private Wealth Management and Ultra High Net Worth at UBS (UBSG.S) Global Wealth Management. “The drive or the desire for consumption has just gone upscale,” he told Reuters.

But there are also signs of struggle and stagnation at lower-income levels. The wealthiest fifth of Americans hold 88% of the country’s wealth, a share that has grown since before the crisis, Federal Reserve data through 2016 shows. Meanwhile, the number of people receiving federal food stamps tops 39 million, below the peak in 2013 but still up 40% from 2008 even though the country’s population has only grown about 8%.

Still, a decade ago, this kind of growth was not thought possible. The U.S. financial system was in a shambles and people feared bank failures could permanently undermine capitalism. Policymakers scrambled to stabilize markets and boost asset prices when U.S. housing markets unraveled. They did less to tackle income and wealth inequality.

Now, many of the signs of mega-wealth that preceded that financial crisis are once again on display.