Sen. Elizabeth Warren is set to propose new wealth tax that would chip away at the fortunes of Americans worth $50 million or more, her presidential exploratory committee has confirmed.
The plan would impose a 2 percent annual assessment on any household’s net worth between $50 million and $1 billion. Any wealth above the the $1 billion mark would be taxed at a 3 percent rate. It would pinch approximately 75,000 households, or the richest 0.1 percent of the country, according University of California, Berkeley Economists Emmanuel Saez and Gabriel Zucman, who advised Warren on the proposal. Their analysis suggests the tax would raise $2.75 trillion over a decade. The news was first reported in the Washington Post on Thursday.
Warren’s proposal would also include a number of features meant to prevent wealthy households from evading the tax. It would pour new funding into IRS enforcement while requiring a minimum audit rate for households subject to the tax. Any would-be refugees looking to avoid the levy by moving abroad and giving up their citizenship would be faced with a 40 percent exit tax on all of their net worth above $50 million. The plan does offer one olive branch to the private-jet set: Anybody subject to the tax who didn’t have enough liquid assets to cover it could delay payment for five years. However, they’d have to pay interest.
The idea of taxing households based on their assets as well as their income has been a hot idea among progressives since French economist Thomas Piketty proposed it in his popular tome Capital in the 21st Century, which argued that spiraling wealth inequality could produce a new global aristocracy. The book suggested that wealth taxes were one potential solution to the problem. Saez and Zucman are frequent collaborators with Piketty, whose estimates show that the top 0.1 percent roughly tripled their share of the nation’s wealth from from the late 1970s to today, and now lay claim to around 20 percent of the nation’s net worth. (Some critics of their work have estimated a less dramatic rise in the wealth gap). The pair also penned a joint op-ed in the New York Times this week suggesting that the main justification for imposing confiscatory tax rates on high earners was not necessarily to raise revenue for the government, but rather to fight inequality and discourage the affluent from accumulating too much wealth and power.
Advocating for a wealth tax could help Warren’s campaign compete against likely candidate Vermont Sen. Bernie Sanders for the support of the ideological left during the Democratic primary. Warren came to prominence in the party, and for a time functioned as the face of its progressive insurgency, thanks to her fierce criticisms of Wall Street and her role conceiving of and building the Consumer Financial Protection Bureau. But as Sanders-style Democratic socialism has come into vogue, Warren’s image has moderated a bit. Last year she went so far as to refer to herself as a “capitalist to my bones.” Her big new tax idea may burnish her image as a politician ready to eat the rich (including the current president).
Any effort to pass a federal wealth tax would face major practical questions. For starters, it may not be legal. Some scholars have argued that a levy on net worth would violate Article I, Sec. 9 of the constitution, which forbids direct taxes on property unless the amount collected from each state is proportionate to its population. (It required a constitutional amendment for Congress to implement the federal income tax.) In background documents, Warren’s exploratory committee says that legal experts have submitted letters arguing that her tax plan passes constitutional muster, but it did not provide the letters upon request.
Wealth taxes have also fallen somewhat out of fashion in Europe where they were once popular, the Organisation for Economic Co-operation and Development explained in a report last year. The number of OECD countries with levies on net worth fell from 12 in 1990 to four in 2017, in part because they often collected little in the way of revenue. The next year, France replaced its wealth tax with one on real estate, which led to accusations that President Emmanuel Macron was governing as a sop to the rich.
Presumably, Warren won’t have that problem during her campaign.