Who Wants to Abolish a Billionaire?

When Bernie Sanders unveiled his plan for a wealth tax back in September, he tweeted it out with a simple message: “Billionaires shouldn’t exist.” In doing so, he adopted a “ban billionaires” rallying cry that’s become popular this year on the activist left—which has come to view massive, Gates- and Bezos-like fortunes as injustices that should be taxed into oblivion.

Elizabeth Warren doesn’t agree, it seems. She may have been the first Democratic candidate to make a wealth tax a centerpiece of her campaign, and the spectacle of plutocrats bawling on television over her rise in the polls has helped burnish her brand as the candidate the rich truly fear. But when Democracy Now! host Amy Goodman asked Warren at a live forum this past weekend whether she agrees with Sanders that billionaires shouldn’t exist, Warren answered that no, she does not. The candidate argued instead that the rich just needed to pay their fair share to the IRS.

Here’s the exchange:

Goodman: Bernie Sanders says there should be no billionaires. Do you agree with that?

Warren: No.

Goodman: Why not?

Warren: Look, somebody has a great idea, and they follow it through, and they work hard, and they build something. Good for them. But here’s my pitch. You build a great fortune in this country, good for you. But you built it, at least in part, using workers all of us helped pay to educate. You built it, at least in part, getting your goods to market on roads and bridges all of us helped pay to build. You built it, at least in part, protected by police and firefighters all of us helped pay their salaries for. So, here’s my view. You make it to the top, to the tiptop, then the answer is: pay a wealth tax, so that we can invest and create opportunities for everyone else. That’s what my 2-cent wealth tax is all about.

Warren’s choice to ease up on the class war rhetoric in this instance is a good example of the stylistic and ideological gap that divides her candidacy from Sanders’. He’s the democratic socialist who wants to lead the United States through a political and economic revolution. She’s the capitalist who wants to make markets and the government work more equitably for the middle class and poor. He would like to #abolishbillionaires. She merely wants to soak them.

But the talk is misleading in this case. If you set aside what Warren said and look carefully at her latest policy plans, hers would do more to cut many billionaire fortunes down to size than Sanders’. Here’s a simple way to break this down: Sanders has proposed one new wealth tax, but Warren has quietly proposed two. And when combined, Warren’s are a bit more aggressive.

Both candidates have put forward a net worth tax, which is the concept you generally hear referred to as a “wealth tax” these days. Though they differ on details, their versions wind up working somewhat similarly in practice: Under Warren’s plan, Americans would pay 2 percent on their net worth between $50 million and $1 billion, and 6 percent on everything above that. Sanders’ tax would bite earlier and top out at higher marginal rates, starting at 1 percent on net worth between $32 million and $50 million and marching up to 8 percent on wealth above $10 billion. But it would average 6 percent for billionaires overall, according to an analysis by Berkeley economists Emmanuel Saez and Gabriel Zucman.

Warren adds another layer to her tax cake, however, by making a technical but profoundly important change to the way the U.S. taxes investment income. Today, if you buy a stock or bond and it jumps in value, you don’t have to pay the IRS anything until you sell it and pocket a profit. Warren would move the U.S. to what tax wonks call a “mark-to-market” system, where investors would be required to pay taxes on their paper gains every single year, whether or not they actually sold anything. The idea is designed to prevent billionaires like Bill Gates and Warren Buffett* from building massive, tax-free fortunes simply by sitting on a pile of stocks for decades at a time. Warren would apply this to the entire top 1 percent while taxing capital gains at the same rates as ordinary income.

This is, in effect, a large second wealth tax for people whose fortunes are heavily invested in publicly traded securities. Between it and her version of the net worth tax, Warren’s scheme would hit most billionaires harder than Sanders’ would. Take a bank executive like, oh, Jamie Dimon, who has a net worth of $1.6 billion according to Forbes. If his various assets returned 8 percent in a year, and the gains were all subject to mark-to-market taxation, he’d face a 6.45 percent tax rate under Warren’s plan, according to my math, compared with a 3.94 percent rate under Sanders’. Bill Gates—net worth $107 billion—would be facing an 8.73 percent tax on his net worth from Warren, versus 7.8 percent from Sanders. (I’m assuming that Warren would lop off capital gains taxes before levying her net worth tax on the remainder; if she didn’t, and just assessed billionaires based on their entire pretax net worth, then her rates would be even higher.) From what I can tell, there are really two main groups that might pay more under Sanders. First, there are unfortunate barely billionaires or deca-billionaires who get really low returns on their asset portfolios. So, you know, very rich people who plunk their money into WeWork or Uber. The others are business owners whose fortunes are heavily concentrated in privately held companies—think Charles Koch or Mike Bloomberg—which wouldn’t be subject to mark-to-market rules (they’d probably be taxed upon sale via something called retrospective accrual, but don’t worry about that too much for now).

It’s worth noting here that, as far as I can tell anyway, neither Warren’s nor Sanders’ plan would abolish many billionaires per se. It’s theoretically possible that some of the ultrarich would see their fortunes taxed until they fell below the all-important 10-figure, but they would need to earn fairly low annual returns for that to happen. What both Warren’s and Sanders’ plans are structured to do is gradually chip away at truly huge fortunes, like Gates’. And under normal circumstances, Warren’s probably chips away faster.

So if your goal is to bring the billionaire class to heel, Warren’s tax plan might be more to your liking. When I brought this up to the Sanders campaign, a slightly unhappy policy aide pointed out that the Vermont senator has proposed a higher estate tax than Warren, which could prevent more rich heirs from inheriting billions. This is an important point, given that, as I’ve written, America’s superrich are starting to get quite old. But that doesn’t change the fact that Warren’s plan would probably claw more back from the Dimon family in the here and now.

A few things to note about Warren’s plan: First, the proposal is kind of messy. Many tax experts think that a mark-to-market system would be a good, practical alternative to a Warren-style net worth tax—since they worry that the latter would be hard to implement and could be ruled unconstitutional by the Supreme Court. Few whom I am aware of have suggested combining them. Why not? Because these taxes overlap. If you tax someone’s net worth, you are already taxing their unrealized capital gains. So unless you’re worried about John Roberts striking it down, it’s just simpler to increase the size of your net worth tax. There’s no obvious policy reason to use two wealth taxes when one will do.

Second, nobody actually knows how much money these two taxes raise if you mush them together. The Warren campaign tried to ballpark an estimate by taking how much revenue each tax would bring in on its own ($4 trillion for the net worth tax and $2 trillion for mark-to-market) and then adding up the total. But this figure was almost certainly too high, since each tax lowers how much you can raise from the other (if you tax someone’s unrealized capital gains, they’ll have less wealth left over to tax, and vice versa). In the meantime, it doesn’t appear anybody has done a more formal version of the math. “It’s a pretty immense modeling challenge and I don’t think anyone has the capability to produce those numbers at the moment,” Lily Batchelder, an NYU tax law professor who’s written extensively on mark-to-market taxation, told me in an email.

So perhaps it’s best to think of Warren’s recent tax proposals less as a technically precise blueprint and more as a statement of principles. As she put it during the last debate: “Show me your budget, show me your tax plans, and we’ll know what your values are.” In this case, hers are a bit more aggressive against billionaires than her recent rhetoric implies. Some will be relieved to learn that. Others will have more reasons to shed a tear.