Elizabeth Warren’s wealth tax is a stunt policy that other countries have tried and discarded – Reason.com
BRIAN SNYDER / REUTERS / Newscom
Elizabeth Warren’s wealth tax is the worst form of stunt politics: a bad idea that doesn’t do us any good.
Also, of temporary importance, it is likely to be unconstitutional.
The plan, released last week when the Massachusetts Senator launched her bid for the 2020 Democratic Party president nomination, would impose a 2 percent annual tax on assets for households valued at more than $ 50 million plus a 1 percent surcharge for households with a net worth of more than 50 percent will charge $ 1 billion or more.
Warren says the tax would only affect the “Tippy Top 0.1%” or about 75,000 households. She has phrased the proposal to “pay their fair share”, reduce asset concentration and “accelerate much-needed investments in rebuilding our middle class.” Estimates by Berkeley economists Emmanuel Saez and Gabriel Zucman, who support the proposal, suggest it will generate about $ 2.75 trillion in new tax revenue in a decade.
So it is advertised as a source of income that strengthens the government’s ability to fund programs for the middle class. However, the real-world experience of nations that have introduced wealth taxes suggests that this is a bit of an optimism. Regular wealth taxes are a challenge for tax collectors. They require an annual wealth assessment, and the very wealthy usually have unique assets that can be difficult to assess.
As Nicole Kaeding and Kyle Pomerleau of the Tax Foundation note, the very wealthy “own more than publicly traded stocks like real estate holdings, trusts, and corporate holdings. These assets are difficult to permanently value. Imagine a large privately owned company – its value could change almost daily. How would the tax deal with these fluctuations? “
To meet the challenge, Warren has called for the number of agents at the Internal Revenue Service to be increased – rarely a promising sign of a campaign proposal. Either way, inherently tricky assessments remain difficult, not many how many bureaucrats you throw at the problem.
More likely, the rich would find ways to avoid these judgments entirely. For example, the Swedish wealth tax has often been blamed for capital flight and a low rate of national entrepreneurship. Compared to other European nations, Swedes were less likely to own their own businesses and those who often moved their money elsewhere rather than reinvesting it back at home. The founder of Ikea, for example, put much of his fortune in offshore foundations that protected the money from tax.
I say it was blamed because Sweden abolished its wealth tax just over a decade ago. The move was easy as the government essentially lost no revenue. As the Financial Times reported, the abolition of the tax had “virtually no impact on public finances.” So much for the rich to pay their share.
Sweden is also not an outlier in its decision not to levy wealth tax. European countries that introduced wealth taxes have largely abandoned them. Of the dozen OECD countries that had wealth taxes in 1990, only four still have the tax on their books. Warren wants the US to embrace an idea that has been tried and rejected.
Your proposal is unlikely to get through Congress and the president’s desk. But even if it does, we may never find out what kind of revenue it would generate as it would be quickly challenged as unconstitutional in court.
Aside from income tax, which required a constitutional amendment to be implemented, the constitution forbids the federal government to levy “direct taxes” – taxes that are not distributed across the federal states by population group. Some inheritance tax advocates have argued that it could pass constitutional muster, but opinions are divided and there are probably more reasons than not believing that it would be put down. For example, when estate taxes were challenged, they were levied as taxes on the transfer of wealth, not on its existence. That would not be true in this case. Warren’s wealth tax would target wealth only for existence.
What I think is the point. Taxes are usually collected for one of two purposes: to generate income or to discourage behavior that politicians dislike. In this case, Warren doesn’t like the fact that some people have amassed large personal fortunes, sometimes through inheritance, but often through starting or running successful businesses. She wants an America where that happens less often or where wealth, when it does, ends up elsewhere.
Warren’s proposed wealth tax is therefore best understood not as a targeted source of income, but rather as a symbolic declaration of opposition to the existence of oversized wealth regardless of how it was obtained. She has described it as a tool to fight inequality, but it is really the way a presidential candidate would say, “I am against the existence of very rich people.” She could have just said it.