Democratic presidential hopeful Elizabeth Warren has proposed a wealth tax on Americans worth more than $50 million, with could reportedly cost billionaires $85 billion a year.
“The top 0.1% of American families -- the richest 1 in 1,000 -– now have nearly the same amount of wealth as the bottom 90% of American families combined. Meanwhile, for everyone else, opportunity is slipping away,” Warren said in an email to supporters. “We need structural change to fix it.”
Warren’s plan would require the top 75,000 households to pay an annual tax of 2 percent on each dollar of their net worth above $50 million. It would rise to 3 percent on every dollar above $1 billion.
Warren's proposed tax could cost American billionaires $85 billion a year, according to a Forbes analysis.
Warren, a Massachusetts senator who recently established an exploratory committee for the 2020 Democratic nomination, said she would use the revenue to rebuild the middle class, potentially by using the money to pay for child care or relieve student debt, Bloomberg reported.
The proposal underscores Warren’s economic populist message at the heart of her campaign to challenge President Donald Trump in 2020. A former Harvard law professor, she has written extensively about the shrinking middle class and made enemies on Wall Street for pinning the blame for rising income inequality on the wealthy and large corporations.
Wealth taxes do more to relieve inequality than raising income taxes, according to Steve Wamhoff, the director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy. New York Democratic Representative Alexandria Ocasio-Cortez’s has proposed raising the top income tax rate to 70 percent, sparking conversations within the Democratic party about how high income levies should go.
New research also indicates that raising marginal income rates wouldn’t do much to lessen inequality, because much of the wealth among the richest Americans stems from private business profit taxed at lower rates and appreciated assets that go untaxed until they’re sold.
“If you believe that inequality is a problem, you have to start thinking outside the box,” Wamhoff said. “We need to go beyond the ideas that are already on the table today.”
Still, critics say that a wealth tax would be very hard to administer. It would require taxpayers or the Internal Revenue Service to calculate how much assets are worth each year, including real estate and investments in private businesses that are notoriously hard to value.
“Imagine a large privately-held company -- its value could change almost daily,” the conservative Tax Foundation said in a blog post Thursday. “How would the tax handle these fluctuations?”
Meanwhile, some billionaires who would be paying the tax characterized it as a step toward communism, Forbes reporetd. “The leftists are ‘communist light’ for now,” Rockstar Energy Drink founder Russ Weiner, who is worth an estimated $4.5 billion, wrote in an email to Forbes. “They will continue to get more dangerous with their demands and actions. It will never be enough.”
Warren’s proposal is also likely to face challenges on its constitutionality, Bloomberg explained.
Conservatives immediately pounced on it, with the anti-tax group Americans For Tax Reform arguing that it would “harm economic growth, incentivize the investment of money overseas” and fail to raise as much money as Warren’s allies project.
Warren’s plan -- and others that raise large amounts of revenue -- are offsets that would allow Democrats to pursue expensive policy ideas, such as large expansions to Medicare, reducing the cost of college tuition and cutting taxes for the middle class. Senator Kamala Harris, another Democratic presidential contender, has proposed a $2.8 billion plan that would direct tax credits or payments to middle-class and poor individuals.
Increasing marginal rates, wealth taxes and other ways to tax the wealthy are likely to play a central role in all the tax plans Democratic candidates release in the coming weeks, and it’s just a question of which ideas resonate most with the party and voters, said Greg Leiserson the director of tax policy and senior economist at the left-leaning Washington Center for Equitable Growth.
“All of these ideas are closely connected,” said Leiserson. “The general rule is the more you do of one of these the less you can do with the others.”
It won’t be easy for the wealthy to reduce their income to avoid the tax, because of reporting and enforcement guardrails included in the plan, according to two University of California-Berkeley economists advising Warren on the plan, Emmanuel Saez and Gabriel Zucman.
High-net worth individuals are audited at a much higher rate than every other income group. The IRS audited about 14.5 percent of returns reporting at least $10 million in income in 2017, nearly double the examination rate for any other income bracket.
But Saez and Zucman estimated that taxpayers might be able to reduce their reported net worth by 15 percent through a combination of tax evasion and tax avoidance.
Material from Bloomberg and Reuters has been used in this report.
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