Big government is in vogue, the left is rife with big proposals that have big price tags. At least relative to the standard set by the austerity imposed since the Reagan years, In response to these proposals politicians from Nancy Pelosi to Mike Pence derisively respond, “how will you pay for it?” Well, that’s actually a pretty easy question to answer, even though it’s an answer that most American politicians don’t want to hear, simply raise taxes.
When raising taxes the logical place to start is the wealthy, which is why Elizabeth Warren’s wealth tax proposal does just that. Specifically it levies a 2% tax on the net worth of those with assets totaling over $50 million and a 3% tax on wealth over $1 billion. This proposal would raise an estimated $2.7 trillion over the next 10 years. For perspective, tuition free higher education would cost $800 billion over the next 10 years. Elizabeth Warren’s universal child care program would cost $1.7 billion over the next 10 years. This is a significant amount of money that would fundamentally reshape revenue and how much the government can allocate to social programs.
The wealth tax would run into serious opposition, some of it obviously from the fabulously wealthy who would lose millions. The other group that opposes this is well meaning wonk types who view wealth taxes as inefficient and ineffective. Some point to the fact that back in 1990 12 OECD countries levied wealth taxes, while today only 3 do so, France, Norway, Switzerland, and Spain.
The Arguments Against the Wealth Tax
The shift away from wealth taxes has been predicated largely on the fact that they are viewed as easy to dodge. Financial assets are easy to hide, obfuscate and misreport. Which is not the sales taxes, property taxes, or others with more tangible assets or that are implemented at the point of sale. Value added taxes are implemented in the steps of the supply chain and are likewise difficult to avoid. So, one argument against wealth taxes is their difficult implementation.
Another is an economic efficiency argument. Some argue it disincentivizes people and corporations from amassing the wealth required to make significant expenditures in their businesses or other entrepreneurial pursuits. So the logic is, if these people aren’t incentivized to amass these fortunes in the first place, they’ll never invest it in institutions which help normal people anyway. Combine this with the ease at which they are dodged and the argument is essentially the time and energy is better spent getting revenue elsewhere.
That’s all well and good, but the $2.7 trillion dollars this is estimated to provide is no small amount. Not even in the world of federal government expenditure where a billion is pocket change. That is a serious revenue stream which could improve millions of people’s lives through policies like those we discussed earlier. And in the United States where the federal tax base has been chipped away since the 1970s, any and all revenue is important. It might not be the most efficient way to collect revenue, but as far as redistributing money from the wealthy to average Americans goes, Elizabeth Warren’s wealth tax is a potent policy.
It’s also very politically palatable. While billionaires obviously have a huge stake in fighting the policy, that’s likely true of any potential left wing tax regime. However, the wealth tax is set at 2% and 3% on income over $50 million and $1 billion respectively. The distinction between wealth and income is important, wealth represents all assets, and largely just securities and other financialized assets, while income is just any given years share of that wealth.
So a wealth tax draws on a much larger pool of money, but this functions in basically the opposite way as the 70% marginal tax rate. People who oppose tax hikes are quick to say people like AOC want to “take 70% of your income.” Which forces one to explain that marginal tax rates mean only every dollar made over $10 million is subject to the 70% rate. Similarly, the distinction between wealth and income is important but hidden in the debate, and on its face it seems absurd to oppose a 2% or 3% tax on wealth over $50 million and $1 billion.
Elizabeth Warren’s wealth tax would raise a significant amount of revenue. It’s also politically very powerful and easy to message around. If the budding leftist agenda has any hope at raising the revenue required to enact it, policies like wealth tax need to be at the front of the fight.