2020 Presidential Candidate Series (Warren)

Update 353: 2020 Presidential Cand. Series
Sen. Warren’s Prolific Progressive Policy Platform

Today’s update marks the start of our new bi-weekly series, a review of the economic policy platforms of prominent 2020 Democratic presidential candidates who have qualified for one or more DNC debates.

First up, we examine Senator Elizabeth Warren’s proposed “wealth tax.” Below, we outline the details of her plan, as well as offer a brief analysis of its impact and feasibility. Later this month, we’ll take a look at Senator Bernie Sanders and his plans to buoy the middle class.

Good weekends all,

Dana

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At the beginning of the year, Senator Elizabeth Warren announced her presidential campaign’s flagship economic proposal — a “wealth tax” on the richest Americans, intended to pay for many of her ambitious and varied social policy plans.

Sen. Warren’s wealth tax would only apply to less than 0.1 percent of U.S. households and would raise almost $3 trillion over 10 years — for the first time in memory, a comprehensive individual tax on households, seeking revenue based on net worth, not annual income.

The proposal comes at a time of increasing popularity for similar redistributive policy ideas from progressive lawmakers. It is riding a wave of disenchantment felt by millions of everyday Americans. The richest 0.1 percent of Americans has seen its share of wealth more than triple, from 7 to 22 percent since the 1970s. The GOP Tax Cuts and Jalopy Act (TCJA) strategy was to cut taxes marginally on the middle class, while giving large tax breaks to forms and wealthy Americans.

Will Wealth Tax Mean a Wealth of Revenue?

Sen. Warren’s wealth tax would target the wealthiest 75,000 households in the country that each hold over $50 million in net assets. One study suggests the tax could raise $2.75 trillion over the next ten years. The proposal would:

  • apply a two percent annual tax on household net worth between $50 million and $1 billion
  • provide an additional one percent annual “Billionaire Surtax” (3 percent tax overall) on household net worth above $1 billion
  • not apply to households with a net worth of less than $50 million (99.9 percent of American households)

The tax plan also includes strong anti-evasion provisions, including significantly increasing the IRS enforcement budget, a minimum audit rate for the 75,000 households subject to the wealth tax, a 40 percent “exit tax” on a net worth above $50 million of any U.S. citizen who chooses to renounce their citizenship, and robust third-party reporting requirements.

Sen. Warren is the first presidential candidate to propose a wealth tax this cycle.  Both Sen. Sanders and freshman Cong. Alexandria Ocassio-Cortez have proposed their own versions of taxing the rich: plans to hike the estate tax and income taxes on the very wealthy, respectively. Though these tax plans have major redistributive effects, Sen. Warren’s plan is the only one that would directly target wealth, not income, before it changes hands through estates.

Analysis

Sen. Warren’s proposal has been both lauded and condemned by Americans on the right and left. It is an attack on the extreme concentration of wealth and power in the hands of a small minority elite, and it will bring in enough revenue to fund additional redistributive programs. But chattering classes will invariably want to know how feasible or practical the plan is (translation: how costly?).  

  • Enforcement: According to the Chicago Booth Review, a substantial majority of Americans believe that Sen. Warren’s proposal would be harder to enforce than existing taxes because of the difficulties of wealth valuation and the ways that the rich under-report their wealth. Compared to income taxes, reporting, recording, and evasion all present unique hurdles when it comes to taxing wealth. That being said, part of Sen. Warren’s proposal includes provisions to mitigate against these challenges, as mentioned above.
  • Viability in Congress: Unless Democrats keep the House and take back the Senate in 2020, a wealth tax plan with redistributive intent is not likely to have any Republican support. Couple that with cries from the right about the proposed tax’s unconstitutionality, and a wealth tax bill might be dead on arrival, particularly in the Senate.
  • Wealth track record: Many European countries have experimented with wealth taxes, but over the last 20 years, seven European countries have repealed such laws. In a notable opinion, Germany’s highest court ruled their wealth tax unconstitutional in 1995, suggesting that a wealth tax is either ineffective in fighting inequalities, or it is confiscatory (the court ruled that the sum of wealth tax and income tax should not be greater than half of a taxpayer’s income). If a wealth tax must be confiscatory to be effective at wealth redistribution, Sen. Warren’s proposal might not go far enough.

Despite its challenges, the Chicago Booth Review also found that a majority of Americans agree the proposed tax would substantially impact the disproportionate share of wealth going to the top 0.1 percent of holders after two decades. Proponents of the plan have also argued that a wealth tax alone, regardless of size or extent, would discourage the accumulation of wealth, instead incentivizing the very wealthy to give charitably or increase consumption.

Honorable Mentions

Sen. Warren is prolific on economic issues, so it is difficult to choose just one policy to highlight. Some honorable mentions among the several characteristically creative and potentially transformational initiatives the Senator has already proposed in Congress and on the campaign trail:  

  • Student debt forgiveness: The Senator’s plan would forgive up to $50,000 worth of education debt for more than 95 percent of people who have it. The popular proposal would cost $640 billion over ten years and would be paid for the aforementioned wealth tax.
  • Housing: The comprehensive plan addresses skyrocketing rental costs, aims to create and maintain affordable housing units by investing $500 billion into affordable housing, reforms CRA rules to apply to non-bank mortgage lenders, and invests $2 billion in rural areas hit hard by the 2008 mortgage crisis.
  • Corporate Profits Tax: This tax plan will apply to corporations which make more than $100 million in profits annually, applying a 7 percent tax on every dollar of profit above $100 million.

Sen. Warren’s signature economic policy proposals, while progressive and popular, may not be the deciding factor in 2020. As Jan Franck, a voter from Ankeny, Iowa, told the Washington Post at a Warren event last weekend: “Nine out of ten times she would do well — but this isn’t going to be a battle for policies, because Trump doesn’t have any.”

Even if the 2020 presidential election becomes a battle of personalities, rather than policies, Sen. Warren’s ideas represent an invaluable kind of fresh, broad-minded thinking. Her proposals will continue to enrich presidential and Congressional debates, regardless of electoral outcome.

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