Warren proposes tax on assets of wealthiest Americans

Senator's plan would require richest households to pay an annual tax of 2% on each dollar of their net worth above $50 million

Jan 25, 2019 @ 9:24 am

By Bloomberg News

Democratic presidential hopeful Elizabeth Warren has proposed a wealth tax on Americans worth more than $50 million, a pitch aimed at satisfying the eagerness of progressive voters to confront income inequality.

"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," Ms. Warren said in an email to supporters. "We need structural change to fix it."

Ms. Warren's plan would require the top 75,000 households to pay an annual tax of 2% on each dollar of their net worth above $50 million. It would rise to 3% on every dollar above $1 billion.

Ms. 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.

The proposal underscores the economic populist message at the heart of Ms. Warren's campaign to challenge President Donald J. 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.

Her plan would do more to relieve inequality than New York Democratic Rep. Alexandria Ocasio-Cortez's idea to raise the top income tax rate to 70%, according to Steve Wamhoff, the director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy.

New research 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," Mr. 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?"

Conservatives Pounce

Ms. Warren's proposal is also likely to face challenges on its constitutionality.

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 Ms. Warren's allies project.

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 Mr. 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% of returns reporting at least $10 million in income in 2017, nearly double the examination rate for any other income bracket.

But Mr. Saez and Mr. Zucman estimated that taxpayers might be able to reduce their reported net worth by 15% through a combination of tax evasion and tax avoidance.

(More: Survey of U.S. investors finds the rich are getting younger)


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