What is a Wealth Tax?
A wealth tax is simply a tax on your accumulated assets – the net value of your house (appraised value minus what you owe), the net value of other property including a farm or business, the net value of your car, the value of your retirement account(s), and other assets. Sen. Elizabeth Warren’s wealth tax plan exempts the first $50 million of your assets, and then charges 2 cents on each dollar above $50 million, and it charges 3 cents on each dollar above one billion in assets. So, this truly is a “tax on the rich.”
Note from Ann Heitland, Editor: I had lunch with a Republican recently who said “all those Democrats just want to take everything we have! — Look at that wealth tax proposal!” I said, “Wow! I didn’t know you were worth over $50 million!”
How much would it raise?
Sen. Warren estimates the tax on roughly 75,000 households will raise about $2.75 trillion in revenue over a 10-year period. Emmanuel Saez and Gabriel Zucman, the UC Berkeley economists who helped Warren craft her wealth tax, say it would raise $212 billion in 2019 (and $2.75 trillion from 2019 to 2028).
Saez is best known as the co-author with Thomas Picketty of the book, Capital, that exposed and brought to public attention to huge growth in income inequality in the U.S. The wealth tax, however, is on WEALTH, not income, and part of the reason is that the very wealthy pay a much smaller percentage of their income in taxes than ordinary people. The amount actually raised would depend on the value of the assets (which is mainly a matter already of public record), and the percentage of their income that the wealthy would be able to shield. With the $50 million exemption, added income to help with IRS enforcement, an “exit” tax for persons trying to get out of paying it, and other precautions – many based on why this tax did not work in other countries – the Warren tax almost certainly would work well in the U.S.
Is this possible to do?
Professors Saez and Zucman have just published their response to the quibbling over the numbers. The L.A. Times says, “It’s worth examining, not because it nails down their revenue estimate as indisputable (it doesn’t), but because they take point-blank aim at the odd notion in American politics that the wealthy — especially the ultra-wealthy — are somehow impossible to tax.” Here’s an excerpt from Saez and Zucman’s defense of their estimates: “ The richest 15 Americans alone are so rich that they would pay $28 billion in wealth tax, more than the [estimate given by Summers and Sarin—who say the amount is too high] grand total of $25 billion. Among these 15 richest persons, 12 of them—representing 83% of the wealth of this group—are large shareholders of corporate giants Amazon, Microsoft, Berkshire Hathaway, Facebook, Oracle, Google, Walmart, and Las Vegas Sands, whose stock is publicly traded and thus has a well-defined market value. For them, avoiding the wealth tax is impossible. How could Jeff Bezos pretend that his wealth in Amazon stock is worth only a fraction of its observable market value? For the remaining 3 in the top 15, their wealth is in private businesses (Koch industries and Bloomberg LP) for which there is no traded stock. But a large chunk of the value of these businesses derives from owning other publicly traded companies, making it hard for the Koch brothers and Michael Bloomberg to pass for paupers.” The defense of these estimates is impressive!!
What would it be used for?
Some of it for universal childcare, early childhood education, free public higher education, student debt relief (forgiveness of student higher education loans) and universal health care, according to Sen. Warren. Actual use, of course, would be up to the Congress to decide. Some would be used to enhance IRS enforcement to make sure the money is collected. Money could and should be used for infrastructure, for economic growth investment in low-income areas, for K-12 quality improvements especially in impoverished areas, etc. The money could be used to expand the earned income tax exemption or for a negative income tax for the poorest households.
But what about those European Countries that tried and it didn’t work?
Their situations were very different. Most of the European ones exempted only $1 million (not $50 million), and the estate tax which sometimes is also used as a reason the wealth tax won’t work had a threshold of $5.5 million. This very high threshold of $50 million means there are far fewer lobby groups aiming for exceptions since only 75,000 households are this rich. Most of the European countries gave in to lobbyists and did not have protections against them shielding their income.
But, isn’t this socialism?
Well, yes. So what?
The U. S. has a mixed economy. Most goods and services are provided through markets (classic capitalism) – regulated as needed to protect health and safety, ensure fair competition, avoid monopolies, and protect contracts. Goods and services that are not likely to be provided by the private sector – such as utilities – and those that have extensive “externalities” – such as education — are provided by the public (taxpayers) or public/private partnerships. Externalities are benefits to the broader community, not just the person buying the goods and services; or costs to the broader community. Public education, for example, has extensive positive benefits to business, neighborhoods, the society as a whole — not just to the person receiving the education. Taxes are, indeed, socialistic. The U.S. is a mixed – capitalist/ socialist — economy.
Did you know that the Green Bay Packers is fully owned by the City of Green Bay Wisconsin! You might say that’s “socialism”, right there in northeast Wisconsin! Except that since the government owns the means of production, it’s really communism.
Will this help curb and reduce income/wealth inequality?
Yes. Wealth inequality is even greater than income inequality. Here’s a summary from the Brookings Institute:
“In fact, the top one percent alone holds more wealth than the middle class. They owned 29 percent—or over $25 trillion—of household wealth in 2016, while the middle class owned just $18 trillion. This has not always been the case. Before 2010, the middle class owned more wealth than the top one percent. Since 1995, the share of wealth held by the middle class has steadily declined, while the top one percent’s share has steadily increased. https://www.brookings.edu/blog/up-front/2019/06/25/six-facts-about-wealth-in-the-united-states/
Overall, is this a good idea?
Other than skeptics who think it can’t be collected, and those who do not want any government expansion, opponents are having a hard time figuring out why this isn’t a good idea!