Politics Economists explain Warren's and Sanders' plans to tax the rich
Elizabeth Warren vows to remake capitalism. Businesses are bracing.
The Democratic party’s favored presidential candidate has proposed sweeping changes to how business operates, beyond what previous front-runners sought. Many executives bet she would tack toward the center.Elizabeth Warren promises to break that mold. The Massachusetts senator, who has moved to the front ranks of the field, talks of remaking capitalism from the ground up. As president, she would drastically cut back the size and influence of big business, push private companies from parts of the economy altogether, and shift power to government and to labor.
From 1982 to 2018 the share of U.S. wealth held by the 400 richest Americans is estimated to have grown from 1% to around 3.5%, or probably around $3 trillion.
According to Emmanuel Saez and Gabriel Zucman, the University of California at Berkeley economists who developed that estimate, that's in part because the wealthiest American families declare only a small portion of their actual economic gains in any given year as income, while leaving the rest invested in stocks and other assets, to grow in value.
Saez, 48, has been involved in a series of what are considered groundbreaking studies of U.S. income, inequality and economic mobility that involved both developing techniques to impute income based on holdings of wealth, and extensive access to U.S. Internal Revenue records.
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He and Zucman, 32, have collaborated on several papers on the topic since 2014, and recently published “The Triumph of Injustice: How the Rich Dodge Taxes How to Make Them Pay.”
"The greatest injustice of the US tax system today is its regressivity at the very top: billionaires in the top 400 pay less (relative to their true economic incomes) than the middle class," the economists wrote in a September paper.
Their work might have been little more than a provocative read on the economics circuit, had the idea of a wealth tax not been picked up by the two progressive politicians now vying with former vice president Joe Biden for first place in the Democratic Party's nominating contest for the November 2020 presidential election.
The Worst Debate Question
It's a question every Democratic presidential candidate knows is coming, and yet it always trips them up.They have struggled at every Democratic primary debate so far this year when asked if they support higher taxes not just on the rich but on the middle class, as part of Democrats' ambitious domestic policy agenda.Debate moderator George Stephanopoulos asked Sen. Elizabeth Warren (D-Mass.)at the Houston debate last month about universal health care: “Will middle-class taxes go up?”“Let’s be clear about health care,” Warren said, launching into an explanation about how middle-class Americans would pay less under a universal health care system.
Not only are Vermont senator Bernie Sanders and former Massachusetts senator Elizabeth Warren's wealth tax proposals remarkably similar, both proposals have been vetted by Saez & Zucman.
Taxing wealth, not income, became a hot-button topic during the Democratic debate in Ohio on Oct. 15, with several of the other 10 candidates on the stage rejecting it as too radical.
Entrepreneur Andrew Yang said that implementing such a tax would be impractical. Former U.S. Representative Beto O'Rourke called it "punitive." Amy Klobuchar, the Minnesota senator, said "when I look at this, I think about Donald Trump," suggesting that it would be so unpopular it could help the Republican president's re-election.
Warren and Sanders, however, have pitched it as a solution to the U.S.'s social and economic woes.
WARREN vs. SANDERS
The two politicians have slightly different proposals, but the aim is the same -to rebalance the distribution of wealth in the U.S. to fund the social programs like free college tuition that they're promising voters.
Analysis: Warren still growing into front-runner status
WESTERVILLE, Ohio (AP) — The question was inevitable. Elizabeth Warren's answer was the same. And her rivals seized on it. For the second consecutive debate, Warren refused to say whether middle-class Americans would pay higher taxes under her proposed Medicare for All plan. It was a glaring dodge for a candidate who has risen to the top of the Democratic field by unveiling detailed policy proposals and selling them with a folksy flair.And it was one of nearly a half a dozen issues where Warren found herself defending the broad ambition she has laid out to remake the American economy and rebalance the nation's wealth.
Warren would apply a 2% tax on every dollar of net worth for households worth $50 million or more, and a 3% tax on every dollar of net worth beyond $1 billion.
According to tables in a recent paper by Saez and Zucman, this would apply to around $11 trillion of holdings this year, producing revenue of at least $220 billion.
Sanders' “extreme wealth tax” would tax households with a net worth above $32 million at 1%, meaning a household with $32.5 million would pay a tax of $5,000. That tax would rise in increments, to 2% on net worth from $50 million to $250 million all the way up to 8% on wealth above $10 billion.
Sanders' campaign estimated the plan, which would tax just the top 0.1% of U.S. households, would raise an estimated $4.35 trillion over the next decade.
MAKE THE RICH PAY MORE
Saez and Zucman say their research points to the wealth tax as an effective way to equalize the amount of tax paid by people with massive fortunes like investor Warren Buffett and Amazon founder Jeff Bezos with the middle-class, and then seed the proceeds through the economy.
Had the Warren proposal been in place since 1982, the share of wealth held by the top 400 would still have risen - but only to 2%. A higher tax rate of 10% on holdings above $1 billion, meanwhile, would have kept that group's share of national wealth stable.
In more individual terms, the 3% rate on holdings above a billion would mean Bezos would be worth just $86 billion this year, versus $160 billion. At the bottom of the top 15, casino mogul Sheldon Adelson would have $18 billion, versus $35 billion.
A dozen European nations used to have wealth taxes but most have done away with them. France, one of the last, abolished its wealth tax in late 2017, after thousands of millionaires relocated to neighboring, lower-tax countries.
Saez and Zucman argue that Europe's history with wealth taxes is not relevant to the United States because those countries set their wealth tax bar too low, and because it's easier to relocate within the continent for favorable tax laws.
The U.S. tax system, on the other hand, essentially taxes all citizens, no matter where they live.
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Senators Bernie Sanders and Elizabeth Warren's new tax plans would make sure the super rich pay their fair share. » Subscribe to NowThis: ...
Economists split on Elizabeth Warren's wealth tax
Elizabeth Warren is calling for a specialized tax on the ultra-rich but some on the left aren't agreeing with her. CNBC's Robert Frank reports.