Why Are So Many Dems Attacking Warren's Wealth Tax Plan?
All of the remaining Democratic presidential candidates favor increasing taxes on wealthy people.
So why, then, do most of them seem to think that the "wealth tax" plans espoused by Sens. Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont are bad ideas?
First, a brief primer: Unlike the income tax, the primary mode that the U.S. government has used for more than a century to tax individuals, a wealth tax could —theoretically, at least — be levied against rich people who don't make a nickel all year. It would tax the wealth itself, the total value of someone's personal assets.
The Warren Plan and the Sanders Plan
Warren's "Ultra-Millionaire Tax" calls for a 2% annual tax on households with a net worth between $50 million and $1 billion, and a 3% tax on those above $1 billion. Sanders' plan is even more ambitious, dropping the minimum household qualification level to $32 million and then applying increasing marginal rates, topping out at 8% for households with a net worth of over $10 billion.
Both candidates say that their plans would produce enormous levels of tax revenue that could be used to cancel student debt and provide universal child care, among other benefits.
Polls, meanwhile, show that a wealth tax enjoys strong support among Americans. So why are the candidates not named Warren or Sanders so cool on the plan?
For an answer, you could look at what some of the candidates said about a wealth tax at the last Democratic presidential debate, Oct. 15 in Ohio, where most of the criticism was directed at Warren, who had emerged as a front-runner.
Entrepreneur Andrew Yang said wealth taxes had failed in several other countries where it has been tried, former Rep. Beto O'Rourke of Texas called it "punitive," and Sen. Amy Klobuchar of Minnesota said she felt the idea would be so unpopular at election time that it would help reelect Donald Trump.
They might all be right.
Can a Wealth Tax Be Effectively Implemented?
Yang's criticism, for one, does have merit. "A dozen European nations used to have wealth taxes, but most have done away with them," Reuters reported on Oct. 17. "France, one of the last, abolished its wealth tax in late 2017, after thousands of millionaires relocated to neighboring, lower-tax countries."
And there could be enormous implementation challenges. "(A) wealth tax would be an administrative nightmare," University of Chicago Law School assistant professor Daniel Hemel, wrote in Time magazine. "It would require us to calculate the value of a household's assets year in and year out."
But, of course, others disagree. In a recent Brookings Institution paper, Emmanuel Saez and Gabriel Zucman, who have advised Warren in formulating her plan, argue that a wealth tax is doable if proper steps are taken. Among their points:
- The reason most of the wealth tax efforts in Europe failed is because most of them set the threshold extremely low, at $1 million. (Warren's is 50 times higher.)
- The 2010 passage of the Foreign Account Tax Compliance Act (FATCA), an effort to combat offshore evasion, makes it easier to crack down on those who try to do hide their wealth by that tactic.
- Third parties, such as financial institutions, could be required to report wealth balances, thus reducing reliance on household self-reporting.
Those might be big ifs. But as John Cassidy reports in The New Yorker, if a wealth tax could be implemented, it "would be a historic step, akin to the introduction of the personal income tax, in 1913."
It remains to be seen whether a wealth tax has traction as the presidential campaigns proceed. But the public support for wealth taxes, as demonstrated by polls, is real.
After all, most people like the idea of soaking the rich.
- Under the U.S. Tax System, Do the Rich Really Get Richer? (FindLaw's Legal Commentary)
- Elizabeth Warren Wants to Make Mega Tech Companies 'Platform Utilities' (FindLaw's In House)
- Famous Tax Evasion Cases (FindLaw's Learn About the Law)
- Disclosing Foreign Accounts: IRS Form 8938 (FindLaw's Free Enterprise)
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