Friday, September 06, 2019

Zero Cheers for Warren’s Wealth Tax

By MICHAEL R. STRAIN | National Review

Sen. Elizabeth Warren high-fives a girl at the Iowa State Fair in Des Moines, Iowa, August 10, 2019. (Brian Snyder/Reuters)

Senator Warren’s proposal would hit fortunes above $50 million with a 2 percent annual wealth tax. Fortunes above $1 billion would be taxed annually at 3 percent.

Why is this a bad idea?

  • Recent research and analysis convincingly argues that the plan would collect a fraction of the revenue that Warren’s advisers expect. Lawrence Summers, the economist and former Treasury secretary, and Penn professor Natasha Sarin argue this from the U.S.’s experience with the estate tax. And economists Matthew Smith, Owen Zidar and Eric Zwick present preliminary estimates suggesting that the Warren proposal would raise half as much as projected.
  • It may be unconstitutional, and its constitutionality would surely be challenged.
  • It is equivalent to an income tax of well over 100 percent, in many cases. For example, a 2% wealth tax on an asset that yields a steady 1.5% return is equivalent to a 133% income tax.
  • By reducing national savings, it would either reduce investment — which would reduce productivity and wages — or increase inflows of foreign capital.
  • It would not curb political influence in the way its advocates suggest.

I discuss the senator’s plan in my latest Bloomberg column:

Warren’s wealth tax would be an abuse of government power. It is the tax-code equivalent of looting mansions. What is wrong with the way these 75,000 families made their money? Why should we have special tax rules for a tiny fraction — 0.06% — of households?

Paying taxes is not a punishment, and the tax code should not be used to penalize any group of citizens. Not even the very rich.

MICHAEL R. STRAIN is the John G. Searle Scholar at the American Enterprise Institute. @michaelrstrain