TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, January 29, 2019

More On Elizabeth Warren's Wealth Tax

Following up on my previous posts:

New York Times op-ed:  Elizabeth Warren Does Teddy Roosevelt, by Paul Krugman:

America invented progressive taxation. And there was a time when leading American politicians were proud to proclaim their willingness to tax the wealthy, not just to raise revenue, but to limit excessive concentration of economic power.

“It is important,” said Theodore Roosevelt in 1906, “to grapple with the problems connected with the amassing of enormous fortunes” — some of them, he declared, “swollen beyond all healthy limits.”

Today we are once again living in an era of extraordinary wealth concentrated in the hands of a few people, with the net worth of the wealthiest 0.1 percent of Americans almost equal to that of the bottom 90 percent combined. And this concentration of wealth is growing; as Thomas Piketty famously argued in his book “Capital in the 21st Century,” we seem to be heading toward a society dominated by vast, often inherited fortunes.

So can today’s politicians rise to the challenge? Well, Elizabeth Warren has released an impressive proposal for taxing extreme wealth. And whether or not she herself becomes the Democratic nominee for president, it says good things about her party that something this smart and daring is even part of the discussion.

The Warren proposal would impose a 2 percent annual tax on an individual household’s net worth in excess of $50 million, and an additional 1 percent on wealth in excess of $1 billion. The proposal was released along with an analysis by Emmanuel Saez and Gabriel Zucman of Berkeley, two of the world’s leading experts on inequality.

Saez and Zucman found that this tax would affect only a small number of very wealthy people — around 75,000 households. But because these households are so wealthy, it would raise a lot of revenue, around $2.75 trillion over the next decade.

Make no mistake: This is a pretty radical plan.

I asked Saez how much it would raise the share of income (as opposed to wealth) that the economic elite pays in taxes. His estimate was that it would raise the average tax rate on the top 0.1 percent to 48 percent from 36 percent, and bring the average tax on the top 0.01 percent up to 57 percent. Those are high numbers, although they’re roughly comparable to average tax rates in the 1950s. ...

I’ve been struck by the reactions of tax experts like Lily Batchelder and David Kamin; while they don’t necessarily endorse the Warren plan, they clearly see it as serious and worthy of consideration. 

(Hat Tip: Mike Simkovic)  Additional press coverage:

https://taxprof.typepad.com/taxprof_blog/2019/01/more-on-elizabeth-warrens-wealth-tax.html

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Comments

Good luck with enforcement. Valuation cases are already a headache for the IRS and they consume a lot of time and resources. Examination will take years and then it will go to litigation which will take even longer. It would be at least a decade before the IRS would resolve and collect from a single taxpayer.

Posted by: Chris P. | Jan 29, 2019 2:42:20 PM

"leading experts on inequality"???

People. We already have a wealth tax. It's called inflation.

If you want more of it, just ask the Fed print more money and buy equities with it or whatever, and turn over the profit to the Treasury. Easy peasy. No legislation needed and no need to waste time trying to salvage a doomed candidacy.

"serious and worthy of consideration"???

Posted by: Anon | Jan 29, 2019 9:49:05 PM

75,000 households?

Very funny. Citizenship renunciations will hit the roof.

2% and 1%?

I'm sure it will never be any higher and you have no plans to boil any frogs.

If you give them an inch, they will take a mile.

Posted by: Anon | Jan 29, 2019 9:58:45 PM

It seems like it would make more sense to introduce meaningful reform to the gift and estate tax regime so that were aren't "double taxing" wealth that has already been subject to income taxation. Inheritances and gifts are income to the recipients so just tax that (my clients who inherited large amounts of wealth were always surprised to hear that no tax was due on it because the estate or trust pays the tax...so that space seems like a better place to go after revenue than a wealth tax that hits every year and would be viewed as a double tax system). I know that fortunes in excess of $50M are typically comprised largely of assets with unrealized appreciation so I know the "double taxation" issue isn't really a thing in most cases, but it's difficult for a society that derives its existence from income that is already taxed to get on board with a wealth tax because society views such a tax through the lense of their own assets and income. I think reforming the estate and gift regime is more feasible.

Posted by: Anon | Jan 30, 2019 3:14:52 AM

It's sad that the writers of the Ackerman, et al. letter failed to distinguish between a tax on the transfer of property (which was the type of tax involved in the Knowlton case) and a tax on the mere ownership of property, which is what a wealth tax would be.

Posted by: guy helvering | Jan 30, 2019 8:36:51 AM

"Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise." - Thomas Jefferson in a letter to James Madison


Posted by: Unemployed Northeastern | Jan 30, 2019 9:42:59 AM

Guy,

That's a distinction without a difference. As every second year law student knows, the realization requirement exists only for administrative convenience and is not a constitutional requirement. If your property appreciates in value, it's income except for the extremely generous tax loophole that we refer to as the realization requirement.

Posted by: Distinction without a difference | Jan 30, 2019 12:03:07 PM

Re estate taxes, Anon is concerned "that were aren't "double taxing" wealth that has already been subject to income taxation." Most inherited wealth is in fact untaxed capital gains; by definition, they wouldn't be capital gains if they'd been taxed before. There's no such thing as double taxation of capital gains. The basis may have been taxed before, but not the gain. Period.

Posted by: Gerald Scorse | Jan 31, 2019 8:45:21 AM