Paul L. Caron
Dean


Thursday, September 5, 2019

Avi-Yonah: The Shaky Case Against Wealth Taxation

Reuven Avi-Yonah (Michigan), The Shaky Case Against Wealth Taxation:

American Prospect LogoEver since Senator Elizabeth Warren (D-MA) introduced her proposed wealth tax, there has been a storm of criticism against it not just from predictable sources like the Tax Foundation or Fortune magazine, but also from Democrats like former Secretary of the Treasury Larry Summers. This criticism is misguided and should not prevent other Democrats from supporting Senator Warren’s proposal.

Under Warren’s wealth tax plan, the richest 75,000 American households would pay an annual 2 percent tax on all assets—net worth—above $50 million, and a 3 percent tax on every dollar of net worth above $1 billion. University of California, Berkeley, economists Gabriel Zucman and Emmanuel Saez, who study wealth inequality, say Warren’s tax would raise around $2.75 trillion over ten years. The revenue would be used to fund, among other things, universal child care for every child age zero to five, free tuition and fees for all public colleges, and forgiveness of 95 percent of student debt.

There are four major lines of criticism of the Warren proposal, and they are all wrong. ...

The income tax was adopted over a century ago because state property taxes could not reach intangible assets like stocks and bonds, and federal consumption taxes (tariffs) were regressive. Today, we have the means to tax the super-rich on these assets, and it is high time we did so, especially when faced with inequality that rivals the Gilded Age and a president who cuts taxes on the rich and imposes tariffs on the poor. Senator Warren’s plan should be adopted, even if it fails to tax those Rembrandts.

Prior TaxProf Blog coverage:

https://taxprof.typepad.com/taxprof_blog/2019/09/avi-yonah-the-shaky-case-against-wealth-taxation.html

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Comments

I wonder. Warren's university (Harvard) takes its own legacies at 5x or 10x the rate of other students. Shouldn't this be corrected before talking about a wealth tax?

Posted by: Mike Livingston | Sep 5, 2019 3:54:19 AM

That was one of the weakest "it's Constitutional because I say it is" arguments I've ever read.

Posted by: ruralcounsel | Sep 5, 2019 4:39:17 AM

Said it before, say it again, the wealthy are different from you and I. They have choices because they have assets, which can be moved around the world with a few mouse clicks. Moreover, it is insanity to think transferring trillions to the government will somehow trickle down to the "middle class." What year was it LBJ declared a "War on Poverty?"

Posted by: Dale Spradling | Sep 5, 2019 5:32:01 AM

The author misrepresents Hamilton's position in the Hylton case to which he referred. In his brief in that case Hamilton argued that direct taxes be held to be only "capitation or poll taxes, and taxes on lands and buildings, and general assessments, whether on the whole property of individuals or on their whole real or personal estate. All else must, of necessity, be considered as indirect taxes." (see Springer v. U.S., 102 U.S. 586, 598 (1881)).

It follows from this that Warren’s wealth tax would be an unapportioned direct tax, and therefore unconstitutional.

Posted by: guy helvering | Sep 6, 2019 10:55:28 AM

One more comment: Most of this "Billionaire Wealth" is due to the run up in stock prices over the last ten years due to the Federal Reserve pumping the stock market, e.g., the greatest inequities can be found in Silicon Valley and Manhattan. Let's say Zuckerberg is worth $45 billion and pays a 3% tax equal to $1.35 billion. Now let's say stock market tanks and Zuckerberg is only worth $22.5 billion. Does he get a $675 million refund? Castles made of sand...

Finally, to my earlier point, none of Zuckerberg's wealth will be subject to Warren's tax because he has already transferred it to a charitable LLC. Fool me twice...

Posted by: Dale Spradling | Sep 7, 2019 7:41:33 AM