Paul L. Caron

Monday, November 18, 2019

WSJ: Elizabeth Warren’s Plan Would Bring Tax Rates Over 150% For Some

Wall Street Journal, Elizabeth Warren’s Tax Plan Would Bring Rates Over 100% for Some:

WSJPresidential hopeful proposes wealth tax and levy on unrealized gains, a combination that could alter investing.

Democratic presidential candidate Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%.

That prospect raises questions for taxpayers and the broader economy that experts are starting to ponder: Under which circumstances would taxpayers have to pay those rates? How might that change their behavior? And would investment and economic growth suffer?

Potential tax rates over 100% could result from the combination of tax increases the Massachusetts senator proposes for the very top tier of investors. She wants to return the top income-tax rate to 39.6% from 37%, impose a new 14.8% tax for Social Security, add an annual tax of up to 6% on accumulated wealth and require rich investors to pay capital-gains taxes at the same rates as other income even if they don’t sell their assets.

Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend or interest. If all of Ms. Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.

The rate would vary according to the investor’s circumstances, any state taxes, the profitability of his investments and as-yet-unspecified policy details, but tax rates of over 100% on investment income would be typical, especially for billionaires.

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You can always trust the Wall Street Journal to bring out the crying towel for billionaires. It's a shame they don't feel as deeply for those a bit lower on the income scale.

Posted by: Gerald Scorse | Nov 18, 2019 5:48:47 AM

Sorry, can’t let this ridiculous math fly by without a comment.

An income tax of 58% is not a tax rate over 100%, much less over 150%. 58% is high, but you don’t get to just double or triple the number for rhetorical effect.

A wealth tax of 6% on investments over $1 billion is not an income tax. You can’t recalculate it as a percentage of income and add it to an income tax rate, because that’s simply not what it is.

Finally, the math here is done wrong. Because the wealth tax has a $1B threshold, the tax on a $1,000 investment is zero. In order to get any impact of a wealth tax, you should be looking at investments over $1B. So, make the investment $1,000,001,000. In that case, the income at 6% would be $60,000,060, the tax would be $60 (6% of the excess wealth over $1B), and the rate, as a percentage of income (which again is not the base for the tax), would be 0.0000999999%.

Posted by: Matt | Nov 18, 2019 8:05:30 AM

Matt, good observation. Dozens of people pointed this out in the comments to the actual WSJ article as soon as it was posted and yet there was no change to the article’s headline or content. It’s concerning when the WSJ’s tax policy reporter gets it this wrong. I’m certainly no fan of Warren or her plans but sloppy reporting like this just allows supporters of such schemes to point out the falsehoods being peddled by detractors. Shouldn’t there be some minimum level of demonstrated understanding about the topics one covers?

Posted by: Chris | Nov 20, 2019 3:54:21 AM