Arrington: Defending the Wealth Tax
Warren’s proposed ultra-millionaire tax has the potential to reduce inequality and better fund public programs.
Last Monday, Sen. Elizabeth Warren, D-Mass., introduced legislation in the Senate proposing a tax on the ultra-wealthy. A wealth tax is notable because it taxes net worth rather than income, making it harder for wealthy people who have low incomes to escape taxes. If passed, Americans with wealth greater than $50 million would pay an annual tax of 2% on all their assets. For those with over $1 billion in assets, there would be a 3% annual tax on their wealth above that threshold. Although Warren’s tax is backed by many progressives, including Sen. Bernie Sanders, I-Vt., it has received widespread backlash from conservative legislators and even a few Democrats, including President Joe Biden himself. Critics claim that the proposed tax is too difficult to enforce, that it would reduce America’s gross domestic product and that it would cause the ultra-wealthy to simply move abroad; these are important points on the complicated nature of wealth taxes. Yet the American public’s support for such a tax, as well as Warren’s many improvements on past attempts at a wealth tax, cannot be ignored.
Europe had 12 wealth taxes in 1990; only three remain. However, we should not use this statistic as proof of the impossibility of successful wealth tax. Warren certainly has not. One of the biggest issues with European wealth taxes was their thresholds: they did not merely target the ultra-wealthy, but the moderately wealthy as well. In France, for instance, the now-repealed wealth tax applied to those with wealth greater than only €1.3 million. This caused numerous issues. For example, some people appeared rich on paper because of family businesses, but did not have the liquid capital to pay the tax. Warren’s tax avoids this issue. Because her plan only taxes those who have a net worth of over $50 million, it would only impact around 75,000 American households. And since the threshold is so high, all of these people would almost certainly have the means to pay the tax.
Another common issue with wealth taxes is enforcement. Nonmonetary assets such as businesses, art and property can be hard to value, thus creating issues in quantifying the exact tax owed. Warren’s plan, however, has already addressed this issue, utilizing the precedent set by estate taxes. After death, all of a person’s wealth is valued and then taxed. Warren proposes that the same established process be replicated for the wealth tax.
An additional claim made by opponents of a wealth tax is that it will reduce the GDP. While this may be partially true, it is important to note that Warren’s proposed tax is projected by Warren and her team to generate $3.75 trillion in revenues over the next 10 years if it is adopted. Much of this revenue would go directly back into the economy, as the U.S. government is a huge spender. Without the tax, this money would simply stay in the pockets of ultra-millionaires and billionaires and continue bolstering economic inequality.
Yet another claim is that if the United States were to adopt a wealth tax, it would cause the rich to simply move to another country to escape taxation. This occurred when France adopted a wealth tax. However, the U.S. is in a different position than its European counterpart. For one, France is part of the European Union, which makes it very easy to move abroad; the United States has no such allowance. Secondly, Warren has foreseen this potential issue and has planned for it. Her proposed “exit tax” claims 40% of an individual’s wealth above the $50 million threshold if they renounce their American citizenship. A version of this exit tax already exists; Warren simply proposes raising it.
Of course, there are still hurdles and obstacles that need to be addressed in Warren’s plan, including ironing out enforcement and funding the process of quantifying nonmonetary assets. But the fact of the matter is that, even though Warren’s plan may not be perfect, it is the plan we need. That much is evident in the proven bipartisan support for a wealth tax: Over half of both Democrats and Republicans surveyed in a January 2020 Reuters/Ipsos poll either strongly or somewhat agreed that “the very rich should contribute an extra share of their total wealth each year to support public programs.” Supporters variously reasoned that a wealth tax would help fight inequality, put money back into circulation and provide financial means to give back to communities through public programs.
Most of the concerns that have been brought up in opposition to a wealth tax are legitimate. They are not, however, insurmountable. The failed wealth taxes of the past are only evidence of what has gone wrong; alterations and adaptations will make this policy work. Warren has incorporated the results of such trial and error into her plan. That is exactly what policymakers should continue to do, given the widespread public support for a wealth tax and the potential it has to alleviate inequality and revitalize communities. Continuing to discount a wealth tax for its current imperfections only serves to discount its vast potential for building a better future.