Elizabeth Warren’s campaign got a much-needed boost during her first visit to the Bay Area as a Democratic presidential candidate. Her fiery speeches, first in Kamala Harris’ home turf of Oakland, then at the California state party convention at Moscone Center, railed against corporate greed, government pandering to moneyed interests, and especially income inequality. The speeches were very well received, notable in the Bay Area, where perhaps the largest concentration of wealth on earth is located.
Warren brings her “I got a plan for that’ mantra to bear on the issue of income inequality, a top ten issue to Democratic voters. As per Fortune magazine, America has the highest level of inequality in the world, with the richest 1% owning 40% of the total household wealth as of 2017, up from 33% in 2013. But as Warren points out, it’s not so much income- but rather wealth inequality that’s the issue. That’s because wealth of the superrich is concentrated in assets such as real estate, stocks and bonds far more than in ordinary income as with most Americans. Warren Buffett’s net worth, for example, is estimated at $84 billion - mostly in stocks – while he pays himself only $100,000 per year as an income. He once famously pointed-out that he pays far less in taxes relative to his net worth than does his secretary.
Warren’s Wealth Tax proposal seeks to address both this wealth inequality and the tax burden disparity. The proposal would tax a family’s total wealth at values above $50 million at 2% per year, with an additional surcharge of 1% over $1 billion. About 75,000 families would owe such a tax (or 1 out of 1,700) as per estimates, bringing in $2.75 trillion over 10 years.
But critics of the plan point to the administrative nightmare the IRS would have trying to keep track of illiquid assets (e.g., real estate or stakes in privately held companies), which are changing constantly in value. The superrich are very likely to mount a formidable challenge to such a tax, and they have considerable resources to do it with. Wealth taxes are historically notorious for avoidance and they typically raise much less than expected, according to economists. Which is why most western democracies have abandoned the idea decades ago. Perhaps more importantly, even were the tax to be passed by Congress, it would likely be struck down by the Supreme Court as unconstitutional. The power to levy such a “direct tax” is seen as a one reserved for the States and not the Federal government.
Opponents of the plan also point out that the proposal would tax the very large-scale investments that most contribute to the economy and create the largest number of jobs. Such a tax would disincentivize the kinds of investments that can transform society but which don’t pay steady, predictable returns favored by smaller and institutional investors.
So what do you think of Elizabeth Warren’s proposal? Join us at SFDebate to air your opinions and debate those of others. $5 will be charged at the door for all attendees.