Elizabeth Warren to Propose New ‘Wealth Tax’ on Very Rich Americans, Economist Says

Washington Post

By Jeff Stein and Christopher Ingraham

January 24 at 1:40 PM

Sen. Elizabeth Warren (D-Mass.) will propose a new annual “wealth tax” on Americans with more than $50 million in assets, according to an economist advising her on the plan, as Democratic leaders vie for increasingly aggressive solutions to the nation’s soaring wealth inequality.

Emmanuel Saez and Gabriel Zucman, two left-leaning economists at the University of California, Berkeley, have been advising Warren on a proposal to levy a 2 percent wealth tax on Americans with assets above $50 million, as well as a 3 percent wealth tax on those who have more than $1 billion, according to Saez.

The wealth tax would raise $2.75 trillion over a ten-year period from about 75,000 families, or less than 0.1 percent of U.S. households, Saez said.

Learn more about why the U.S. needs this in a report from the Institute on Taxation and Economic Policy (ITEP; http://www.itep.org/):

The U.S. Needs a Federal Wealth Tax

January 23, 2019

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Table of Contents: Why the United States Needs a Federal Wealth Tax | How a Federal Wealth Tax Would Be Administered | A Federal Wealth Tax Would Be Constitutional | Methodology | Acknowledgments

A federal wealth tax on the richest 0.1 percent of Americans is a viable approach for Congress to raise revenue and is one of the few approaches that could truly address rising inequality. As this report explains, an annual federal tax of only 1 percent on the portion of any taxpayer’s net worth exceeding the threshold for belonging to the wealthiest 0.1 percent (likely to be about $32.2 million in 2020) could raise $1.3 trillion over a decade.

Many working families know that a large part of their wealth is their home, which is subject to an annual property tax at rates that, in some states, approach or even exceed one percent. The homes of the very rich typically make up a much smaller share of their overall wealth, meaning state and local property taxes have little effect on them.[1] A federal wealth tax could ensure that the net worth of the very rich is treated more like the wealth held by the middle-class.

This report also addresses the two most commonly raised objections to proposals for a federal wealth tax, which are related to administrability and constitutionality. The challenges in administrating such a tax are real but can be overcome. The objection that the tax would violate the Constitution is based on vague constitutional provisions that were part of the compromise allowing slavery in the United States and that should be interpreted narrowly given how much the nation has changed since its founding.

Why the United States Needs a Federal Wealth Tax

The goals of raising revenue and addressing inequality will be difficult to achieve if federal tax policy continues to focus on taxing income almost exclusively.

One reason is that wealth inequality is much greater than income inequality. The 1 percent of Americans with the highest incomes receive about a fifth of the total income in the United States.[2] In contrast, the top 1 percent of wealth holders in the nation own 42 percent of the nation’s wealth according to estimates from Emmanuel Saez and Gabriel Zucman.[3]

Likewise, the racial wealth gap is far greater than the racial income gap in the United States. According to Census data, median income in 2017 was about $68,000 for white households compared to $50,000 for Latinx households and about $40,000 for black households.[4] The racial wealth gap is far more dramatic because it is a result of generations of compounded inequality. A recent report from Prosperity Now finds that in 2016 median wealth in the nation was $140,500 for white households but just $3,400 for black households and $6,300 for Latinx households.[5]

Wealth inequality has grown dramatically in the past several decades. Saez and Zucman found that the share of wealth held by the very wealthiest 0.1 percent—a group of just 160,700 families who all had net worth exceeding $20 million in 2012—tripled from 7 percent in 1978 to 22 percent in 2012.[6] By 2012, the wealthiest 0.1 percent held nearly as much wealth as the bottom 90 percent, who owned 22.8 percent of the total.

Wealth fluctuates considerably from year to year, but the trend over the past several decades has been for it to grow much more rapidly for those at the top. The data from Saez and Zucman show that the wealth of the top 0.1 percent grew by an average of 9.5 percent annually from 1986 through 2012 whereas wealth of the bottom 90 percent grew by an average 4.3 percent during that period.

Another, closely related problem with relying on income taxes is that much of the income received by the richest Americans is “unrealized capital gains” which are not taxed. When the value of an asset rises, for all practical purposes that increase in value is income for the owner of the asset, but our current laws do not tax this income until the asset is sold. (In other words, capital gains on an asset are not “realized” until the asset is sold.)

This means that wealthy individuals who own a disproportionate share of all assets can defer paying tax on much of their income for years, allowing their wealth to grow much more rapidly. Meanwhile, most income of working Americans (income like wages or interest on a savings account) is taxed annually.[7]

While this may seem like an arcane matter, it allows the net worth of the wealthiest to build up much more rapidly and substantially. For example, one tax expert estimated in 2015 that Warren Buffett, whose net worth was then nearly $70 billion, would have been worth $9.5 billion if his capital gains had been taxed each year regardless of whether assets were sold.[8]

This means that much of the economic income flowing to the very wealthy each year is entirely exempt from the personal income tax.[9] The very thing that is driving inequality—the rapid appreciation of assets held by the wealthy—is itself nearly untouched by federal taxes.[10]

One solution is for the federal government to tax that wealth directly. The following explains how a mere 1 percent annual federal tax on the wealth of the top 0.1 percent of households would work assuming it takes effect in 2020.

In 2020, a family would likely need to have net worth exceeding $32.2 million to be part of the wealthiest 0.1 percent of Americans. (Estimates are explained in the methodology section at the end this report.) The tax would be imposed on net worth exceeding $32.2 million in 2020 and the threshold would be adjusted each year. This means that, for example, in 2020 a taxpayer with a net worth of $32.4 million would pay 1 percent of $200,000, which comes to $2,000.

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