(Sinclair) Sen. Elizabeth Warren is promoting the wealth tax proposal intended to fund much of her 2020 presidential campaign’s agenda by aggressively taking on individual billionaires who have complained about it, but a new analysis is adding to doubts raised by experts about the potential economic ramifications of the policy.
In recent weeks, the Massachusetts senator has faced increasingly vocal objections from prominent investors and entrepreneurs who accuse her of vilifying success and discouraging innovation. She has not shied away from clapping back at them with a mix of policy arguments and snark.
Warren’s original “ultra-millionaire tax” proposal included a 2% annual levy on wealth between $50 million and $1 billion and a 3% tax on wealth above $1 billion. As part of the Medicare for All plan she released earlier this month, the tax on assets above $1 billion would increase to 6%.
Warren posted a “Calculator for Billionaires” on her website showing how much someone would pay under her plan based on net worth. After Microsoft founder Bill Gates suggested she may be asking too much of the wealthy, her campaign added a personalized link for him, calculating he would pay $6.379 billion next year under her tax. When former New York City Mayor Michael Bloomberg signaled he might enter the Democratic race last week, they dropped in a link for him too.
“WOW—YOU’VE GOT A LOT OF MONEY!” the site says if you follow those links, adding that they “likely won’t even feel” the cost of the tax.
Leon Cooperman, founder of Omega Advisors, has repeatedly criticized Warren over what he calls a “bankrupt concept,” telling CNBC Monday it could "lead to inappropriate actions in the economy that are counterproductive." Warren’s calculator also includes a personalized link for Cooperman.
Former Goldman Sachs CEO Lloyd Blankfein told CNN last month he fears Warren’s policies could result in “cataclysmic change,” even as he insisted he is not opposed to paying higher taxes.
"I'd like to pay no taxes, but I'd like to live in a civilized world where people aren't coming with torches and rakes trying to, you know, kill each other," Blankfein said. "I sure as heck would be willing to pay more tax if it could buy a happier and less polarized society."
Warren released an ad Wednesday featuring clips of both men, as well as Republican donors Peter Thiel and Joe Ricketts. The minutelong spot noted Cooperman faced insider trading charges in 2017 and Blankfein received $70 million in compensation during the financial crash.
“She’s disgraceful. She doesn’t know who the f*** she’s tweeting. I gave away more in the year than she has in her whole f***ing lifetime,” Cooperman responded in an interview with CNBC.
Blankfein, a registered Democrat, claimed on Twitter that he agrees with Warren on many issues and was surprised she singled him out in the ad. “Maybe tribalism is just in her DNA,” he added, an apparent reference to her contested claim of Native American heritage.
Warren said Friday she appears to have “struck a nerve,” so she plans to increase the ad buy.
“This is how Wall Street's corrupt grip on Washington will end. Not with a bang, but with the tears of some sad billionaires—who will still be unimaginably rich, but will have paid their fair share so America could cancel student loan debt, have universal child care, and more,” Warren tweeted.
As if to underscore that point, her campaign is now selling “Billionaire Tears” coffee mugs.
Michael Cohen, chief strategy officer for Republican polling and data firm WPA Intelligence, said billionaires like Blankfein and Cooperman have made themselves easy targets for Warren at a time when she could use a boost in primary polls.
“It’s kind of a lazy foil, to be honest. Very few billionaires are beloved, so they’re easy to attack,” he said. “I guess Warren found her bogeyman.”
In the process, though, the senator is angering potential Democratic donors with deep pockets, many of whom are warning they may back President Trump or sit out the election if she is the nominee.
“It’s probably more divisive in her party than she thinks at this point,” Cohen said of the wealth tax.
Those who would have to pay the tax are not the only ones warning its effects could be damaging. The Penn Wharton Budget Model released preliminary projections for a wealth tax plan similar to Warren’s Thursday, estimating it would reduce economic growth by 0.2% per year over the course of a decade.
A more detailed analysis specific to Warren's plan is set for release next month, but Penn Wharton economists said a wealth tax would increase the cost of saving money, leading the wealthy to invest less to avoid building up taxable wealth and assets. They also questioned Warren’s estimate that her wealth tax would raise $3 trillion over ten years, suggesting more realistic adjustments could reduce that number by at least 25%.
Warren supporters argue the Penn Wharton projection is inaccurate because it presumes the $3 trillion would be directed to debt reduction, while her plan is to spend it on government programs and infrastructure investment. They say other experts have predicted her proposal would increase GDP if enacted.
“Based on my own analyses, Warren's plans for child care, housing, and green manufacturing would spur economic growth and produce more tax revenue,” Mark Zandi, chief economist for Moody’s Analytics, wrote in a CNN.com op-ed earlier this week defending Warren’s math.
Penn Wharton economists told The New York Times their assumption that the revenue would go toward paying down the debt is consistent with Congressional Budget Office scoring conventions. Diane Lim, a senior adviser to the Penn Wharton Budget Model, described the GDP projection as a “trial simulation” and stressed that the final analysis accounting for additional factors could produce a different result.
“To the extent that revenue would be used to pay for government spending that has a more positive effect on GDP than deficit reduction has, the net negative effect of the wealth tax on GDP would be smaller,” Lim said. “This is why this is not just ‘preliminary’ but not yet complete.”
Other economists have raised concerns about Warren’s wealth tax proposal since she first unveiled it in January. In an August 2019 analysis, Chris Edwards of the Cato Institute observed nine of the 12 European countries that had similar taxes 30 years ago have since repealed them.
“The Europeans found that imposing punitive taxes on the wealthy was counterproductive. Wealth taxes encouraged avoidance, evasion, and capital flight. In most countries, wealth taxes raised little revenue and became riddled with exemptions,” he wrote.
Aparna Mathur, a resident scholar at the American Enterprise Institute, said other measures like taxing unrealized capital gains, fixing estate tax loopholes, or introducing a progressive consumption tax could reduce income inequality without the potential drag on GDP that comes with a wealth tax.
“Obviously, such high tax rates can have negative impacts on economic growth because all of this tax applies to assets and savings that people own. If we tax the buildup of savings, assets, and investment, then we are discouraging that activity, which could potentially reduce economic growth,” Mathur said.
According to Garrett Watson, special projects manager for the Tax Foundation, foreign investment might make up for some of those losses, but that would be unlikely to offset all the negative effects.
“It would reduce the labor supply by reducing the return to working for those subject to the tax, and would lower investment by raising the investment return needed to cover the additional taxes levied on wealth,” Watson said.
Critics have also cited legal and logistical challenges for implementing a wealth tax. Though the Warren campaign points to “a broad legal consensus” that her proposal is constitutional, other legal experts maintain a federal tax on wealth and possessions is not authorized under the Constitution.
Other questions involve assessing wealth and the monetary value of assets, which the campaign says can be done by building on the Internal Revenue Service’s existing framework for evaluation. The campaign also emphasizes there would be no loopholes or exemptions, and Warren’s revenue estimate assumes a rate of noncompliance similar to what other countries have experienced.
“Trying to value every asset owned by someone, whether or not that asset has been traded, is a tough task. So, I see not only problems with revenue collections but tax avoidance and evasion that could really reduce projected revenues significantly,” Mathur said, warning that unpredictability makes using such a tax to fund social programs risky.
Watson pointed to research suggesting the tax avoidance rate could be more than double what Warren has projected.
“A wealth tax would encourage avoidance behavior by the wealthy, for example by shifting assets to family members while retaining some control over the wealth, shifting wealth into hard-to-value assets, and in the extreme case expatriating from the U.S.,” he said.
Economists Gabriel Zucman and Emmanuel Saez, who have advised Warren's campaign, calculated the long-term impact the tax would have had on some of the nation’s richest individuals if it had been in effect since 1982. According to their estimates, Amazon founder Jeff Bezos would now have $95.3 billion instead of $160 billion; Gates’ fortune would be $42.2 billion rather than $97 billion, and Facebook CEO Mark Zuckerberg’s wealth would be slashed from $61 billion to $46.5 billion.
“The wealth [tax] is the proper way to tax billionaires,” Zucman said in an interview with Capital & Main. “Because these extremely wealthy individuals can own a lot of wealth while reporting little taxable income.”
Warren’s wealth tax proposal is less extreme than the one Sen. Bernie Sanders has offered, and unlike him, she has rejected the proposition that billionaires should not exist at all. Still, she is the one drawing the ire of the rich, and she seems fine with that.
“You make it to the top, to the tiptop, then the answer is: pay a wealth tax, so that we can invest and create opportunities for everyone else. That’s what my two-cent wealth tax is all about,” Warren said at the Presidential Forum on Environmental Justice in South Carolina last week.
Sen. Warren’s public feud with several of the wealthiest men in America over her tax plan has won her praise on the left. Slate business correspondent Jordan Weissman likened her antagonism of the rich to President Trump’s ability to “own the libs.”
“It appears that Warren might be the first Democrat to have learned the art of commanding the news cycle by trolling her enemies. This is a legitimately important political skill when you might be running against Donald Trump in the general election,” he wrote.
Graeme Wood of The Atlantic described Warren’s offensive against the wealthy as “a useful savagery” that could help her overcome perceptions that she is merely a professorial policy wonk.
“The strategic vilification of individual billionaires has been a master stroke, an opportunity seized with unprincipled abandon,” Wood wrote.
