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By Benjy Sarlin and Alex Seitz-Wald
Sen. Elizabeth Warren is working on a plan to slap a 2 percent annual tax on households with over $50 million in assets — the first among 2020 presidential contenders that would raise revenue by taxing wealth rather than income.
“This is brand new,” Warren said of the wealth tax in an interview with MSNBC’s Chris Hayes on “All In” on Thursday night. “When we’re only taxing income, we’re taxing two people who may have the same income who are in wildly different economic circumstances.”
Emmanuel Saez and Gabriel Zucman, two prominent economics professors at the University of California, Berkeley, known for their research on inequality, evaluated the Massachusetts Democrat’s proposal in a letter to her office, first published by The Washington Post.
The plan, which would include an additional 1 percent surtax on billion-dollar-plus fortunes, would raise $2.75 trillion over 10 years, per their estimate, and affect 75,000 households in total.
“A progressive wealth tax is the most direct policy tool to curb the growing concentration of wealth in the United States,” Saez said in a statement to NBC News. “It can also raise sorely needed tax revenue to fund the public good. Senator Warren’s progressive wealth tax on the top 0.1 percent wealthiest Americans is an important step in this direction.”
The move comes amid a renewed discussion among Democrats over levying taxes on the ultra-rich. Freshman Rep. Alexandria Ocasio-Cortez, D-N.Y., kicked off an extended policy debate this month when she floated a 70 percent tax on income — not wealth — over $10 million. Saez, who has published research defending similarly high overall tax rates, defended Ocasio-Cortez in a New York Times op-ed.
“The rich & powerful run Washington,” Warren said on Twitter. “Here’s one benefit they wrote for themselves: After making a killing from the economy they’ve rigged, they don’t pay taxes on that accumulated wealth. It’s a system that’s rigged for the top if I ever saw one.”
The idea of a tax on wealth, where inequality is larger and more entrenched than on income, has drawn increased attention in progressive policy circles in recent years. French economist Thomas Piketty, who has worked with Saez and Zucman, garnered worldwide attention with a book on inequality in which he proposed a global tax on multimillion-dollar net worths of 1 to 2 percent.
The most recent Federal Reserve data found the wealth gap between households in the United States at its highest point on record, according to an analysis by Pew Research Center. Research by Saez and Zucman estimates that the wealthiest top 0.1 percent account for about 20 percent of all wealth in the United States in recent years, up from 7 percent in the 1970s.
President Donald Trump even flirted with a more far-reaching version of a wealth tax. In 1999, while weighing a run for president on the Reform Party ticket, he proposed a one-time $5.7 trillion “net worth tax” of 14.25 percent on households with over $10 million in assets.
He’s subsequently adopted more conventional Republican views, signing a $1.9 trillion tax cut that included significant benefits for top earners and heirs to multimillion-dollar estates.
Hayes pressed Warren on whether the super wealthy would just find new ways to avoid the tax, as they have with other taxes, but Warren, an expert in financial regulation, insisted she had thought of that and designed the plan to be difficult to thwart.
“We’re going to be out there counting them and watching them,” she said, noting the tax would have few exceptions and apply globally. “Once you’ve identified these assets, it’s actually not that complicated and hard.”
And Warren said the money raised by the tax would be used to “build opportunity for the rest of America,” arguing the current system favors the wealthy in a way that is ultimately bad for the country.
“That is not a economy that is sustainable and that is not a democracy that is sustainable,” she added.
Some tax experts have suggested that a wealth tax could face legal hurdles, however.
The Constitution places limits on the federal government’s ability to levy taxes and Congress previously had to enact the 16th Amendment to impose taxes on income. Other types of taxes have to be apportioned among the states by population, which could be difficult to reconcile with the plan.
“If the wealth tax as Senator Warren has proposed were to become unconstitutional, it would be a very different beast and the debate would shift significantly,” Ernie Tedeschi, an economist who served in the Treasury Department under President Barack Obama, told NBC news.
Anticipating the issue, Warren’s office consulted with outside legal scholars ahead of the proposal’s release, over a dozen of whom signed onto letters affirming that it passed Constitutional muster.