Elizabeth Warren Still Wants a Wealth Tax. It Still Won’t Work.

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One way to think about Sen. Elizabeth Warren’s (D–Mass.) renewed push for a wealth tax is as an opportunistic attempt to ride the pandemic policy wave: Democrats have packed hundreds of billions of dollars worth of non-pandemic policy into their pandemic relief bill, and Warren has decided that the coronavirus presents the perfect opportunity to push a signature policy that she favored long before COVID-19 was on anyone’s radar.  

Warren is spending this week talking up her “Ultra-Millionaire Tax Act.” It’s essentially a refreshed version of the same idea she proposed during her failed bid for the Democratic presidential nomination. The current measure, like the old one, would tax the net worth of American households with more than $50 million in assets to the tune of 2 percent annually, with an additional 1 percent tax for households worth more than $1 billion. Warren favored the wealth tax in 2019 when the economy was generally doing pretty well. But now, she says, it’s needed “because of the changes in this country under the pandemic.”

Another way to understand her latest push is as an effort to pressure the Biden administration to move further to the left on economic policy, in part because such efforts have been relatively successful. 

Warren’s insistence on a wealth tax was one of the ideas that set her apart from Joe Biden during the Democratic primaries. He wasn’t against increasing taxes on the wealthy, but he never backed taxing the wealthy that particular way. The wealth tax—a version of which Sen. Bernie Sanders (I–Vt.) also supported—was a radical idea. Biden was running as the Democratic primary field’s moderate. 

Yet as the Democratic party’s nominee, and then as president, Biden has moved toward the left, especially on economic policy. He’s a centrist only in the sense that he’s found the middle of the Democratic party, trying to split the difference between its more moderate factions and progressive agitators like Warren. Biden’s steady movement suggests that the pressure from the left is having an impact. 

When asked recently about Warren’s wealth tax proposal, Biden administration press secretary Jen Psaki walked a careful line: Biden “strongly believes that the ultra-wealthy and corporations need to finally start paying their fair share,” she said, according to CNN. “He’s laid out a lot of ideas and when we get to that point in our agenda, he’ll look forward to working with [Warren] and others in Congress.” Biden isn’t committing to the idea. But he’s not quite firmly ruling it out either. 

Still, Warren’s wealth tax is unlikely to end up on the Biden administration’s agenda, at least in its current form: In a recent interview with The New York Times, Treasury Secretary Janet Yellen, who has emerged as one of the key defenders of Biden’s $1.9 trillion stimulus plan, cautioned that Warren’s plan is “something that has very difficult implementation problems.” Yet the Times reports Warren also indicated that she “was prepared to look at ending tax treatment that could have a similarly profound effect.” The progressives Warren represents might not get exactly what they want out of the Biden administration, but their pressure is having a clear impact. 

But that’s not all that’s going on here. Warren’s advocacy for the wealth tax is also born out of a desire for easy political targets who can shoulder the blame for whatever problems or pseudo-problems Warren wants to bring up. What Warren needs are villains

Warren, like Psaki, has repeatedly invoked the idea that a wealth tax would help ensure that the rich pay their “fair share”—nevermind that the rich fund a disproportionate share of tax revenues, with the top 1 percent of earners paying about 38.5 percent of all income taxes. She complains that the system is “rigged,” that the rich are getting away with, well, something. Warren is so determined to set up the wealthy as the bad guys that she’s gone back to pushing a tax proposal that even Biden’s Treasury Secretary is skeptical of.

Yellen is right, by the way, that Warren’s plan would have “implementation problems.” That’s a polite way of saying it wouldn’t work. The wealthy tend to have difficult-to-value assets, and forcing the IRS to value them every year in order to assess the tax would, in the words of one tax expert, be an “administrative nightmare.” 

The plan would, however, result in a huge uptick in tax-related hassle for ordinary, not-super-rich people: Beyond the annual tax on wealth, her plan would also pump an additional $100 billion into the Internal Revenue Service to beef up enforcement, and mandate 30 percent annual audit rate for the agency—meaning that nearly a third of American households would be audited every year. 

What it probably wouldn’t do is raise the sort of tax revenue that Warren claims.

The most obvious change to the plan she just introduced, compared to the original 2019 proposal, is in the revenue estimates: Relying on estimates from University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman, Warren previously projected that the tax would hit about 75,000 Americans and raise about $2.75 trillion over a decade. Primarily as a result of increased household wealth, Warren now claims the tax would hit about 100,000 households and raise $3 trillion that could be spent on a slew of Democratic policy priorities

That’s unlikely. As Harvard’s Larry Summers and the University of Pennsylvania’s Natasha Sarin have argued, the estimates Warren relies on almost certainly dramatically overestimate the revenue such a tax would raise. Those estimates, Summers has written, are “substantially exaggerated—likely by around a factor of two” for any realistic implementation of the tax. Summers allows that there is room for disagreement about the methodology for estimating the effects of the wealth tax, but then notes that in the case of the estimates Warren relies on, “every choice Saez and Zucman make goes in the direction of their ideological preconceptions.” 

This isn’t a serious policy proposal, and, in some ways, it’s not meant to be. It doesn’t matter to Warren that, in addition to everything else, it might well be unconstitutional. It’s an attempt by Warren to stay on-brand. 

So she is returning to her old ideological crusade for reasons that are partly opportunistic, partly cynical, and partly strategic. This isn’t really about the particulars of the legislation. It’s a crisis-adjacent rallying cry for Warren and for Warren-ism, an attempt to use the pandemic to push the Biden administration further to the left and keep Warren visible in the process. The worrying thing, given Biden’s trajectory so far, is that even if we don’t end up with a full-fledged wealth tax, Warren, or at least Warrenism, might still win. 

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