Sen. Elizabeth Warren of Massachusetts, whose popularity is surging with Democratic voters, is building a reputation as the 2020 presidential candidate with a plan for everything. A Quinnipiac poll released last week found Warren earned the support of 28 percent of Democrats and Democratic-leaning independents, ousting former Vice President Joe Biden as the front-runner in the race for the party’s nomination. She also had the most votes in answer to the question, “Which candidate do you think has the best policy ideas?”
But Warren’s idea for how to pay for her ambitious plans, including “Medicare for All,” is drawing skepticism from across the political spectrum. She wants to institute a tax that would target not just the income of high-wealth individuals but also their total net assets.
Warren’s plan would levy a 2 percent tax each year on every dollar of a household’s net worth above $50 million and a 3 percent annual tax on assets above $1 billion. Economists advising her project the tax would bring in $2.75 trillion to the government’s coffers over 10 years. Warren has painted her proposal as modest, calling it a tax of “just 2 cents” on every dollar above $50 million.
Alan Viard, an American Enterprise Institute scholar, called the “2 cents” description misleading. Unlike income tax, which taxes only new income each year, the wealth tax would charge people year after year for the same assets. Over 10 years, the 2 percent tax becomes a 20 percent tax.
“Wealth taxes can be equivalent to extremely high-income tax rates,” Viard said. “Moreover, the wealth tax would be imposed in addition to the income tax, making total tax rates even higher.”
He and others have said the policy could have the counterproductive effect of slowing down the U.S. economy by reducing the amount the wealthy hold in investments.
Less investment in the United States leads to “a smaller capital stock, fewer factories, less new technology—so workers are less productive, and wages will be lower than they otherwise would have been,” Viard said. “In the end, then, a small part of the wealth tax burden could end up being borne by workers … because their wages are going to be lower than they otherwise would have been.”
A rival Democrat, tech entrepreneur Andrew Yang, pointed out in the Democratic debate in October that several European countries tried and subsequently rejected the policy. In 1995, 15 countries had wealth taxes. By 2019, only four—Belgium, Norway, Spain, and Switzerland—retained theirs. Meanwhile, France, Germany, Sweden, and other countries abandoned wealth taxes after finding they were difficult to implement, encouraged people to move their wealth abroad, disincentivized saving and investment, and didn’t raise the expected levels of revenue.
Joel Griffith, a researcher at The Heritage Foundation, said the candidates’ focus shouldn’t be on redistributing wealth but on figuring out how to uplift people who are struggling: “We want to create an environment that provides opportunities for all. … The answer is not taking from someone who has succeeded, taking that and redistributing that wealth around. The answer is equipping people to make a good living on their own.”
But before a wealth tax could go into effect—at the behest of Warren or fellow candidate Sen. Bernie Sanders of Vermont, who has proposed an even more aggressive strategy—the proposal would undoubtedly face a court challenge. Article I, Section 9 of the U.S. Constitution prohibits the imposition of a “direct tax” unless the tax draws equally from all states on a per-capita basis.