Sen. Elizabeth Warren (D-MA) wants to curb growing inequality in the United States and make the rich pay, according to information from Jeff Stein and Christopher Ingraham in the Washington Post.
They report that UC Berkeley economists, Emmanuel Saez and Gabriel Zucman, are working with the presidential candidate to design a proposal to impose a wealth tax on Americans with fortunes worth more than $ 50 million.
Most Americans currently pay property taxes to their local government, a form of wealth tax. The majority of middle clbad badets are owned. Rich people, of course, own real estate, but tend to own mostly stocks and other financial badets that evade taxes. The French economist Thomas Piketty once again included wealth taxes in the intellectual agenda with his influential book of 2014 Capital in the 21st century. Many Democrats have spoken on the issue of unbridled inequality in recent years, but Warren is the first politician to really adopt the solution proposed by Piketty.
Sáez and Zucman are, not by chance, former collaborators of Piketty who have carried out their own influential research on the interaction between fiscal policy and extreme inequality. The basic plan is to charge a 2 percent tax on fortunes worth more than $ 50 million, and a 3 percent tax on fortunes worth more than $ 1 billion. According to the post, Saez estimates that this tax will affect approximately 75,000 families and will raise $ 2.75 billion over a 10-year period.
Taxes on equity, explained
Most taxes reach a cash flow, taking X% of your income or adding Y% to the cost of a purchase. A tax on wealth instead hits an action.
The CEO of Facebook, Mark Zuckerberg, has an approximate value of $ 57 billion. A 3 percent tax on that fortune would cost $ 1.7 billion in the first year, and if it were applied year after year, it could tax your fortune close to $ 0 over the course of several decades if the fortune did not accumulate investment gains.
Warren's proposal, of course, is a progressive wealth tax in which the 2 percent rate does not apply to the first $ 50 million and the 3 percent rate only applies when it has more than $ 1,000 millions, so no one will pay taxes. . The operation of the tax, however, would exert a dramatic gravitational tug on large fortunes and tend to lower them to the tax thresholds.
This is especially true because the mere existence of the wealth tax would, in the margin, encourage rich individuals to dissipate their fortunes in charitable giving and generous consumption. If you try to accumulate wealth, the government will impose a tax, so you could also spend it.
This is, in turn, exactly the standard economic case against wealth taxes. From a very basic and reduced perspective, the accumulation of capital (buildings, machinery, commercial equipment, etc.) leads to higher wages and living standards. A tax on wealth, by discouraging the accumulation of financial capital, could also discourage the accumulation of physical capital and, therefore, lead to lower wages and living standards.
Most agree that a simplified two-factor model of how the economy works is not accurate, but the extent to which a wealth tax seems even remotely attractive will depend on whether you think it is a decent approximation of the real world or a wild fantasy. prepared to serve the self-interest of the plutocrats.
More prosaically, the experience of the real world has been that it is a challenge in practice to impose taxes on financial badets. Real estate taxes work because you really can not move your home to the Cayman Islands. But you can certainly move your portfolio of shares to a ghost company registered in the Cayman Islands. Zucman is the author of a 2015 book on tax evasion, The hidden wealth of nations, so he is very aware of the problems of tax evasion. The plan, according to the Post, includes a series of anti-avoidance measures, which include a large increase in IRS funding and mandatory audits.
Return to future fiscal policy.
A recent OECD report noted that taxes on wealth, although once common in developed countries, have gone out of fashion in recent years.
While 12 OECD members had wealth taxes in 1990, only four (France, Norway, Spain and Switzerland) have it today. The proposed rate of Warren would be slightly lower than that of Spain but higher than the other three. The OECD report notes that the decline in wealth taxes has been driven by "administrative concerns and by the observation that taxes on net wealth have often not achieved their redistributive objectives."
In other words, not only the rich do not like to pay taxes on wealth, but countries tend to find it a challenge to make them do so.
More generally, the general trend of tax policy in recent decades has been for countries to compete with each other to be more investor friendly with lower marginal higher tax rates, lower corporate income tax rates and the elimination of taxes on wealth. The general idea has been that, while these policies can increase inequality, they will also, by attracting investments, ultimately, they will boost economic growth and make everyone better off.
In practice, while inequality has increased, the rates of economic growth in the developed world have slowed. That does not prove that the changes in the fiscal policy have been an error, perhaps the growth would have slowed even more without them. But in the aftermath of the Great Recession, the observation that the promised growth boom did not occur has provoked a growing intellectual interest in a change of approach. Warren's proposal, such as the Saez-inspired call from Alexandria Ocasio-Cortez's representative for a maximum marginal tax rate of 70 percent, is a sign that intellectual reaction is reaching the realm of practical politics.