Despite what some of her critics have claimed, a new analysis shows Warren’s wealth tax would raise a boatload of money.
The most recent version of Warren’s proposal would impose a 2 percent tax on net worth above $50 million and a 6 percent tax above $1 billion. The campaign says this would bring in $3.75 trillion over a decade. Penn Wharton—which specializes in conventional, middle-of-the-road budget analysis—estimates the total would likely be $2.7 trillion, if you don’t factor in macroeconomic effects. However, the group believes that the wealth tax would also slow growth, shaving 2.
It is probably best not to worry about Penn Wharton’s economic predictions, which hinge on the somewhat dated idea that taxing wealth will badly hurt business investment because the rich will save much less. This idea might have made some sense 40 years ago, when capital was harder to come by, but the world has been swimming in a glut of savings for decades now. Capital just isn’t that scarce of a resource, which is why interest rates on both government and corporate bonds are still fairly low.
Penn Wharton’s revenue estimates, in contrast, are worth your attention, if only because the results are likely a good preview of how Capitol Hill’s official analysts at the Congressional Budget Office and Joint Committee on Taxation will ultimately score a wealth tax. So why does Penn Wharton think it will raise less than Warren has promised?
Much of the difference boils down to different assumptions about tax avoidance and evasion. Just about everyone assumes that if you slap a tax on billionaires’ wealth, they will do their best to get out of paying it, whether that means legally gaming rules about gifts and trusts, squirreling away assets in secret accounts, or just blowing money on a new super yacht because, heck, otherwise it’d be going to the IRS.
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