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Late Capitalism

How Elizabeth Warren's Wealth Tax Would Remake America

The candidate's new policy proposal is kind of a big deal. Combine it with AOC's 70 percent plan, and you'd have a totally different society.

by Matt Taylor
Jan 28 2019, 5:00am

Donald Trump in 2015. (Photo by Chip Somodevilla/Getty Images) Social image of Elizabeth Warren via Wikimedia Commons/ElizabethforMA

On Thursday, Elizabeth Warren reminded many Democrats of what they like about her—and took a shot at rich people across America.

The Massachusetts senator, who was the first major figure in her party to announce a 2020 presidential bid, debuted what she called an "ultra-millionaire tax"—or what economists and wonky types like to call a "wealth tax." Most taxes, including Alexandria Ocasio-Cortez's much-feared 70 percent marginal tax plank, affect only income, not the accumulated mass of assets truly wealthy people have. Some European countries have wealth taxes, but the US does not, and Warren is ready to go there. Her plan would tax the assets of Americans worth $50 million or more at a 2 percent rate, which would rise to 3 percent in the case of billionaires. This would raise $2.75 trillion in new government revenue over a decade, according to celebrated economists Emmanuel Saez and Gabriel Zucman, who advised Warren on the proposal. That money could be used for everything from expanding access to healthcare to paying for clean-energy programs to relieving student loan debt.



The policy proposal quickly won praise—including from some liberals who worked for Barack Obama and were not exactly radical—because it promised to begin to slowly close the yawning gap in wealth between the super rich and everyone else. That has implications not just for proposed programs like Medicare for all and a Green New Deal, but society more broadly. Critics, mostly but not exclusively on the right, were quick to argue the wealth tax would give the rich more incentive to hide their millions from tax collectors, accelerating America's already-massive wealth concealment and tax evasion problem at a time when a known tax cheat is president and the IRS has no money to go after rich people.

For some perspective on what the plan actually would do, whether it would be even remotely enforceable, and what it might help pay for, I spoke to Felicia Wong, president and CEO of the left-leaning think tank the Roosevelt Institute. She served in political jobs at the Justice Department and the US Navy, and is also a scholar on race and inequality in America. She suggested that just by putting this plan out there, Warren had already achieved something—and that the plan's enactment and potential to restructure society were way more important than the additional programs it might fund.

VICE: What does a proposal like this mean, in the abstract, when it arguably stands no chance of passage in the short or medium term?
Felicia Wong: The way to think about really any wealth tax is a question about our democracy and whether or not we're going to have a plutocracy. A wealth tax is in part about revenues but it is certainly not only about that. It's really about reducing concentrated economic and political power, which is very much in line with Senator Warren's policy history.

It also has real race implications, if you think about it: Wealth, which is passed on through generations, is a kind of crystalized history, and the black-white wealth gap is astounding compared to the black-white income gap, which is closer to a 40 percent differential. The fact that we are talking about taxing wealth will have very significant implications on closing that black wealth gap and that's a very big deal.

There's an argument out there that revenue doesn't matter all that much because the government shouldn't worry about deficits as much as it currently does—a.k.a. Modern Monetary Theory. How do you account for that in this policy debate?
MMT is important—I am not myself an adherent. I think it's an important set of observations. But the reason I focus so much on a wealth tax as reducing concentrated economic and political power, is I think this is where the new economics is really going: It's about using taxation as an incentive to basically make it less attractive for CEOs who are taking home 350 times what the average worker is taking home—which is [roughly] ten times what they took home in the 70s—it's a way to dis-incentivize that kind of taking, most of which does not profit the economy. It's a way to use taxation to drive a better economic dynamic.

Wouldn't higher marginal income taxes like those proposed by a certain New York congresswoman be more effective at addressing income inequality specifically?
I don't see them as either/or—they're very complementary. I think they can and should coexist. They both are really trying to get the same phenomenon, which is to dis-incentivize the holding of wealth or the taking of so much income that we're really [talking] about basically another form of wealth.

On the AOC 70 percent proposal, it's important to note [again that the ratio of] chief executive pay [compared to the average worker] in the 1970s was 10 percent of what it is today, and that's when top marginal rates were closer to 80 percent.

OK, so leaving symbolism and disparities in wealth aside, how big of a deal would a wealth tax be in terms of paying for specific progressive priorities like Medicare for all, a Green New Deal, infrastructure, etc.?
The estimate that Zucman and Saez [offer is that] a wealth tax would raise about $275 billion annually, or $2.75 trillion over ten years. This would pay for free public university for everyone who could go. (That cost is estimated at about $50 billion annually.) So the money is actually quite meaningful if you think about the three or four priorities progressives have put out there. Certainly healthcare is a bigger number—government spending on healthcare is [currently] about $1 trillion. A wealth tax certainly isn't the only way to think about making the economics of Medicare for all work. It's not insignificant, but it's not complete. The second thing, Green New Deal, that's being fleshed out—it's not clear what that is going to cost now.

Won't this incentivize rich people to hide their wealth even more?
It's totally fair to note two problems with any kind of wealth taxation. One is the problem of valuation—how much is that Picasso really worth? And [then] the problem of tax avoidance.

Lily Batchelder, who is a real nuts-and-bolts tax expert, has made the argument that we are a lot better at understanding the value of peoples' holdings than we used to be in part because of technology. We have much more of a window into that than we used to.

The other important point, on tax avoidance, there is no question that is something we are going to have to deal with, including most of the offshoring problem. Zucman's real expertise is in international tax avoidance, [and] there are actually both institutional and political and structural ways to deal with tax avoidance. To me, it's not a reason not to do a wealth tax.

What do you expect in terms of pushback from an establishment that has already been mocking AOC for weeks?
We've already seen some reactions from the National Review types. It is harbinger of things to come. But there is no intellectual or policy defense for the system we have that allows this much wealth-taking and this much extraction. We see so much economic and social and political insecurity and precarity—there's no real defense. There's going to be significant pushback, but I don't think that should dissuade people from trying to do the right thing.

How big of a deal would enactment really be?
If enacted, this and other policies [like it] would really change the system, and change the country. Not just change the tax system, but change our politics, and change our democracy. I think that's what we want.

This conversation has been lightly edited and condensed for clarity. Sign up for our newsletter to get the best of VICE delivered to your inbox daily.

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