Is Sen. Warren right to propose wealth tax on Americans worth over 50 million?
- Elizabeth Warren is the senior senator of Massachusetts, serving since 2013, and is one of the “nation’s leading progressive voices” fighting for the end to lobbying, a millionaire tax, and a solution to the opioid crisis.
- Sen. Warren revealed the Ultra-Millionaire Tax Act on Monday, March 1, proposing a yearly two percent tax on households and trusts ranging between $50 million and $1 billion.
- The act is meant to close the wealth gap exacerbated by the pandemic. Warren and her colleagues estimated that $3 trillion would be raised over the course of a decade.
- According to Statista, there were “5.91 million high net worth individuals in the United States” in 2019, and 10.23 million households with the millionaire label in 2018.
While the American economic system has been tilted to work for the rich for some time, the recent pandemic has put into sharp contrast just how skewed the system is. During a time when many low-wage workers lost employment or were forced to work in dangerous conditions, those at the top of the economy gained wildly. American billionaires have amassed more than half a trillion dollars in gains during the past year. Much of this increased wealth has come through stock market investments and capital gains. Senator Elizabeth Warren is right; It is time to level the playing field by requiring these billionaires to pay a small percentage more. This proposal would net approximately three trillion dollars over a decade, money that could be used for a number of useful social programs.
A wealth tax would be a fundamental shift in the American tax system, which is primarily designed to tax income. Under the current system, the working poor are always forced to give part of their wages in tax, whilst those with enormous resources obtained through means other than salary are not necessarily forced to pay anything, even though they could pay far more than the poor without feeling it. The United States tax code is supposed to be progressive, meaning higher earners pay higher taxes. However, years of generous tax cuts for the wealthy have eroded this structure, meaning the ultra-rich are paying less than they should. Further, this current system doesn't consider a person's assets such as business equity, real estate, and other investments that don't pay dividends.
Elizabeth Warren is wrong to suggest a wealth tax on Americans with $50 million or more in net worth. The notion that the government can seize the assets of its citizens merely because they are deemed to be excessively wealthy is offensive at best, tyrannical at worst. The wealthiest 1% of Americans already shoulder a disproportionate tax burden (as they contribute more in income taxes than the bottom 90% combined). Moreover, a burdensome wealth tax is likely to have the opposite intended effect—the top 1% will be disinclined to save and invest if they know the government will confiscate their gains.
Implementing a wealth tax also poses practical challenges—who determines the value of illiquid assets like real estate, art collections, etc.? How often would Americans need to assess their net worth? Additionally, if wealthy individuals have their assets tied to the stock market, it's possible they could be deemed wealthy enough for Warren's wealth tax. However, they could see the value of their assets evaporate with a drop in the market. Perhaps most unfair, entrepreneurs whose wealth is tied to their business would likely have to sell an equity stake in their companies to raise money to pay their wealth tax bill.
Perhaps a fatal flaw of a wealth tax is that as a direct tax, the Constitution requires that such taxes be apportioned and assessed in line with a state's percentage to the overall US population. This requirement would effectively punish poor states with low numbers of wealthy residents like West Virginia and Mississippi while favoring wealthy states like California and Connecticut—it's hard to imagine Congress passing such a tax.