Is a Tax on ‘Ultra-Millionaires’ the Answer to Massive Inequality?

Is a Tax on ‘Ultra-Millionaires’ the Answer to Massive Inequality?

Is a Tax on ‘Ultra-Millionaires’ the Answer to Massive Inequality?

The ultra-rich have gotten even richer since the pandemic began. Elizabeth Warren says her wealth tax can combat rising inequality.

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On the 2020 presidential primary campaign trail, one of Elizabeth Warren’s applause lines came when she talked about her plan for a “wealth tax”—two cents on every dollar over $50 million. She made the issue vivid. “How many of you own a home?” she asked; at most stops, it was roughly half the crowd. “Well, you already pay a wealth tax on your major asset. You pay a property tax, right?” People start nodding. “I just want to make sure we’re also taxing the diamonds, the Rembrandts, the yachts, and the stock portfolios.” After a few months, Warren admirers would chant “Just two cents!” as she began her pitch.

The idea didn’t win her the Democratic nomination, but on Monday she took a step closer to the “big structural change” she promised, introducing a bill to impose an “Ultra Millionaire Tax” of 2 percent on Americans with more than $50 million in assets; those with more than a billion would pay three cents on every additional dollar, generating an estimated $3 trillion over the next 10 years. The bill is cosponsored by Senator Bernie Sanders and in the House by Representatives Pramila Jayapal, Progressive Caucus cochair, and moderate Brendan Boyle of Pennsylvania.

The pandemic has given new urgency to Warren’s proposal, Jayapal says: Since pandemic lockdowns began almost a year ago, the wealth of US billionaires has jumped 44 percent, by $1.3 trillion. Meanwhile, more than 10 million Americans are unemployed. “This is the disparity revealed by Covid,” Jayapal told me, “so the energy to do something about it is even greater.” And 99.95 percent of Americans, she notes, would pay no extra tax at all.

Although more than 60 percent of Americans support the idea, including a majority of Republicans, no one who backs it is under the illusion that it will pass any time soon, given Democrats’ slim majorities in both the House and Senate, which gives power to anti-tax moderates. As a candidate, President Joe Biden didn’t support the idea, instead proposing to hike top income tax rates as well as capital gains taxes. (Asked about Warren’s proposal earlier this week, though, Press Secretary Jen Psaki was diplomatic. “The president strongly believes that the ultra-wealthy and corporations need to start paying their fair share,” she told reporters.)

Still, the “Ultra Millionaire Tax” is at minimum an organizing tool that focuses attention on the obscene wealth accumulated by the 100,000 households, including 650 billionaires, who would pay the tax—inequality that has, perversely, accelerated during the pandemic. The bottom 99 percent of households, Warren says, paid about 7.2 percent of their total wealth in taxes; the top one-tenth of 1 percent paid 3.2 percent. (Even Warren’s wealth tax would leave those wealthiest Americans paying a lower rate than the 99 percent.)

A press release from Americans for Tax Fairness and the Institute for Policy Studies presents several fun (and enraging) facts. One chart shows that just 15 billionaires own one-third of the wealth held by the nation’s 650 lucky billionaires, and thus would pay one-third of the total tax bill. The 15 include familiar names like Jeff Bezos, Mark Zuckerberg, and Elon Musk, two women (Alice Walton of the famed Walmart empire and Mackenzie Scott, Bezos’s ex-wife), and no people of color.

The Warren proposal also helps illuminate the racial wealth gap, says Emory University tax law expert Dorothy Brown, author of the forthcoming The Whiteness of Wealth: How the Tax System Impoverishes Black Americans and How We Can Fix it. “Given the gap, this tax will overwhelmingly hit white wealthy Americans,” says Brown, who backs the idea. “Even wealthy black Americans don’t reach the heights of a Bezos or Zuckerberg.”

Conservatives have claimed that a wealth tax would be unconstitutional; Harvard constitutional law professor Lawrence Tribe and other experts say that’s wrong; you can read about the debate here.

Some liberal skeptics say there are better ways to hike taxes on the super-rich and also argue that it would be near-impossible to enforce. (Dean Baker of the Center for Economic Policy Research has been a persistent critic, and lays out his reasons here.)

Treasury Secretary Janet Yellen called it “something that has very difficult implementation problems,” in a New York Times DealBook interview last month. Warren insists that her proposal addresses those implementation problems.

“If Janet Yellen is all on board except for implementation we’re in really good shape on this, because the implementation part is really a lot easier than it looks,” the Massachusetts senator said. (To be fair, that’s an optimistic interpretation of Yellen’s position.)

“Implementation is a red herring, especially for the wealthiest people on the planet, who often have a pretty precise idea of what their net worth is,” says Chuck Collins of the Program on Inequality at the Institute for Policy Studies and author of The Wealth Hoarders: How Billionaires Pay Millions To Hide Trillions. “They may own some assets—appreciated art, jewelry, real estate, or closely held business assets—that would need to be appraised, just as an estate must do when a wealthy person dies.”

Jayapal notes that the bill takes into account the lessons of other countries’ wealth tax problems. Someone who wanted to leave the country to escape the tax would pay a 40 percent “exit tax,” and the plan would cover assets held anywhere, “whether in the Cayman Islands or the U.S.,” she notes—blocking two ways the über-rich have evaded wealth taxes elsewhere. It also exempts assets valued under $50,000, to simplify enforcement, and adds $100 billion to the budget of the Internal Revenue Service—while mandating an annual audit rate of 30 percent to detect cheating. The ultra-rich “have a veritable army—what I call the ‘wealth defense industry’ of wealth managers, tax attorneys, accountants—that can help them prepare the first annual wealth tax return,” says Collins.

Of course, the “wealth defense industry” is as likely, maybe more likely, to help clients find clever new ways to evade a wealth tax as to scrupulously document their assets. But by that metric, all taxation is futile, since the über-rich and corporations already pay Collins’s “veritable army” an enormous fortune to help them evade existing tax laws. Some people believe the IRS should start by vigorously enforcing the laws that already exist, which the “wealth defense industry” is evading. But when we spoke on the campaign trail, Warren insisted that the agency can do both. “You really want to say on something like this, ‘It’s just too hard’? And you know what? If it’s too hard, we’ll just take it on, and we’ll fix it.”

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