Sen. Elizabeth Warren introduced the idea of taxing the super-rich to stimulate the U.S. economy and decrease the perceived wealth gap as part of her campaign to become the Democratic presidential candidate to face Donald Trump in 2020.
A group of super-wealthy Americans calling themselves the “Patriotic Billionaires” published an open letter in The New York Times backing the idea of a “moderate” wealth tax. The letter was quickly rebuked by The Wall Street Journal’s editorial board in an editorial that called for the wealthy supporters to “start writing checks” if they wanted the tax so bad.
Wealth inequality is already shaping up to be a hot-button issue in the coming 2020 election which raises the question of what a wealth tax could actually look like, and why anyone would ever volunteer to pay it. Here’s a deeper dive into the issue, per Nasdaq.com:
What a Wealth Tax Might Look Like
To understand exactly how a wealth tax would work , the Warren proposal offers a reasonable example. Under the terms of the proposal, those Americans whose assets are worth more than $50 million would pay a 2% wealth tax on the amount by which their net worth exceeded the threshold. For example, if you had $60 million in assets, then you would pay the 2% tax on $60 million minus $50 million. That would result in a wealth tax of $200,000. For billionaires, an additional 1 percentage point surtax would apply, making the total tax rate 3%.
Proponents of the proposal like it for a couple of reasons. First, it would put the burden of taxes squarely on those with the most money to pay them, potentially reducing wealth inequality. Moreover, targeting those with the most to pay could generate considerable amounts of revenue, with some estimates predicting $2.75 trillion in taxes over a 10-year period from roughly 75,000 American taxpayers.
Why Some Wealthy People Want to Pay a Wealth Tax
One might think that people like George Soros, Facebook co-founder Chris Hughes, and current and future heirs like Abigail Disney and Molly Munger would oppose wealth taxes on the basis that they’d be the people hit hardest by the tax. Yet they and 15 other wealthy Americans support such a tax, and they made their reasoning clear in an open letter to the 2020 presidential candidates.
The reasoning of these billionaires and multi-millionaires boiled down to several key points:
- Revenue from a wealth tax could reinvigorate the U.S. economy, allowing for investment in infrastructure, education, child care, and job creation to boost productivity and promote growth.
- A wealth tax would help alleviate perceived unfairness in income tax rates, where ultra-wealthy taxpayers often get preferential treatment for the types of income on which they commonly rely.
- Paying something closer to what one can afford gives wealthy Americans an opportunity to meet their patriotic duty and reduces the concentration of money that threatens to erode democracy in favor of interest-driven politics.
- Major problems like healthcare and climate change require huge amounts of capital to implement solutions, and only a wealth tax has the capacity to produce sufficient financial resources to meet those challenges effectively.
What’s Behind the Letter?
Even with this explanation, it’s reasonable to try to look between the lines to search for other motivations. Although any taxpayer could voluntarily pay more in tax to the U.S. Treasury, those signing this open letter likely want the burden spread fairly across the ranks of the wealthiest American taxpayers. Only if all top-net-worth Americans participate can they reach their goals.
Yet the proponents of the wealth tax seem to have a viewpoint that’s different from what you’d see across most of the nation’s population. Rather than working to cut their tax bills, these individuals stand ready to pay more if the resulting tax revenue gets used in a way they consider productive. It’s likely that there’d be considerable debate among the ranks of the ultra-wealthy about what types of government spending would be appropriate or desirable.
Waiting for 2021
Given the current alignment of power in Washington, no wealth tax will pass before the 2020 election offers the public the opportunity to replace enough of those in office to get such legislation through. Yet if calls to enact a wealth tax get louder over the next year, it’ll be interesting to see how big an issue it could become during the campaign.