Former Clinton administration U.S. Treasury Secretary Larry Summers is the latest to take aim at Sen. Elizabeth Warren’s tax proposals, saying Tuesday they will only end up hurting the U.S. economy.
“I don’t think that taxation approaching confiscatory is remotely feasible and, if it was tried, would have catastrophic economic consequences,” Summers, a former economic adviser to President Barack Obama, said on CNBC’s “Closing Bell.”
This isn’t the first time Summers has blasted Warren’s proposals, previously saying they were a waste of time that had better than a 50% chance of being struck down as unconstitutional, in addition to having next to no chance of making it through Congress in the first place.
“Essentially, what Senator Warren’s plans would do, as I read them, is they go through every option that has been selected as the possible strategy for raising progressivity and tries to do them all at once,” Summers said.
Which, in effect, Summers said, means “you’re collecting, essentially, about as much taxes as the total after-tax (adjusted gross income) of all the millionaires.”
A recent report by The Wall Street Journal notes that tax rates for “top-tier investors” could even exceed 100% because Warren’s tax proposals would raise Social Security contributions to 14.8% for wages above $250,000, and because of her wealth tax of 2% on assets above $50 million and 3% tax on assets above $1 billion along with her plan to tax capital gains the same as other income even before the assets are sold.
Warren also wants to raise the top tax bracket from 37% to 39%. Needless to say, that’s a lot of extra taxes that would effectively wipe out the billionaire class before too long — and still not leave enough to pay for “Medicare for All.”
“Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend or interest,” Wall Street Journal tax policy reporter Richard Rubin wrote. “If all of Ms. Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.”
So while Summers agrees that the tax system needs reform, Warren goes much too far and his idea would be to restore funding to the IRS for better enforcement. Summers recently co-authored a paper that argues tax avoidance by the top 1% of earners could reach $5 trillion over the next decade unless the IRS steps up enforcement.
Declining IRS budgets have led to declining enforcement. In 2011 the IRS audited 12% of millionaires and that number has now fallen to just 3%.
“I think the place we should start is by collecting the taxes that are owed under current law but not collected,” Summers told CNBC, adding “important reforms” also are needed for capital gains, corporate taxes involving foreign income as well as the “the continuing scandal of carried interest.”
“So there’s a lot that we can do starting with compliance, and I think that is where the debate should have its initial focus.”