McArdle: What good is Warren’s plan to tax the wealthy?

Her tax proposal is a lousy way to raise revenue but a good way to raise her 2020 profile.

By Megan McArdle

The Washington Post

There are three things to note about Sen. Elizabeth Warren’s proposed wealth tax. The first is that it won’t do what she promises. The second is that it won’t happen. And the third is that both of those cavils are almost beside the point.

The Massachusetts Democrat wants to tax fortunes greater than $50 million at a rate of 2 percent of assets a year, with billionaires kicking in an additional 1 percent. Economists Emmanuel Saez and Gabriel Zucman estimate that the tax would raise $2.75 trillion over 10 years, all from people most voters don’t like very well.

The plan is less realistic than wishful. Saez and Zucman assume perfect implementation, with no broad exemptions that would enable ultrarich people, and their squads of tax attorneys, to structure their wealth around the tax. After a few rounds of legislative horse-trading, any real-world bill would be much more complex than the Warren camp envisions and thus easier to avoid. Which is why most countries have decided to avoid the bother.

Consumption taxes such as sales or value-added taxes are easy to administer and raise lots of revenue. Income taxes are trickier but still simple compared with taxing wealth. Most people regularly receive payments that are easy to track and can be valued at … the sum of the payments. But what is the value of a business with one shareholder? A large piece of timberland that hasn’t been sold for 50 years? An irreplaceable antique or artwork?

Taxing those things means creating a lot of administrative capacity to track and price the assets, with the wealthy and their lawyers fighting every step of the way. That’s one reason wealth taxes, once popular among Western nations, are trending toward extinction; the paltry revenue wasn’t worth the administrative headache. Nor the capital flight and slower rate of capital formation such taxes tend to induce.

Those problems would be particularly acute with Warren’s plan because she has targeted the very wealthy rather than the merely affluent. Doing so mitigates the inevitable wailing about family-owned farms, as well as some of the pressure to lard the tax with those revenue-depleting exemptions. But taxing only the super-rich means taxing people with a lot of unique, hard-to-value assets, and who can confound auditors by shifting their wealth into even more of those assets.

And these are the minor problems with the Warren plan. The big problem is Article 1, Section 9 of the Constitution, which forbids “direct taxes” on people or property unless they’re “apportioned,” doled out among the states by population.

Instituting an income tax required a constitutional amendment to override that clause, and Warren’s plan might well require another. Warren’s team, and many other progressives, have offered ingenious arguments for the plan’s constitutionality. Probably not clever enough, however, to sway a conservative-leaning Supreme Court.

But one suspects that feasibility isn’t the goal here. It’s of a piece with the Republicans who kept promising to “repeal and replace” Obamacare without bothering to game out the “replace” part. Also of a piece with the progressive penchant for ever-larger spending plans based on ever-more-fanciful math. All are symptoms of Congress’ growing inability to legislate.

If you can’t do anything anyway, then why not make your presidential promises really amazing, rather than tepidly realistic? If the plans die in committee, voters may never find out the truth; better yet, they may blame the opposition rather than your excessively vibrant fantasy life.

Political theater has always been a key part of lawmaking, but now that Congress has given up on lawmaking, it’s all we have left. Fiery monologues … wild applause from fans … impassioned booing from the peanut gallery … then bring down the curtain and start getting ready for the next performance.

It’s troubling that Warren is reviving a dusty old policy idea that has failed almost everywhere it has been tried. But it’s much more troubling that she has decided to focus her agenda on a proposal that almost certainly cannot be implemented without getting three-quarters of the states to vote for a constitutional amendment or a Supreme Court that skews to the left. Offering policies that can’t possibly be implemented as described, even if all the political winds line up just right, was supposed to be a Trumpian trait. More and more, it’s becoming business as usual.

It’s no way to run a government, but in the current climate, it is, sadly, a pretty good way to run a presidential campaign.

Megan McArdle is a Washington Post columnist. Follow her on Twitter @asymmetricinfo.

Talk to us

More in Opinion

Editorial cartoons for Sunday, Aug. 9

A sketchy look at the news of the day.… Continue reading

Editorial: Debate regarding Snake River dams is far from over

If we are to avoid the extinction of salmon runs and orcas, talks regarding the dams should continue.

Viewpoints: Fighting a pandemic of disinformation

Rumors are a problem, but intentional disinformation can raise havoc with democratic institutions.

Commentary: State must do more to protect farmworkers’ health

State health and labor agencies must do more to enforce laws meant to protect workers during the pandemic.

Commentary: Wildlife killing contests aren’t good management

Competitions, such as those for killing coyotes, can work against the interests of ranchers and others.

Legitimate visa requests are ignored by State Department

As we work through this pandemic, one group of people being largely… Continue reading

How does assessor come up with home values for taxes?

I recently received my notice of property assessed value. The average tax… Continue reading

Wear your mask and leave decision to others

Many people have an opinion about mask wearing. Some are for it… Continue reading

Editorial cartoons for Saturday, Aug. 8

A sketchy look at the news of the day.… Continue reading

Most Read