elizabeth-warren

Elizabeth Warren’s Prediction Comes True

In a 2004 interview, Elizabeth Warren predicted the 2008 financial crisis four years before it would happen.

The Trouble With Taxing Wealth

Elizabeth Warren’s proposed tax on net worth seems like a nearly surgical strike at inequality, but it may not be efficient

The median U.S. family’s income, adjusted for inflation, fell 4% between 2007 and 2016, while its wealth plummeted 20%, according to Federal Reserve figures. For the richest 10% of families, median income rose 9% while wealth leapt 27%.

More than 80% of American households had less wealth in 2016 than on the eve of the last recession, in great part because their homes, the principal asset for most families, were below their precrisis values whereas stocks, whose ownership is concentrated among the rich, have roughly doubled since 2007..

.. This poses a number of challenges. For the middle class, stagnant wealth limits their ability to

buy a home,

pay for college or

respond to a financial emergency.

Wealth imbalances may also undercut economic growth because assets, which typically rise in response to interest rate cuts, are concentrated among people who are less inclined to spend.

This poses a number of challenges. For the middle class, stagnant wealth limits their ability to buy a home, pay for college or respond to a financial emergency. Wealth imbalances may also undercut economic growth because assets, which typically rise in response to interest rate cuts, are concentrated among people who are less inclined to spend.

For policy makers who want to tax the rich more, this limits the reach of income and consumption taxes. Shielding capital income leaves a big chunk of the richest families’ incomes untouched by taxes, says Greg Leiserson, director of tax policy at the Washington Center for Equitable Growth, a left-of-center think tank.

.. Ms. Warren estimates only 75,000 families would pay her tax, yet it would raise $2.75 trillion over 10 years.

.. It was barely a year ago that Republicans slashed the U.S. corporate tax rate to closer to international levels in hopes of juicing growth. A wealth tax would go in the opposite direction. For example, on an investment in a company averaging 8% annual returns, a shareholder may expect her holdings to grow 8% per year. A 3% wealth tax on that increase represents, on average, an implicit 37.5% income tax, on top of the corporate taxes

And unlike the corporate tax, it would have to be paid even if the company made no money that year.

.. That wouldn’t necessarily undercut growth, because the U.S. could turn to foreign savings to finance an investment. This, however, means foreigners would take a bigger share of U.S. income.

.. There may be more effective ways to tax wealth. A large chunk of capital gains are never taxed because shareholders bequeath shares to their heirs without selling them. President Barack Obama proposed in one of his budgets taxing unrealized capital gains at death.

Adam Looney, a Brookings Institution economist who worked on the proposal, says it would have raised roughly $200 billion over a decade. Mr. Auerbach says taxation at death seems to have less effect on the saving of the wealthy than taxation during life.

.. An even better response would be to attack the concentration of economic power that results in monopoly-like profits by reducing barriers to competition. Competition policy, unlike tax policy, faces no trade off between equality and growth.

Elizabeth Warren Wants a Wealth Tax. How Would That Even Work?

There are other tools that don’t involve quite the risks and challenges of targeting the richest families.

When the United States government wants to raise money from individuals, its mode of choice, for more than a century, has been to tax what people earn — the income they receive from work or investments.

But what if instead the government taxed the wealth you had accumulated?

That is the idea behind a policy Senator Elizabeth Warren has embraced in her presidential campaign. It represents a more substantial rethinking of the federal government’s approach to taxation than anything a major presidential candidate has proposed in recent memory — a new wealth tax that would have enormous implications for inequality.

It would shift more of the burden of paying for government toward the families that have accumulated fortunes in the hundreds of millions or billions of dollars. And over time, such a tax would make it less likely that such fortunes develop.

It would create big new challenges for the I.R.S. in ensuring compliance. There is a reason many European countries that once had a wealth tax have abandoned it in the last couple of decades.

And that’s before you get to the legal and political challenges. There is an open debate around whether a wealth tax is constitutional. And some of the most powerful families in the country would certainly deploy their vast resources against a wealth tax, and against any candidate who embraces it.

The comedian Chris Rock had a routine in the early 2000s in which he expounded on the distinction between those who are rich and those who are wealthy.

Shaquille O’Neal, the star basketball player, was rich, Mr. Rock said. The team owner who signed his paycheck was wealthy. And that, in a nutshell, gets at the conceptual difference between trying to tax people’s income, as the tax code does today, versus their wealth.

The C.E.O. of Walmart makes about $22 million a year. He is rich by any definition. But the Walton family, descendants of the company’s founder, are mind-bogglingly wealthy. The Bloomberg Billionaires index estimates that Sam Walton’s three living children are worth around $45 billion each, putting them each among the 20 wealthiest people in the world.

A family that has accumulated enormous wealth can escape with surprisingly low income levels, and therefore tax burdens.

In an extreme example, Warren Buffett owns enough stock in Berkshire Hathaway to put his estimated net worth at $84 billion, but he pays himself $100,000 a year to be its chief executive. Even in years when his wealth rises by billions, he must pay tax only on his comparatively modest income and on the gains from shares that he chooses to sell.

Ms. Warren and other advocates of a wealth tax argue that this accumulation of untaxed or lightly taxed wealth is a bad thing. They say that it enables the creation of democracy-distorting dynasties who accumulate political power, and that tax policy should be used to rein them in more than the current tax code does.

.. A family worth $60 million would owe the federal government $200,000 in wealth tax, over and above what they may owe on income from wages, dividends or interest payments.

If the estimates of his net worth are accurate, Mr. Buffett would owe the I.R.S. about $2.5 billion a year, in addition to income or capital gains taxes. The Waltons would owe about $1.3 billion each.

The tax would therefore chip away at the net worth of the extremely rich, especially if they mainly hold investments with low returns, like bonds, or depreciating assets like yachts.

It would work a little like the property tax that most cities and states impose on real estate, an annual payment tied to the value of assets rather than income. But instead of applying just to homes and land, it would apply to everything: fine art collections, yachts and privately held businesses.

.. What are the arguments against it?

They are both philosophical and practical.

On the philosophical side, you can argue that people who have earned money, and paid appropriate income tax on it, are entitled to the wealth they accumulate.

Moreover, the wealth that individual families accumulate under the current system is arguably likelier to be put to work investing in large-scale projects that make the economy stronger. They can invest in innovative companies, for example, or huge real estate projects, in ways that small investors generally can’t.

It could disincentivize the kinds of moonshot investments that don’t pay steady, predictable returns but can transform society. After all, if wealthy investors are on the hook for a wealth tax every year, they may strongly favor investments that pay a steady, reliable dividend over those that are risky and will take many years to pay off.

Then there are the practical concerns.

Figuring out a person’s total net worth can be a lot of work. Just ask anyone who has had to sort through a large estate after the death of a relative to submit estate taxes.

If the deceased owned financial assets like stock and bonds, it’s pretty easy to check a brokerage statement and surmise the value. But if the estate consisted of a collection of rare antiques — or interests in various real estate or oil and gas projects, or closely held companies — estimating the value is harder.

It can require an army of appraisers and other experts and an often prolonged period of I.R.S. audits and disputes over valuation.

“Presumably, a wealth tax would apply to the same sort of base, except that it would be annual rather than just when a person dies,” said Beth Shapiro Kaufman, an estates lawyer at Caplin & Drysdale.

The very wealthy would have a permanent, continuing need to tally the value of their assets and defend those valuations to the federal government. The Warren plan includes substantial new funding for I.R.S. staff to enforce the law.

And some people may have their wealth tied up in things not easily converted to cash. An early investor in Uber or another company that has achieved a high valuation without going public might have a high enough net worth to owe a wealth tax, but not the easily accessible funds to pay it.

Mr. Zucman argues that people wealthy enough to owe this tax would generally have ample access to credit, and that the law could even be structured to let people pay their tax obligations with illiquid assets.

Gene Sperling, a former National Economic Council director in the Obama and Clinton administrations who now supports a wealth tax, said: “If we were sitting here in 1932 saying we need to create a Social Security system, it would have seemed very complex, but if it’s important enough, you don’t let some complexity become a reason not to push forward.”

Couldn’t rich people just hide their assets overseas?

The wealth tax Ms. Warren proposes would also apply to assets that American citizens own overseas. So in theory, a wealthy American citizen would owe tax on his Panamanian bank account and his Swiss ski chalet.

Ensuring payment would be tricky, which is why the proposal includes all those new I.R.S. employees and stronger international coordination to stop tax avoidance and evasion — as well as an “exit fee” that Americans would need to pay if they sought to renounce their citizenship.

Have other countries tried this? Does it work?

There’s an old line attributed to a 17th-century French politician that the art of taxation is to pluck a goose so as to obtain the largest possible quantity of feathers with a minimum amount of hissing. In the recent past, wealth taxes have failed that test.

In the early 2000s, 10 developed countries had a wealth tax, according to the Organization for Economic Cooperation and Development. That is now down to three: Switzerland, Norway and Spain. France recently changed its wealth tax into a tax only on real estate, more akin to the American property tax.

One problem was that some of the wealth tax plans kicked in at a relatively low level, meaning a vast number of upper-middle-class people faced its nuisance and expense. In Europe, especially, it created incentives for people to relocate.

Mr. Zucman says the United States, as a large country, is better positioned than small countries where wealthy citizens are likely to be highly mobile already. The idea is that Americans will be less likely to renounce their citizenship to avoid paying out a couple of percent of their net worth every year.

Is this even legal?

An income tax is clearly authorized by the 16th Amendment, which states that Congress has the power to “lay and collect taxes on incomes, from whatever source derived.” A wealth tax is more likely to raise constitutional questions, and it’s a near certainty that well-funded opponents would wage a legal battle against it.

(Josh Barro at New York Magazine lays out the legal questions here.)

Is there a simpler way to reduce inequality?

There is. Some tax experts say changes to existing law would accomplish many of the goals of a wealth tax.

One example that Leonard Burman of Syracuse University and the Urban Institute has suggested is to eliminate a provision of current law in which assets that increase in value can go essentially untaxed across generations.

If you start a company and its value appreciates over your lifetime, then it is transferred to a family member upon your death, no capital gains taxes are collected on those decades of appreciation. The family member gets to start over at its current valuation for capital gains purposes.

This “step-up” provision is one of numerous ways that families can accumulate great wealth with minimal taxation. It could be eliminated. Laws could be changed to make it harder to avoid the estate tax, which currently kicks in at about $11 million for an individual and about $23 million for a married couple.

If you want a tax system that leans more aggressively against dynastic wealth and high inequality, there are, in other words, tools that don’t involve quite the risks and challenges of a wealth tax.

But those are a lot harder to capture in a campaign ad, and in the public imagination.

A Bruised Trump Faces Uncertain 2020 Prospects. His Team Fears a Primary Fight.

Several prominent Trump antagonists are actively urging other Republicans to take on the president, and a popular governor, Larry Hogan of Maryland, has indicated he is newly open to their entreaties.

.. Privately, some of Mr. Trump’s 2016 aides have said they are pessimistic about his path to 270 electoral votes after his party’s midterm defeats in states like Michigan, Pennsylvania and Wisconsin. An Associated Press poll on Wednesday showed that Mr. Trump’s overall approval rating had fallen to 34 percent, with his support among Republicans dipping below 80 percent — a startling turn for a president who strives for total control of the G.O.P., and has usually achieved it.

..An Associated Press poll on Wednesday showed that Mr. Trump’s overall approval rating had fallen to 34 percent, with his support among Republicans dipping below 80 percent — a startling turn for a president who strives for total control of the G.O.P., and has usually achieved it.

.. The Mueller investigation looms as another destabilizing force for the president. David Kochel, a Republican strategist based in Iowa who is opposed to Mr. Trump, said the special counsel’s eventual report could determine whether Mr. Trump is vulnerable in a primary.

“That will be a focusing mechanism for the party,” Mr. Kochel said.

.. Mr. Trump captured the presidency with a largely improvisational candidacy, guided by his own instincts for personal combat and cultural division, and lacking the strategic discipline of most presidential campaigns.

.. But even among his own political lieutenants, there is a general recognition that Mr. Trump currently lacks anything resembling a positive message.

.. Mr. Trump is especially fixated on two well-known Democrats, speaking frequently about Joseph R. Biden Jr., the former vice president whom Mr. Trump regards as his most dangerous potential opponent, and Senator Elizabeth Warren of Massachusetts. Some of his advisers are more preoccupied with two other would-be challengers, who would offer a starker generational contrast with the 72-year-old president: Senator Kamala Harris of California and Beto O’Rourke, the former Texas Senate candidate.

.. Now a top aide on Mr. Trump’s campaign, Mr. Stepien and his deputies have been consulting party leaders about shutting off avenues to a challenge and ensuring that states cannot put forward “favorite son” candidates to contest the president’s renomination.

.. Mr. Trump has also dedicated a team of aides to guaranteeing that only political loyalists are elected to serve as delegates to the convention. To that end, Mr. Stepien dispatched some of his staff members this month to see that their preferred candidate remained in charge of the Maine Republican Party.

..Mr. Hogan spoke briefly with William Kristol, an implacable Trump critic in the conservative press, who argued that the president is weaker than widely understood

.. In addition to Mr. Hogan, William F. Weld, the former Republican governor of Massachusetts, is weighing a challenge to Mr. Trump as a small-government moderate, people who have spoken with him said. Mr. Weld, 73, who was the Libertarian Party’s vice-presidential nominee in 2016, has discussed either opposing Mr. Trump in the Republican primaries or seeking the Libertarian presidential nomination.

.. Other Republicans known to be entertaining campaigns against Mr. Trump include John R. Kasich, the former governor of Ohio, who ran in 2016; Senator Ben Sasse of Nebraska; and Jeff Flake, the former senator from Arizona. But Mr. Sasse is said to have grown uneasy about the idea, and Mr. Kasich and Mr. Flake are pursuing opportunities in television.

.. Bruce Berke, a Republican strategist in New Hampshire aligned with Mr. Kasich, said he currently saw Mr. Trump as unassailable in a G.O.P. primary.

“A primary challenge in 2020, as of today, would be futile for anyone,” Mr. Berke said.

Still, Republican donors will want to know just how damaged the president may be by the end of this year before they truly commit to a challenge.