Frank Luntz: The Younger Generation is Losing Faith in Capitalism

Some big interviews on CNBC on Tuesday with some of the nation’s most powerful business leaders and investors had a common theme: what an Elizabeth Warren presidency would mean for the markets and corporate America. Frank Luntz, pollster and political strategist, joins “Squawk Box” to discuss Warren’s chances of winning.

Who’s Afraid of Elizabeth Warren?

Quite a few people, and they have something in common. It’s not poverty.

President Trump has been good for America’s billionaires. He slashed corporate taxes, cut the top income tax rate and raised the total exemption for the estate tax, directly benefiting several hundred billionaires and their heirs. He’s placed wealthy supporters in key positions of government like the Commerce Department, rolled back Obama-era financial regulations and privileged the interests of favored industries — like resource extraction and fossil fuel production — above all else.

There are billionaires who oppose Trump, of course. But for the most part they aren’t class traitors. They still want the government to work in their favor. They still want to keep their taxes low, just without the dysfunction — and gratuitous cruelty — of the current administration. And they want Democrats to choose a conventional nominee: a moderate standard-bearer who doesn’t want to make fundamental changes to the economy, from greatly increased taxes to greater worker control.

Plenty of Democratic voters agree. But just as many have rallied behind candidates who want a more equal, more democratic economy. Two of the three leading candidates — Bernie Sanders and Elizabeth Warren — want new taxes on the wealthiest Americans and their assets. Sanders has the steeper tax but Warren is not far behind former vice president Joe Biden in national polling and leads the field in both Iowa and New Hampshire. With Biden struggling to break away from the pack, it looks like Warren actually could be the nominee, and anti-Trump billionaires are worried.

That’s why one of them, Mike Bloomberg, has floated a plan to run for the Democratic nomination. And why others have gone public with their attacks on Warren.
Mark Cuban, a billionaire investor, said Warren — whose wealth tax calls for a 2 percent tax on households with more than $50 million in assets and a 6 percent tax on households with assets of more than $1 billion — is “selling shiny objects to divert attention from reality.”

Another billionaire investor, Leon Cooperman, called Warren’s wealth tax a “bankrupt concept,” said it could “lead to inappropriate actions in the economy that are counterproductive” and warned that Warren is “taking the country down a very wrong path.”

“What she’s peddling is bull. Total, complete bull,” Cooperman said last week on CNBC, “That comes from someone who believes in a progressive income tax structure, who believes the rich should pay more.”

A few days later, Cooperman announced his support for Bloomberg’s potential candidacy.

Bill Gates also thinks Elizabeth Warren’s wealth tax goes too far: “I’ve paid over $10 billion in taxes. I’ve paid more than anyone in taxes. If I had to have paid $20 billion, it’s fine. But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over.” He claimed that he was “just kidding,” but when asked if he would support Warren over Trump, he demurred. Instead, he said, he’d cast a ballot for whichever candidate had the “more professional approach.”

If there’s a prominent billionaire who hasn’t taken a public stance on Warren, it’s Jeff Bezos, the chief executive of Amazon. But he did urge Bloomberg to run for president earlier this year, perhaps a sign that he too is worried about the outcome of the Democratic primary.

All of this is understandable. As my colleague Patty Cohen notes, if Warren’s wealth tax had been in effect since 1982, Gates would have had $13.9 billion in 2018 instead of $97 billion, Bezos would have $48.8 billion instead of $160 billion, and Bloomberg would have had $12.3 billion instead of $51.8 billion. They would still be billionaires, but Warren’s tax would have taken a significant chunk out of their assets. And even if the wealth tax never became law, a Warren administration would still take a hard line on financial regulation, consumer protection and tax enforcement, key areas of interest for the super rich. It’s impossible to imagine a Warren White House in which billionaires would have the same access and favored status that they do with Trump.

Warren’s wealthy critics are right to be nervous. And they have a right to speak out against her. But Bloomberg’s potential entry into the race — and Tom Steyer’s ongoing presence — shows that they’re not just giving an opinion. They want assurance that the Democratic nominee won’t be too disruptive. They want a restoration of the pre-Trump status quo, not a revolution. They want a veto of sorts, a formal way to say that Democrats can only go so far with their plans and policies.

The only response worth making to this idea is to laugh. Despite voter suppression, unlimited political spending and the president’s attempt to solicit foreign interference on his behalf, this is still a democracy. The final say still rests with voters, with ordinary Americans who retain the power to shape our government. And if those voters decide to nominate Warren or Sanders instead of a traditional moderate — and if either of those candidates beats Trump, as is very possible — then the billionaires will have to learn to live with the people’s will.

America’s billionaires take center stage in national politics, colliding with populist Democrats

The political and economic power wielded by the approximately 750 wealthiest people in America has become a sudden flash point in the 2020 presidential election, as the nation’s billionaires push back with increasing ferocity against calls by liberal politicians to vastly reduce their fortunes and clout.

On Thursday, Michael Bloomberg, a billionaire and former mayor of New York City, took steps to enter the presidential race, a move that would make him one of four billionaires who either plan to seek or have expressed interest in seeking the nation’s highest office in 2020. His decision came one week after Sen. Elizabeth Warren (D-Mass.) proposed vastly expanding her “wealth tax” on the nation’s biggest wealth holders and one month after Sen. Bernie Sanders (I-Vt.) said America should not have any billionaires at all.

The populist onslaught has ensnared Facebook founder Mark Zuckerberg and Microsoft co-founder Bill Gates, led to billionaire hand-wringing on cable news, and sparked a panicked discussion among wealthy Americans and their financial advisers about how to prepare for a White House controlled by populist Democrats.

Past presidential elections have involved allegations of class warfare, but rarely have those debates centered on such a small subset of people.

“For the first time ever, we are having a national political conversation about billionaires in American life. And that is because many people are noticing the vast differences in wealth and opportunity,” said Timothy Naftali, a historian at New York University.

The growing hostilities between the ascendant populist wing of the Democratic Party and the nation’s tech and financial elite have spilled repeatedly into public view over the past several months, but they reached a crescendo last week with news that Bloomberg may enter the Democratic primary. With the stock market at an all-time high, the debate about wealth accumulation and inequality has become a top issue in the 2020 campaign.

The leaders of the anti-billionaire populist surge, Warren and Sanders, have cast their plans to vastly increase taxes on the wealthy as necessary to fix several decades of widening inequality and make necessary investments in health care, child care spending and other government programs they say will help working-class Americans.

Financial disparities between the rich and everyone else have widened over the past several decades in America, with inequality returning to levels not seen since the 1920s, as the richest 400 Americans now control more wealth than the bottom 60 percent of the wealth distribution, according to research by Gabriel Zucman, a left-leaning economist at the University of California at Berkeley. The poorest 60 percent of America has seen its share of the national wealth fall from 5.7 percent in 1987 to 2.1 percent in 2014, Zucman found.

But the efforts at redistribution pushed by Warren and Sanders have elicited a fierce and sometimes personal backlash from the billionaire class who stand to lose the most. At least 16 billionaires have in recent months spoken out against what they regard as the danger posed by the populist Democrats, particularly over their proposals to enact a “wealth tax” on vast fortunes, with many expressing concern they will blow the election to Trump by veering too far left.

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Bloomberg’s potential presidential bid follows that of fellow billionaires Tom Steyer, a major Democratic donor, and former Starbucks CEO Howard Schultz, who in September suspended his independent presidential bid. Steyer has proposed his own wealth tax, but Schultz ripped the idea as “ridiculous,” while Bloomberg suggested it was not constitutional and raised the prospect of America turning into Venezuela.

Piling on against the wealth tax have been corporate celebrities from Silicon Valley and Wall Street. Zuckerberg suggested Sanders’s call to abolish billionaires could hurt philanthropies and scientific research by giving the government too much decision-making power. Microsoft co-founder Gates criticized Warren’s wealth tax and mused about its impact on “the incentive system” for making money.

David Rubenstein, the billionaire co-founder of the Carlyle Group, told CNBC that a wealth tax would not “solve all of our society’s problems” and raised questions about its practicality. Also appearing on CNBC, billionaire investor Leon Cooperman choked up while discussing the impact a wealth tax could have on his family.

Amazon founder Jeff Bezos, a multi-billionaire and the world’s richest man, asked Bloomberg months ago to consider running for president in 2020, Recode reported Saturday. A Bloomberg spokesman did not immediately return a request to confirm the call. (Bezos is the owner of The Washington Post.) An Amazon spokeswoman did not respond to a request for comment.

“I don’t need Elizabeth Warren, or the government, giving away my money,” Cooperman said. “[Warren] and Bernie Sanders are presenting a lot of ideas to the public that are morally, and socially, bankrupt.”

Then there is perhaps the most prominent wealthy person of all likely to stand in the way of populist Democrats’ proposals: President Trump. Asked about the wealth tax, a White House spokesman declined to comment directly on the proposal but said in an email, “President Trump has been very clear: America will never be a socialist country.”

But there are signs the pushback is having little impact on nixing the idea in Democrats’ minds. Rep. Brendan Boyle (D-Pa.), who has endorsed Joe Biden for the Democratic nomination, told The Washington Post he is crafting a new wealth tax proposal to introduce in the House of Representatives. Boyle’s involvement suggests the idea has broader political support among Democrats than previously thought.

Warren’s campaign has created a tax calculator that shows how much money multimillionaires would pay under her plan. The initial wealth tax raised by Warren would raise close to $3 trillion over 10 years — enough money to fund universal child care, make public colleges and universities tuition-free, and forgive a majority of the student debt held in America, according to some nonpartisan estimates.

America has long had rich people, but economists say the current scale of inequality may be without precedent. The number of billionaires in America swelled to 749 in 2018, a nearly 5 percent jump, and they now hold close to $4 trillion collectively.

“The hyper concentration of wealth within the top 0.1 percent is a mortal threat to the American economy and way of life,” Boyle said in an interview. “If you work hard and play by the rules, then you should be able to get ahead. But the recent and unprecedented shift of resources to billionaires threatens this. A wealth tax on billionaires is fair and, indeed, necessary.”

But conservatives and even many Democrats have raised a number of objections to the wealth tax, arguing it could be easily skirted and may have limited political appeal. Microsoft’s Gates, famous for his philanthropic efforts, joked to the New York Times that it could erase his entire fortune. Sen. Chris Van Hollen (D-Md.) and Rep. Don Beyer (D-Va.) this week proposed a surtax on couples earning more than $2 million a year to address what they framed as unfairness in the tax code exacerbated by the Republican tax cuts, while stopping short of the starker wealth tax.

In an email, Bloomberg adviser Howard Wolfson denied that the prospect of paying the wealth tax factors into the former mayor’s interest in running for president: “Mike’s not worried about what would happen if Elizabeth Warren won. He’s worried about what would happen if Donald Trump won.”

Still, the ultrarich have still taken notice of the threat, according to interviews with half a dozen financial planners and wealth managers.

Kathryn Wylde, president of the Partnership for New York City, whose membership includes many of the country’s biggest financial firms, said members of the business community are “agonizing” over the prospect of having to choose between Warren and Trump in the general election.

“A lot of people in the Wall Street crowd still think the world is top-down,” Wylde said. “They think the people at the top of the pecking order are still making the decisions or driving the debate, as opposed to the new reality of grass-roots mobilization. They don’t realize the way pushback to their criticism goes viral.”

Lance Drucker, president and CEO of Drucker Wealth Management, said he has recently heard alarm from many of his millionaire clients over plans like Warren’s to implement a wealth tax on fortunes worth more than $50 million.

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“Honestly, it’s only been the last month when people started getting worried,” said Drucker in an October interview. “These tax proposals are scaring the bejeezus out of people who have accumulated a lot of wealth.”

Some financial planners are urging wealthy clients to transfer millions to their offspring now, before Democrats again raise estate taxes. Attorneys have begun looking at whether a divorce could help the super-rich avoid the wealth tax. And some wealthy people are asking whether they should consider renouncing their U.S. citizenship and moving to Europe or elsewhere abroad ahead of Democrats’ potential tax hikes.

“You’re hearing it already,” said Jonathan Lachowitz, a financial planner at White Lighthouse Investment Management, who said he has heard discussions about leaving the country and renouncing citizenship or other legal tax planning moves due to Democrats’ tax plans from several multimillionaires. “As the frustration mounts and tax burdens rise, people will consider it, just the way you have New Yorkers moving to Florida.”

One of the economists behind Sen. Warren’s wealth tax defends the policy

Senator Elizabeth Warren is rising in the polls, grabbing the attention of many on Wall Street. Gabriel Zucman, one of the economists who helped design Senator Warren’s tax plan, and Andy Puzder, former CKE Restaurants CEO, join “Squawk Box” to discuss.

Bernie and Elizabeth Wage War on the Young

In exchange for ‘free’ college, millennials will pick up middle-class boomers’ extravagant tab.

Millennials are too young to remember Monty Hall’s original “Let’s Make a Deal” game show, unless they’ve seen reruns on cable. So it might not be immediately clear to these voters that baby boomers are asking them to play a version of that game right now. Or that this political version is rigged.

Behind door number 1: the “car” of $1.6 trillion in student-loan relief, plus free college for all. Behind door number 2: the “goat” of uncountable tens of trillions of dollars in unfunded Social Security and Medicare liabilities to benefit boomers.

This is the best way to understand the flamboyant debt-forgiveness proposals lately put forward by the likes of Bernie Sanders and Elizabeth Warren. These programs are presented—not least by the sponsors themselves—as a form of old-style, rich-versus-poor class warfare. Mr. Sanders says he can fund $2.2 trillion of debt forgiveness and free public-university degrees with a financial-transactions tax on “Wall Street speculators.” Ms. Warren says her relatively modest $1.25 trillion debt-and-tuition deal can be financed by a wealth tax.

Stipulate that what we’re talking about here, on student loans or any other issue in the resentment sweepstakes of the Democratic presidential primary, doesn’t really help the poor. The audience for the class-war rhetoric from Mr. Sanders and Ms. Warren is the middle class, which is the intended recipient of most of the redistribution they promise. Even with the income limits on eligibility Ms. Warren builds into her plan, 58% of the debt relief would flow to households with incomes between $42,000 and $111,000. Mr. Sanders imposes no limits at all—his proposal is a subsidy for doctors and lawyers more than anyone else.

No surprise here. Redistribution to the middle class is a conspicuous feature of the European social-welfare states American leftists admire. This is why it doesn’t matter that the student-debt fiasco is mainly a middle-income crisis. That’s a trenchant but not entirely relevant observation raised by some conservative critics befuddled that Mr. Sanders and Ms. Warren are investing so much political capital in a giveaway for the better-off. The middle-class nature of the new entitlement is the whole point. That’s where the votes are, and also where any sense of economic hardship lingers in developed economies that already have solved the worst problems of extreme poverty.

What these politicians aren’t telling millennials, though, is that the middle class always pays for its own benefits in some way. Financial-transaction taxes chronically underperform estimates of the revenue they’ll generate, and wealth taxes are so ineffective that even France scrapped its version in despair in 2017.

Much heavier middle-class taxation is what feeds European social-welfare states. The taxman takes well north of 30% of the total labor income of the average single-earner household in France, Germany, Sweden and Norway, compared with 19% in the U.S., according to the Organization of Economic Cooperation and Development.

And if you think middle-class boomers are lining up to pay their “fair share” toward student debt relief once all the wealth-taxation gimmicks have failed, think again.

The federal government is running a deficit today, and politicians of both parties show little willingness to balance the budget in the immediate future. Absent entitlement reform, the task will become impossible in the 2030s once the youngest boomers have retired and started drawing the Social Security and Medicare benefits they never bothered to fund. After wealth taxes fail to generate the expected revenue, the Bernies and Warrens will turn to borrowing to finance student-loan relief—those new government debts to be repaid, naturally, by the millennial taxpayers of the future.

What’s the point, then? A cynic would suggest the student-loan gimmick is primarily an inducement for younger voters who’ll unwittingly assent to assume the fiscal burdens of old-age entitlements.

Those programs might be at least partially reformed, and their fiscal drag on the young ameliorated, by rebalancing their benefits away from middle-class boomers, perhaps via means-testing. But boomers have always staunchly resisted such reforms, and no politicians have been as fearsome tribunes of that refusal as progressives of the Bernie Sanders and Elizabeth Warren variety.

So faux debt relief is likely on offer in order to induce millennials to elect either of two progressive presidential candidates who will absolutely never, under any circumstances, ease the fiscal burdens of the much larger old-age entitlements distributed to the elderly tranche of the middle class.

Think a student-debt write-down and free college is a great deal? Wait until you see what you’ll have to pay in return.

Be very skeptical about how much revenue Elizabeth Warren’s wealth tax could generate

Their response is disingenuous. They focus most of their fire on what they label as our revenue estimate: that the proposed wealth tax would raise $25 billion annually, rather than the $187 billion they estimate. In reality, we are explicit that $25 billion is a rough back-of-the-envelope number and state that “We would be surprised if the $25-billion-a-year figure we suggest was not a significant underestimate of the revenue potential of a 2 percent wealth tax.” The purpose of our piece was not to provide an alternative revenue estimate for the wealth tax but to call into question the naively high estimate provided by Saez and Zucman.

.. As we explain at some length in our piece, naive estimation of the kind offered by Saez and Zucman tends to be way optimistic relative to scorekeeping by government experts. This point is well illustrated by the difference between academic and government estimates of taxing carried interest as ordinary income or of the value-added tax. Nothing in Saez and Zucman’s response suggests they are immune from this problem.

They attempt a broad allowance for tax avoidance, assuming the rich would successfully shelter at most 15 percent of their wealth from taxation. They base this guess on four academic studies that consider the international experience of wealth taxation, which find that a 1 percent wealth tax reduces reported wealth by 0.5 and 35 percent, which they simply average to 15 percent. But this strikes us as too low.

First, Saez and Zucman’s interpretation of the international experience differs from ours. They rely on estimates suggesting that a 1 percent wealth tax in Denmark and Sweden results in evasion of less than 1 percent (which makes their 15 percent estimate look huge). But in both countries, wealth taxation proved so easy to avoid and so difficult to administer that these taxes were repealed. In fact, of the 12 nations in the Organization for Economic Cooperation and Development that had wealth taxes in 1990, only three still have them today.

Second, the estate tax is informative on the potential magnitude of wealth tax evasion. Let’s consider Saez and Zucman’s estimated tax base for people with wealth greater than $50 million: about $9.3 trillion in 2019. If we were to apply the current 40 percent estate tax to this figure — assuming 2 percent of those families will experience a death this year (a conservative estimate) — we would expect that tax to generate about $75 billion this year. And if we apply the effective estate tax to that figure (accounting for charitable contributions and spousal bequests), it would raise $25 billion this year. In reality, the estate tax will raise about $10 billion from estates of more than $50 million this year. In other words, it seems plausible that tax avoidance is closer to 60 percent.

It is worth noting that estimating the tax base for those worth more than $50 million in itself is a difficult task — let alone estimating the revenue that taxing these households can raise. Different approaches to measuring top wealth can paint very different pictures. And the numbers reported in the Forbes 400, which Saez and Zucman rely on repeatedly in their rejoinder, are thought of by many as dubious.

This isn’t to say that our method should be viewed as definitive, but it does suggest the Saez and Zucman estimation is likely too high. As an illustration of the crudity of their analysis: They neglect to contend with behavioral responses that would inevitably follow a 2 percent tax on a small group of wealth holders. For example, there would be a significant incentive to accelerate charitable giving, which would decrease the wealth tax base. It seems important to account for the fact that the wealthy (and their tax planners) will inevitably be motivated to limit tax liability.

Saez and Zucman are at pains to suggest that their proposal is for a ramped-up Internal Revenue Service that is much more serious about collections than the current estate tax. We share their view that more could be done to collect estate tax revenue (and tax revenue more generally).

And we certainly do not start from “the premise that the rich cannot be taxed,” as Saez and Zucman allege. Instead, we share their objective that it is imperative to raise more tax revenue from those at the very top, and we propose a variety of progressive reforms to this end.

However, government budget scorekeepers properly score proposals in the form in which they would likely be enacted, not on the basis of the aspirations of their academic authors. So, we stand by our position — which will possibly be tested someday — that official scorekeepers would be very unlikely to validate the Saez-Zucman estimate of Warren’s proposed wealth tax, and that the gap would likely be substantial.