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.
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.
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.
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.
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.
While Elizabeth Warren rises in the polls with her policy centered pitches, the Democrats turn on frontrunner Joe Biden. Image: Bloomberg News