Sparked by progressive proposals from Sens. Elizabeth Warren and Bernie Sanders and Rep. Alexandria Ocasio-Cortez, the great fiscal debate of the moment is over taxing the wealthy to reduce economic inequality and, to some extent, raise money for ambitious government programs.
“This is quite a moment in American economic history where all of a sudden in a matter of months this thing has kind of exploded like this,” Michael Cembalest, chairman of market and investment strategy at JPMorgan Asset Management, told Politico’s Ben White.
The Washington Post’s editorial board says the debate that’s bubbling over the new proposals is likely just the start of a discussion Democrats, and the rest of the country, will be having for at least the next 22 months leading up to the presidential election: “It will not be a question of whether prominent 2020 Democratic presidential candidates favor hiking taxes on the very wealthy. It will be a question of how they propose to do it.”
To recap the leading progressive proposals:
- Ocasio-Cortez suggested a 70 percent marginal tax rate on incomes over $10 million, up from the top current rate of 37 percent.
- Warren proposed a wealth tax of 2 percent on those with a net worth above $50 million, with an additional 1 percent for those worth more than $1 billion. Warren worked on her plan with economists Emmanuel Saez and Gabriel Zucman, who estimated that it could raise $2.75 trillion over 10 years.
- Sanders proposed expanding the federal estate tax to cover those who inherit more than $3.5 million, up from the current $11 million threshold introduced by the GOP tax plan. His plan would require estates to pay at least 45 percent on amounts over the new threshold, and would restore a 77 percent top tax bracket for estates worth more than $1 billion. Sanders estimates that the plan would raise $315 billion over 10 years.
The proposals have, of course, brought cries of “socialism” and warnings of an envy-driven war on wealth.
Here’s what you need to know right now:
Americans Like the Idea of Taxing the Rich: A Morning Consult-Politico poll released Monday finds that 76 percent agree that “the wealthiest Americans should pay higher taxes,” including 54 percent who “strongly agree.” The poll also found that 57 percent say “low-income people” (the pollster’s term) pay too much in taxes, and 58 percent say “middle-income people” pay too much. About two-thirds of respondents say that corporations pay too little in taxes, and 75 percent say they should pay more. The poll surveyed 1,993 registered voters and has a margin of error of 2 percentage points.
Similarly, a Fox News poll conducted last month found that 70 percent of registered voters, including 54 percent of Republicans, favor raising tax rates on those with incomes over $10 million a year. And 65 percent of voters, including 47 percent of Republicans, favor hiking taxes on those making more than $1 million. More than half of the respondents said the federal government should be increasing spending, compared to 40 percent who prefer the government cut taxes and spending.
And They Still Don’t Like the Trump-GOP Tax Overhaul: Only a third of poll respondents say the tax changes implemented in 2017 helped the economy, while 23 percent say it hurt and 18 percent say it hasn’t made a difference. Just 27 percent say they’ve seen more money in their paycheck as a result of the tax cuts, while 55 percent say they haven’t seen a bump.
These ‘Soak the Rich’ Proposals Aren’t Really Radical: For the most part — and contrary to what you might hear from the many critics who have come forth to attack these plans — Democratic proposals to raise taxes on the rich aren’t really radical, writes David Leonhardt in The New York Times. They’re much-needed attempts to reverse the 40-year trend that has seen most of the benefits of economic growth flow to the wealthy. “Do you know who already pays a wealth tax? Middle-class Americans. It’s called the property tax, as Noah Smith of Bloomberg Opinion has noted. … If middle-class families can pay an annual tax on their main source of wealth, wealthy families can, too.”
Warren’s Plan Is More Popular Than Ocasio-Cortez’s: The Morning Consult-Politico poll found that 61 percent of registered voters strongly or somewhat favor Warren’s plan, while 20 percent strongly or somewhat oppose it. Support for Ocasio-Cortez’s idea was lower, with 45 percent supporting it and 32 percent opposed.
But Warren’s Plan Wouldn’t Be Easy to Implement: Warren’s plan faces at least a few major challenges. There are questions about whether it’s constitutional, for starters. Also, it could be a logistical and administrative nightmare to implement and calculate annually since net worth is difficult to measure. Warren’s plan also fails to distinguish between different types of wealth, Alan Cole writes at The Wall Street Journal. And it could raise more money if it was structured differently. “As it stands, billionaires would contribute just $300 billion of the $2.75 trillion the higher rates are projected to raise over 10 years,” Paul Sullivan writes in The New York Times. And Daniel Hemel, a tax expert at the University of Chicago Law School, writes at Time.com that, “Instead of fixing the income tax system that we already have, Senator Warren’s proposal would leave our broken income tax in place while layering on an entirely new and unwieldy wealth tax regime.”
Some Say Sanders’ Plan Makes More Sense: The estate tax cuts pushed through by Republicans will cost the federal government $83 billion over a decade. By contrast, Sanders’ estate tax proposal “would reduce the federal debt and help even the playing field,” says The Washington Post’s editorial board, which calls the plan better than Warren’s.
There Are Plenty of Other Ways to Tax the Rich: Greg Leiserson of the Washington Center for Equitable Growth laid out some other options for Politico’s Morning Tax. The list includes “an imputed income tax that would treat a certain amount of wealth as income, an inheritance tax, financial transactions taxes and a number of approaches on investment income, including taxing capital gains as regular income, ending stepped-up basis (which reduces taxes on assets passed along at death) and treating gains as mark-to-market (or logging gains or losses every year).”
And The Washington Post’s editorial board pointed out that an OECD report from last year “suggested an optimal system would target capital income and inheritance of wealth, which could be done here by reducing the current code’s favorable treatment of capital gains and eliminating the huge break for profits on the sale of inherited stock, while putting some teeth back into the estate tax. That would discourage what’s most contrary to American ideals, dynastic wealth accumulation, while encouraging what’s most consistent, getting rich on the merits.”
Hemel, the University of Chicago tax expert, outlines three steps lawmakers could take: “First, Congress should set the tax rate on long-term capital gains and dividends so that it is the same as the tax rate on ordinary income. Second, Congress should repeal stepped-up basis and tax unrealized capital gains at death. Third, Congress should claw back the benefits of deferral from high-net-worth taxpayers.”
The Bottom Line: Get ready for lots more discussion and debate over whether we should tax the rich more, and how best to do it.
