Sen. Elizabeth Warren’s plan to establish a yearly tax on accumulated wealth to pay for a universal child care program drew the support of close to three in five voters in a recent POLITICO/Morning Consult poll. | Scott Olson/Getty Images Finance & Tax Taxing the rich may not pay the bills for liberal agenda

Democrats are going big on something that’s been popular for years — taxing the rich.

But while there’s no doubt the new proposals from the left fare well in polls, there’s plenty of real-world evidence that soaking the wealthy won’t raise the money to fund the progressive agenda and, in some cases, may face constitutional and administrative challenges.


There are many reasons a direct tax on wealth might not work: First, rich people have a wide range of tax avoidance schemes. Second, it’s hard to measure wealth in order to assess tax levels, especially assets like art. On top of that, there are legal and constitutional questions about targeting a particular demographic.

Even in places where they have been tried — like Europe — wealth taxes have largely been abandoned.

“A wealth tax could raise a lot of revenue — unless it raises absolutely zero,” said Daniel Hemel, a law professor at the University of Chicago and a one-time clerk for Justice Elena Kagan. “I’ve much less confidence in the constitutionality of a wealth tax than I did that Hillary Clinton would get elected.”

The Democrats’ schemes are widely popular: Sen. Elizabeth Warren’s (D-Mass.) plan to establish a yearly tax on accumulated wealth to pay for a universal child care program drew the support of close to three in five voters in a recent POLITICO/Morning Consult poll.

Morning Tax Sign up for our tax policy newsletter and stay informed — weekday mornings, in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

In a separate poll by those news organizations, half of registered voters favored expanding the estate tax, along the lines of a proposal by Sen. Bernie Sanders (I-Vt.), who, like Warren, is seeking the Democratic presidential nomination. Then there’s Rep. Alexandria Ocasio-Cortez (D-N.Y.), who sparked a flurry of headlines after floating a top individual tax rate of 70 percent, and the financial transactions tax introduced by House and Senate Democrats this week.

But while the message may resonate with voters, there’s a lot of evidence it wouldn’t work.

Wealthy Americans have become adept at avoiding taxes by exploiting loopholes, finding offshore tax havens and using other methods. The latest IRS data put the voluntary compliance rate for the estate and individual income taxes at 74 percent, though that figure also comes from years when the estate tax affected many more taxpayers. The agency, whose funding has declined dramatically since early in the Obama administration, has seen its audit rates take a similar tumble.

Some experts believe that a wealth tax like Warren’s proposal is more trouble administratively than it’s worth. The IRS, for instance, would have to figure out each year how much a number of hard-to-value assets are worth, like high-end art or a privately held company.

Both of those factors played a role in European countries abandoning wealth taxes. Only Norway, Spain and Switzerland still have them, down from a dozen close to three decades ago.

Then there’s the added complication of whether a wealth tax would violate the Constitution’s prohibition against direct taxes that aren’t equally distributed by state population. Laurence Tribe, the Harvard law professor, and other legal experts who worked in previous Democratic administrations, are among those who believe a wealth tax should survive a constitutional challenge.

But others aren’t so sure. Steve Rosenthal of the Urban-Brookings Tax Policy Center pointed to an 1895 Supreme Court precedent that essentially found that an income tax was unconstitutional, a ruling that supporters of a progressive income tax eventually went around by enacting the 16th Amendment.

“If I were a justice,” Rosenthal said, “I would say this isn’t a big deal and we should recognize modern times. However, we do have that precedent, and I just don’t see how it could get past that challenge.”

Issues like that have led Hemel and others to suggest alternatives that would hit capital gains, which come from the sale of assets like stocks and are taxed at a far lower rate than regular income. Among the ideas are taxing capital gains as ordinary income, taxing unrealized capital gains at death and requiring that capital gains be taxed yearly at market value.

Still, other experts say the potential flaws can be overcome or are being overblown. And some Democratic presidential candidates and other advocates of soaking the rich say public opinion is on their side, so they see little political risk.

“I don’t think there’s much of a downside here. Revenue needs to continue to increase, especially with these bold policy agendas,” said Seth Hanlon, a senior fellow at the liberal Center for American Progress, referring to progressive priorities like the Green New Deal and "Medicare for All." “Basically, any of the candidates are going to want to embrace bold proposals.”

Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, who are among the key intellectual backers for higher taxes on wealth, believe Warren’s plan can get around a lot of the flaws that plagued other wealth taxes. They project that rich taxpayers would be able to reduce their exposure to the tax only by about 15 percent because of safeguards like an exit tax on anyone who tries to renounce their citizenship to avoid the tax and increased resources for the IRS.

“The proposed wealth tax has a comprehensive base with no loopholes and is well enforced through a combination of systematic third party reporting and audits. Therefore, the avoidance/evasion response is likely to be small,” Saez and Zucman wrote in a letter where they estimated that Warren’s plan could raise $2.75 trillion over a decade.

In the meantime, the popularity of higher taxes on the rich means that voters will likely hear more than ever about those sweeping proposals from Democrats — and that more centrist potential contenders, like former Vice President Joe Biden, could find themselves yanked further left on taxes.

That could also mean Republicans, who have long held the political upper hand on taxes, could start making stronger cases against the new proposals, much like they did with their “death tax” branding for the estate tax.

Ken Spain, a former GOP campaign aide who’s now a partner at CGCN Group, which offers communications advice on taxes, said that kind of vetting would eat into the current popularity of tax-the-rich proposals, “as voters hear more about the potential threat it poses to business creation, entrepreneurial risk-taking, and the significant increase in power the IRS would wield when it comes to looking into and appraising people’s personal assets.”

For his part, Hanlon, a former economic aide in the Obama White House, said that Democrats shouldn’t get too stuck on the particulars for now, arguing that the most important task is to keep up the drumbeat on the need for higher taxes and find a policy consensus later.

“Looking forward to 2021 or beyond, right now it’s more of a blank slate,” he said. “The focus is on the aspirational and not what’s legislatively possible.”