January 24, 2019 Alan Essig

Executive Director

January 24, 2019

Earlier today, several news organizations reported that Sen. Elizabeth Warren is set to formally propose a federal wealth tax. Immediately after, social media was atwitter with comments that ranged from praise to predictable outcries of how will the wealthy cope if forced to pay more in taxes.

Sen. Warren’s proposal sends an important message about how the nation should be thinking about federal tax policy. For far too long, the public discourse around taxes has been hijacked by the wealthy few and their political allies whose policy ideas gave us the woefully unpopular 2017 top-heavy tax law, a 40-year trend of widening economic inequality, and policy proposals that would slash vital programs and services to finance tax cuts.

It’s time to think and talk differently about federal taxes. That’s why my colleagues and I are currently exploring forward-thinking policy ideas that would raise needed revenue in a progressive way. We know that the vast majority of the public wants a functioning federal government that provides critical programs and services, and they don’t mind paying taxes to ensure government is working for all of us. But the public believes the rich aren’t paying their fair share.

The concept of a wealth tax at one time may have been an idea outside the mainstream, but as my colleague Steve Wamhoff wrote in a paper released Wednesday, it is time to explore a the concept “because our current tax system, which mostly focuses on taxing income, may not be sufficient to raise adequate revenue or reverse rising inequality.”

Sen. Warren’s proposal reportedly would assess a 2 percent tax on household wealth exceeding $50 million and 3 percent on household wealth exceeding $1 billion. UC Berkley economists Gabriel Zucman and Emmanuel Saez estimate that the proposal could raise $2.75 trillion over 10 years.

Some details of Sen. Warren’s proposal differ from ITEP’s report, but the general concept is the same. Plus, the ITEP report answers many of the questions that people are raising already about why we need such a tax and how it could be implemented.

Wealth inequality is even more pronounced than income inequality. But our tax laws are designed to shield the type of wealth held by the rich from taxation. In contrast, much of the wealth owned by middle-income families is their homes. This wealth is taxed every year via property taxes. Very wealthy families usually own assets that go far beyond their homes and those holdings are not subject to any type of annual wealth tax. A direct federal tax on wealth is part of the solution.

Some critics will claim that a federal wealth tax is impossible to implement or even unconstitutional. Of course, there are many details to be worked out when it comes to how exactly the IRS would implement a wealth tax, but that is true of any type of tax. Our report explains some of the finer details and also why legal scholars believe there is no constitutional bar on such a tax.

After four decades of trickle-down economic policies that have resulted in wealth concentrating at the top, it’s time to explore fresh, progressive tax policy ideas. A federal wealth tax is also about fairness and reversing years of tax policies that have favored the superrich and allowed them to capture an ever-larger share of the economic pie.

Raising serious policy questions about what is owed by those who have benefitted most from the relative social and economic stability that our collective tax dollars make possible is exactly the conversation we should be having right now.