In the run-up to the 2020 presidential election, U.S. Sen. Elizabeth Warren is counting on Americans being captivated by her push for additional taxes on the richest people in the country.
The ethics of the "wealth tax" she’s already begun to proselytize come from the Massachusetts Democrat’s belief system. For the numbers, however, she’s turned to two UC Berkeley economists, Emmanuel Saez and Gabriel Zucman.
Saez and Zucman tackled the subject in a 2014 paper - "Wealth Inequality in the United States Since 1913" - written for the National Bureau of Economic Research. Subtitled "Evidence from Capitalized Income Tax Data," the paper’s abstract says the current high level of wealth inequality "is almost entirely due to the rise of the top 0.1 percent wealth share."
From 1922 through 1978, the trend in the United States leaned toward moderating the gap between the richest and the poorest. Since then, starting approximately at the time of the Ronald Reagan presidency, the pendulum has swung toward tax policies that serve to make the rich richer.
Saez and Zucman have been pushing for a change in the way wealth is taxed, and now they have a champion in Warren, who even before entering politics in 2012 was working on economic policies designed to help the average worker.
The plan favored by Saez and Zucman and now being pushed by Warren calls for people to be taxed by their wealth, rather than by their income.
"(Billionaires) Warren Buffet and Jeff Bezos both have around $100 billion in wealth, and little of that is taxed," Zucman says. "They are not getting salary, or the firms they own don’t pay dividends. The only taxable income they have is when they sell some shares."
Saez estimates that the wealth tax they’ve laid out could raise $2.75 trillion over a decade "and finally narrow the gap between wealth growth at the top and wealth growth for the middle class."
"Democracies become oligarchies when wealth is too concentrated," Saez says. "A progressive wealth tax is the most direct policy tool to curve the growing concentration of wealth in the United States. It can also raise sorely-needed tax revenue to fund the public good."
As Warren began to plan her strategies for a presidential run, Zucman says, some of her staff reached out to him and Saez for help.
"They consulted us on the rates, on exemption thresholds, on how it could impact inequality," Zucman says. "The short answer is that we are able to measure wealth inequality now. The technology to do this did not exist five years ago."
Zucman says that the top 0.1 percent of richest Americans own as much wealth as the bottom 90 percent, and the "the most dynamic way of changing that is to tax wealth directly." The Warren plan would call for a yearly 2 percent tax on household net worth of $50 million and above and a 3 percent rate on net worth above $1 billion.
Saez and Zucman’s calculations say the Warren proposal would bring in about 1 percent of gross domestic product each year.
Such a wealth tax would work by taxing assets and not just income. Depending on how such legislation is written, an investment portfolio’s total value would be taxed, as would houses, other real estate holdings and items like boats, airplanes and artwork.
There is pushback to this plan, however. The rich can hire lawyers and accountants, and many have years of history in avoiding some level of taxes.
"There is the thought that the rich will always find a way to avoid and evade," Zucman says. "I don’t think that is correct. It would depend on the tax enforcement policies."
In other words, the IRS, which has been understaffed for years, would need to add personnel to ensure compliance. Beyond that, Zucman says, getting to the truth of wealth is not that difficult.
"Most of the wealth of rich individuals is in equity," he says. "Stocks, bonds and mutual fund shares all have clear market values, and the IRS can easily collect the information about these assets from the financial institutions. In evaluating real estate, the idea is - thanks to Zillow and companies like that - that the value of property easily can be determined."
Warren isn’t the only politician espousing some form of a wealth tax. Vermont independent U.S. Sen. Bernie Sanders and freshman U.S. Rep. Alexandria Ocasio-Cortez both are talking the talk about getting the wealthy to pay more.
For Saez and Zucman, the fact that a wealth tax is on the table is a major win, although they remain in Warren’s camp.
"Senator Warren has been a champion for protecting middle-class wealth from predatory lenders," Saez says. "Combining progressive wealth taxation with policies to rebuild middle-class wealth is exactly what the United States needs to ensure vibrant and equitable growth for the future."