Elizabeth Warren wants to impose an annual wealth tax on those who possess more than $50 million. She is happy to bring it up whenever asked about how she is going to pay for her ambitious plans to expand government, implying that it will pay for most or all of them.
In reality, such a tax has been tried, and it would be foolish to write off the results. A wealth tax would set off an instant stampede of capital out of the United States, along with some degree of wealth and access to employment for the middle class, all in exchange for what she claims would be a $2.75 trillion windfall for the federal treasury over 10 years.
Note that this amount, a very generous estimate of what a wealth tax could generate based on humanity’s historical experience with wealth taxes, would not even cover three years of current deficits, let alone a 14-digit “Green New Deal” or single-payer health plan. But more to the point, Warren’s proposed tax on wealth is both impractical and useless.
First, a wealth tax is unconstitutional. The Constitution gives Congress specific powers to impose particular taxes, including taxes on imports, taxes apportioned among the states, and (thanks to the 16th Amendment) an income tax. The nation’s chief governing document does not give Congress permission to impose a wealth tax.
Second, as noted above, a wealth tax would not pay for Warren’s ambitious big-government plans anyway. As MSNBC’s Willie Geist noted, Warren could go beyond a tax and “confiscate all of the wealth” of people making $50 million or more, and that still “wouldn’t cover the cost of all of the plans she is putting forward.” He is correct, considering that her preferred “Medicare for all” plan will cost more than $32 trillion over 10 years.
Third, wealth taxes do not work — which is to say, governments that impose them find that capital flight prevents collection of anything close to the amounts they hope for. In practical terms, these taxes are easy for the wealthy to avoid, as their capital is more mobile today than ever before. This is why nearly every European country that adopted a wealth tax has since repealed it and benefited economically from the repeal.
[Related: Andrew Yang bashes Elizabeth Warren wealth tax, arguing it didn’t work in Europe]
Leftist economists Gabriel Zucman and Emmanuel Saez insisted in a Washington Post op-ed last week that this time it’s different, an idea that any economist should recognize as problematic. They believe that “European governments” only failed in taxing wealth because they “made wrong choices, letting tax avoidance fester.” The same could be said of communism or New Coke: It would have worked if only they’d implemented it properly.
It is far more accurate to say that only an especially arrogant, ignorant bureaucrat could believe he can get a free lunch for government by somehow cornering the wealthy. In fact, the economic consequences of punishing wealth accumulation would easily make up for any benefits the government thinks it can realize from such a tax.
Economists Zucman and Saez also argue that because Americans can be compelled to pay federal taxes even if they expatriate themselves, the U.S. is an ideal place for a wealth tax. Even if the IRS’s claim to universal tax jurisdiction made collections more certain, and we doubt it, there is no sense in which such a tax would make the country better off. After all, the most important thing about a wealth tax is that it is not even intended to serve a fiscal purpose. It only exists to slake the hatred, envy, and resentment that socialism disseminates by design.
