Looting is bad policy. Sen. Elizabeth Warren’s proposed wealth tax would be hard to administer and is unlikely to collect as much revenue as she claims, writes Michael R. Strain:
The U.S. estate tax system already finds it challenging to determine wealth once in a person’s lifetime (at the time of death). Under Warren’s proposal, the fair market value of all assets for the wealthiest 0.06% of households would have to be assessed every year. It would be difficult to determine the market value of partially held private businesses, works of art and the like every year.
This helps to explain why the number of countries in the high-income OECD that administer a wealth tax fell from 14 in 1996 to only four in 2017. (Or six, if you include the nonstandard wealth taxes in the Netherlands and Italy.)
It is highly unlikely that the tax would yield the $2.75 trillion estimated by Emmanuel Saez and Gabriel Zucman, the University of California, Berkeley, professors who are Warren’s economic advisers. Lawrence Summers, the economist and top adviser to the last two Democratic presidents, and University of Pennsylvania professor Natasha Sarin used a different methodology based on the U.S.’s experience with the estate tax. They convincingly argued Warren’s plan would bring in a fraction of what Saez and Zucman expect once real-world factors like tax avoidance and the loopholes that Congress would be likely to add are factored in.
Another reason to doubt such a high revenue estimate is that Saez and Zucman are likely relying on an inflated wealth base. In a paper released in July, economists Matthew Smith, Owen Zidar and Eric Zwick present preliminary estimates suggesting that the Warren proposal would raise half as much as projected. They find the share of wealth held by the top 1%, top 0.1% and top 0.01% falls by 20%, one quarter and one third, respectively, relative to the Saez-Zucman estimates.
Importantly, they also estimate a larger role for private business holding among high-wealth households. Less than half of wealth at the top consists of securities with clear market values. The need to value these assets would make Warren’s plan difficult to execute.
Many legal scholars believe the idea might be unconstitutional because “direct taxes,” other than income taxes, must be apportioned among states according to their populations. [...] Why would Democrats want to risk adopting a tax that would trigger years of litigation and might be struck down?
[Michael R. Strain, “The Holes in Warren’s Wealth Tax Can’t Be Plugged,” Bloomberg, September 5]
