By Michael Tanner
Wednesday, October 30, 2019
If you’ve been having trouble finding someone to walk
your dog, don’t worry. Any day now, Elizabeth Warren will announce “a plan for
that.” It will undoubtedly be comprehensive, detailed, and replete with
subsidies for lower- and middle-class dog walkers and underserved breeds. It
will cost tens of billions of dollars and will receive widespread positive
notice from the media. However, to judge by her other recent plans, the one
thing it won’t include is any discussion of how she plans to pay for it.
The Massachusetts senator has challenged and possibly
overtaken former vice president Joe Biden as the front-runner for the
Democratic nomination, largely based on having a plan for the government to
tackle every problem facing this country, no matter how big or how small, from
issues with military housing to Puerto Rican debt to climate change.
The price tag for this massive expansion of government is
enormous. Much of the attention in recent weeks has been focused on Warren’s
embrace of Medicare for All, which she refuses to admit would require an
increase in middle-class taxes. Even Vermont senator Bernie Sanders has
conceded that such proposals, which would cost $30–40 trillion over 10 years,
cannot be financed without tax hikes. Warren’s refusal to address this obvious
fact makes her look less like a would-be policy wonk and more like a typical
politician.
But even setting aside Medicare for All, Warren’s plans
are likely to dump oceans of red ink onto our growing national debt. Her
non-health-care spending proposals already total some $7.5 trillion per year
over the next 10 years. Although these are not quite Bernie levels of
government largesse, her proposals would still require nearly double our
current levels of spending.
To pay for all this, Warren proposes a variety of tax
hikes, mostly designed to hit corporations or high-earners: higher payroll
taxes for those earning more than $250,000 per year; a 7 percent profits tax on
companies earning more than $100 million; a 60 percent lobbying tax on firms
that spend a million or more on lobbying, and so forth. But the biggest chunk
of money would come from Warren’s proposed “wealth tax,” a 2 to 3 percent levy
on net worth above $50 million. Warren estimates that this wealth tax will pull
in more than $2.75 trillion over ten years. It won’t.
First, there is the slight problem that a wealth tax is
probably unconstitutional. Of course, constitutional constraints are quaint
notions in the Age of Trump. Regardless, it is worth noting that the
Constitution permits the federal government to impose only “direct taxes,” such
as a property tax. That’s why it required a constitutional amendment to enact
the federal income tax. Many constitutional scholars warn that a wealth tax is
neither a direct tax nor income tax.
Even if Warren can find a way around the constitutional
guardrails — perhaps by something such as a retrospective wealth tax in which
you wait until a taxpayer sells assets or passes away — a wealth tax is
unlikely to raise anywhere near the amount of money she predicts.
Simply look at Europe’s experiments with wealth taxes. At
one time, a dozen European countries imposed wealth taxes. Today, all but three
have abandoned those levies. Among those repealing their wealth tax are the
Scandinavian social democracies that Warren admires, Denmark, Finland, and
Sweden. Norway retains a wealth tax but has significantly reduced it in recent
years. Additional countries abandoning the tax include Austria, France,
Germany, Iceland, Ireland, Luxembourg, and the Netherlands. Other countries,
such as Great Britain, have considered wealth taxes and rejected them.
They did so because wealth taxes are administratively
complex and difficult to enforce. Also, they significantly reduce investment,
entrepreneurship, and, ultimately, economic growth. According to the
Organization for Economic Cooperation and Development, European wealth taxes
raised, on average, only about 0.2 percent of GDP in revenues. By comparison,
the U.S. federal income tax raises 8 percent of GDP.
Two groups, however, would benefit substantially from a
wealth tax. The tax would be a full-employment opportunity for the
tax-preparation industry and for lawyers. After all, we would now have to
determine fair market value for everything from homes and vehicles to artwork
and jewelry to family pension rights and intellectual property. The other big
winner would be lobbyists, who could be expected to descend on Washington en
masse seeking exemptions and exceptions for their clients. If you think the tax
code is a mess today, just wait until D.C. is done with Warren’s plan.
There is an old Yiddish proverb that goes “Mann tracht,
un Gott Lacht,” or “Man plans, and God laughs.” It is all well and good that
Senator Warren has a plan for everything. But until she actually figures out
how to pay for everything without crippling our economy, such plans really
don’t add up.
No comments:
Post a Comment