The shared idea here is to make the tax code far more progressive as the left makes the government far more redistributive. Such tax policies tend to please liberals concerned that the party has failed to curtail inequality and to blunt its political effects, and terrify conservatives who argue that such policies are confiscatory and would hurt long-term growth. But what about the tax nerds? What do they make of these ideas on how to soak the rich?
“Ocasio-Cortez has done a great public service in just saying, ‘You know, we could have higher rates,’” said Mark Mazur, an economist at the Tax Policy Center, a nonpartisan think tank based in Washington, D.C. “In the past, we have had them, and they worked. And you don’t have to go all the way to 70 percent. But right now we’re stuck with this question of whether the top rate should be 39.6 percent or 37 percent—that’s a pretty narrow range. What she’s saying is you can imagine taking them up a lot higher.”
That said, if the goal is to raise more money for redistributive policies and to ensure that millionaires pay their fair share, Ocasio-Cortez’s proposal isn’t particularly efficient. It might not even raise that much money, instead discouraging employers from paying workers more than $10 million or workers from trying to earn more than that threshold. Imagine you were a lawyer who often earned in the high millions a year; if you hit the $9 million mark in the fall, you might work somewhat less, knowing that much of what you made over $10 million would get taxed away. The tax rate would, in effect, reduce inequality in pretax incomes, as well as in posttax incomes. (It would also encourage the very rich to hide income above $10 million.)
A better way to extract money from top earners would be to get rid of the loopholes, deductions, and exemptions they use to shelter income from taxation in the first place, economists said. “Broadening the tax base is generally more efficient than changing rates,” said Kyle Pomerleau of the Tax Foundation, a think tank in Washington, D.C. “That would include getting at what I would call the Big Three, which is the charitable deduction, the home-mortgage-interest deduction, and the state- and local-tax deduction.”
The charitable deduction allows very high earners to spend on nonprofit causes that they find interesting and valuable, as opposed to turning that money over to Uncle Sam for what the broad public wants and needs. (As the Trump Foundation so extravagantly shows, such charitable largesse is often anything but.) The home-mortgage-interest deduction prompts the rich to buy even fancier houses than they could otherwise afford. And the state and local deduction reduces the tax bills of rich families who happen to live in high-tax states. Together, the Big Three cost the government something like $100 billion a year.
As for Warren’s wealth tax, that proposal comes from two of the world’s preeminent scholars on inequality, Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley. (The former is in part responsible for much of the data showing the rise in income inequality in the United States; the latter literally wrote the book on the role of tax evasion in widening inequality.) Their wealth tax would raise an estimated 1 percent of GDP a year, or about $200 billion.
“The main argument is that an annual progressive wealth tax is the most direct way to limit the increase in wealth concentration,” Zucman told me. “The wealth share of the top 0.1 percent has increased from 7 percent in 1980 to about 20 percent today. The wealth tax is the most powerful tool to catalyze wealth concentration—depending on the rate, to limit its increase or to make it shrink.” He added that a wealth tax would also “enable the government to tax people who have a lot of wealth, not a lot of income,” such as Jeff Bezos of Amazon. His 2017 salary: $81,840. His net worth: $135 billion or so, depending on the state of the stock market.
With a wealth tax, very high-net-worth individuals would tally up the value of their estates—property, racehorses, art, business holdings, licensing fees, you name it—and pay a small share of that sum to the government annually; the government could use land, investment, and asset registers, as well as audits, to ensure compliance. “It’s very important that there are no exemptions,” so that the rich do not just shift assets around into classes that are not counted, Zucman told me.
Still, tax experts said the wealth tax would be difficult for the government to administer. “If we all had all of our wealth in publicly traded securities, it would be easy, but we don’t, and that’s what makes it hard,” Mazur said. “People hold a lot of wealth in closely held businesses, like a car dealership or a ranching operation, or in partnerships that trade assets, like hedge funds. Those things are hard to value. What a wealth tax does is have the government say, ‘Rich people, raise your hands and tell us what your wealth is!’ They’re probably not going to give you a good answer.”