The pandemic has exacerbated the growing gulf between the very rich and basically every other American. Income and wealth inequality have become hot topics, as the United States has entered a K-shaped recovery.
This means that instead of everyone recovering from the economic effects of the outbreak, the upper swoop of the letter “K” represents the small minority of people, like Jeff Bezos, Elon Musk and Mark Zuckerberg, who have made billions during the pandemic. Meanwhile, the downward slide represents the falling financial misfortunes of the middle and working classes.
In an effort to change this chasm, a group of Democratic lawmakers, led by Democratic Massachusetts Senator Elizabeth Warren, proposed an Ultra-Millionaire Tax on fortunes over $50 million. In a press release from Warren, the plan calls for the following:
“The Ultra-Millionaire Tax Act would level the playing field and narrow the racial wealth gap by asking the wealthiest 100,000 households in America, or the top 0.05%, to pay their fair share.” The statement says that this tax policy “would bring in at least $3 trillion in revenue over 10 years.” Warren claims that the bill would create a “fairer economy” by doing the following:
- 2% annual tax on the net worth of households and trusts between $50 million and $1 billion
- 1% annual surtax (3% tax overall) on the net worth of households and trusts above $1 billion
Warren said about this tax, “The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the [Covid-19] crisis began.”
Congresswoman Pramila Jayapal, a cosponsor of the bill, said, “As working families struggle to put food on the table, keep the heat on and pay the rent during this devastating economic crisis that has caused the poverty rate to jump by the largest amount in at least 60 years, the rich have only gotten richer and the wealth of billionaires has jumped by 40%.” Jayapal continued, “The Ultra-Millionaire Tax Act will help level the playing field, narrow the racial wealth gap, ensure the wealthiest finally begin to pay their fair share and invest trillions of dollars into our communities so we can make a real difference in the lives of people across America.”
“As Congress develops additional plans to help our economy, the wealth tax should be at the top of the list to help pay for these plans because of the huge amounts of revenue it would generate,” Warren said in a statement. The tax monies, according to Warren, would be used to support child care, early and K-12 education, along with rebuilding the crumbling infrastructure of the U.S.
To implement the plan, Warren proposes increasing the budget of the IRS by a staggering $100 billion. This money will fund the tax-collecting agency to conduct in-depth audits of the wealthy and build new technologies to catch people who attempt to avoid the tax increase. Warren also calls for a 40% “exit rate” on Americans who have more than $50 million and want to renounce their citizenship to avoid complying with the tax.
While the proposal garnered attention, it may be challenging and impractical to put it into law. Republican and centrist Democrats may not feel comfortable passing a bill specifically targeting people who are wealthy. There are legal questions surrounding whether or not this type of law is constitutional.
Valuing assets is not an easy feat for the uber-wealthy. Oftentimes, they own illiquid assets, such as real estate, investment properties and holdings in private businesses that are hard to accurately calculate. With armies of lawyers, accountants and tax professionals on their side, it’s likely that the uber-wealthy will find legal permissible loopholes to avoid the tax increase. There is also the fear of a slippery slope. After pursuing the billionaires and millionaires, how soon will higher taxes be levied on upper and middle-class people?
The wealthy tend to deploy their wealth. They start businesses and hire people. The rich invest in the stock market, adding liquidity. Wealthy people spend money, which helps stimulate the economy and create new jobs. According to CNBC, “A 2020 Tax Foundation analysis of separate Warren and Sanders wealth tax proposals during their presidential runs found they would reduce U.S. economic output by 0.37% and 0.43%, respectively, over the long term.”
U.S. Treasury Secretary Janet Yellen, in an interview with the New York Times, said that a wealth tax is off the table, as it’s “something that has very difficult implementation problems.” She added that “a wealth tax has been discussed,” but it’s not favored by President Joe Biden.
Warren said about the detractors of her plan, “Lawmakers will catch up to the overwhelming majority of Americans who are demanding more fairness, more change and who believe it’s time for a wealth tax.”