U.S. Sen. Elizabeth Warren is spearheading a Democratic wealth tax proposal this week that could potentially generate $3 trillion in tax revenue from the wealthiest Americans over a decade.
The Numbers: Warren has proposed a 2% wealth tax on Americans who have at least $50 million in wealth. Under her proposal, that rate would rise to 3% for Americans with at least $1 billion in wealth.
Under the proposed plan, Amazon.com, Inc. AMZN CEO Jeff Bezos would owe $5.7 billion in taxes for 2020. Tesla Inc TSLA CEO Elon Musk would owe about $4.6 billion.
In a statement this week, Warren said the Ultra-Millionaire Tax Act would help offset the widening of the wealth gap during the pandemic.
Soaring stock prices have increased billionaire wealth by about 40% since the COVID-19 crisis began, Warren said.
In an interview on CNBC on Tuesday, Warren said the tax wouldn’t include any individual assets valued at less than $50,000.
“I think most people would rather be rich and pay 2 cents. This is not very fancy. It really is a tax on fortunes above $50 million,” Warren said.
Economists estimate the proposed tax would impact fewer than one in 1,000 American families, or less than 0.1% of the wealthiest Americans.
Economists from the University of California Berkeley estimate the plan would generate about $3 trillion in tax revenue over a 10-year stretch.
Warren has proposed that tax revenue be invested in child care, early education and infrastructure. The plan would also invest $100 billion into the IRS and ensure a 30% audit rate on super wealthy Americans. The plan also calls for a 40% exit tax on anyone who renounces their citizenship to avoid a wealth tax.
Wealth Tax Criticisms: Warren’s plan has already been hit with criticism from Republicans and wealthy Americans.
On Wednesday, billionaire Leon Cooperman said the tax would encourage wealthy Americans to find ways to hide their wealth.
“The idea has no merit. It’s foolish. It probably is not legal,” he told CNBC.
One of the biggest criticisms of a wealth tax is the difficulty of enforcement.
Capital gains taxes and income taxes are easy to enact because their amounts are clear and easily assessed. A wealth tax would require some means of regularly and fairly assessing the value of illiquid assets, such as rare art and collectables. Treasury Secretary Janet Yellen recently said any wealth tax has “very difficult implementation problems."
It appears at this point that the wealth tax has a small likelihood of making it through Congress given that Republicans and even some Democrats oppose it.
President Joe Biden did not include a wealth tax among his proposals during the 2020 campaign. When asked about Biden’s views on the plan on Monday, White House press secretary Jen Psaki did not explicitly endorse it.
Benzinga’s Take: The idea of a wealth tax on billionaires is appealing in concept, but the logistics are a nightmare. Warren’s wealth tax is unlikely to make it through Congress given the thin Democratic majority in the Senate, but investors should watch for the Biden administration to do something in the near-term to address the massive widening of the American wealth gap during the pandemic.
Elizabeth Warren, U.S. senator from Massachusetts and former Democratic presidential candidate. Benzinga file photo by Dustin Blitchok.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.