How the GOP Will Attack Bernie Sanders' Wealth Tax

How the GOP Will Attack Bernie Sanders' Wealth Tax

Printer-friendly version
Plus, Trump's debt total
Friday, January 10, 2020

GOP Economists Take Aim at Warren and Sanders Wealth Taxes

We highlighted yesterday a defense of wealth taxes from Gabriel Zucman, a liberal economist who has advised both Elizabeth Warren and Bernie Sanders on their tax proposals. On Friday, a pair of conservative economists laid out their argument opposing such taxes in what The Washington Post’s Jeff Stein said was a “possible preview of Republican attacks against the idea.”

Douglas Holtz-Eakin, who served as director of the Congressional Budget Office during the George W. Bush administration, and Gordon Gray of the conservative advocacy group American Action Forum argue in a new paper that both Warren’s and Sanders’ wealth taxes would place a “disproportionate burden” on workers. Warren’s proposed wealth tax — 2% on household wealth over $50 million, rising to 6% on household wealth over $1 billion — would reduce worker earnings by $1.2 trillion over a decade, while the Sanders plan — a graduated tax on wealth over $32 million — would cost workers $1.6 trillion.

The analysis assumes that a wealth tax would have a clear negative effect on economic growth and wages, operating through a fairly basic mechanism. “[T]he tax constitutes a reduction in the supply of capital, and as a result it will reduce investment in innovation, lower productivity growth, and thus reduce wage growth. These responses shift, at least in part, the effective burden of the taxes to the average worker,” the economists say.

The analysis does not take into account the way in which the revenues raised by a wealth tax — estimated to be somewhere between $2 trillion and $4 trillion — would be used by the government, which proponents say would increase economic growth through investments in public goods. “This analysis from a right-wing think tank relies on disproven assumptions about how taxes on the ultra-rich affect the economy,” Warren campaign spokeswoman Saloni Sharma said in a statement quoted by The Hill. “Elizabeth's wealth tax will produce trillions in revenue to fund middle-class investments that will grow our economy and provide families with more financial security.”

Other supporters of the wealth tax took issue with the assumptions built into the AAF economic model.

  • Matt Bruenig of the left-leaning People’s Policy Project argued that recent reductions in taxes on capital have been associated with less investment, not more, contrary to the economic model deployed by AAF.
     
  • Michael Linden of the progressive advocacy group Groundwork Collaborative rejected the basic framework of the analysis while tweaking conservatives over their big and largely unfilled promises about the Trump tax cuts: “Arguments that a wealth tax will ‘hurt the economy’ always ignore negative effects of wealth inequality, and rely on an empirically unsupported idea of the relationship between taxes and investment,” Linden tweeted Friday. “Remember how the corporate tax cut was supposed to unleash an investment boom?”

The bottom line: We’ll probably be hearing a lot about wealth taxes as we head toward the 2020 elections this fall. The wildly different estimates of how they would affect the economy highlight just how far apart Democrats and Republicans are on the issue.

Read the AAF analysis here.

House Democrats Likely to Skip Budget Resolution This Year

House Democrats are likely to skip passing a budget resolution this year, House Budget Committee Chairman John Yarmuth (D-KY) said, according to The Hill’s Niv Elis:

“Over the summer, congressional leaders from both parties and the White House struck a deal to increase legal spending caps for both 2020 and 2021. Having an agreement already in place on how much money will be spent on defense and domestic priorities for the year argues against doing a budget resolution, Yarmuth said.

“‘It's more unlikely than likely, because with the top-line numbers already established, the appropriators are probably going to do something that's pretty similar to what this year’s was,’ he said.”

Skipping the budget would allow Democrats to steer clear of some potential intraparty tensions and tough votes that might highlight differences between progressives and moderates — but it also opens the party leaders up to criticism that they are, for a second straight year, failing to perform one of the core functions of Congress.

“It’s a lazy man’s approach to budgeting: Just let the leadership pick the numbers, get those pluck out of the air, and then everybody just go along with it,” Rep. Steve Womack (R-AR), the top Republican on the House Budget Committee, said, according to The Hill.

But Rep. Mark Pocan (D-WI), a leader of the progressive caucus, downplayed the importance of the budget process and argued that voters care more about results. “I have no idea why we have an F-in’ Budget Committee here period, because it does not work in any kind of functional way,” Pocan said, according to The Hill. “If you could show me 15 people who live outside the Beltway who actually care, that could be relevant.”

Number of the Day: $3.1 Billion

The Justice Department said Thursday that it recovered nearly $3.1 billion in fiscal year 2019 from lawsuits related to fraud and false claims against the government. That total includes more than $2.6 billion involving the health care industry, from drug and medical device makers to doctors, hospitals, managed care providers, pharmacies, hospice organizations and labs. The DOJ said that it recovered millions of dollars more for state Medicaid programs. Civil health care fraud settlements and judgments have now exceeded $2 billion annually for 10 straight years, the department said.

Chart of the Week

The Committee for a Responsible Federal Budget estimated this week that President Trump has now signed legislation that will add a total of $4.7 trillion to the national debt between 2017 and 2029. Tax cuts and spending increases account for similar portions of the projected increase, though if the individual tax cuts in the 2017 Republican overhaul are extended beyond their current expiration date at the end of 2025, they would add another $1 trillion in debt through 2029.

Have a great weekend! Send your tips and feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here for their own copy of this newsletter.

News

Views and Analysis