Warren's Tax Plan
By Grace Zhang ‘23
Democratic candidate Elizabeth Warren has recently unveiled her plans to implement a wealth tax on the ultra-rich of the United States with serious implications. Her sweeping tax proposals would push the federal tax rate on billionaires and ultra-millionaires to over 100%. Though she will be lowering income tax rates from 39.6% to 36%, she also insists on imposing a new 14.8% tax for Social Security and including a tax of up to 6% on accumulated wealth.
To make it easier to understand, consider this example from the Wall Street Journal: “A billionaire with a $1,000 investment earns a 6% return, or $60, received as a capital gain, dividend or interest. If all of Ms. Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.” While the exact rate may vary from situation to situation, by-and-large, the tax rate will typically be over 100%, especially for billionaires. For business investments, the tax rate could be even higher, as investors will have already paid a corporate tax rate before these personal taxes. The corporate tax, too, will be up to 42% from the current 21% under Warren’s plan.
The money from these taxes will go towards supporting Warren’s social goals, including healthcare, childcare, housing, and education for all. However, the unintended social effects of this plan may result in the slowing of economic growth in the United States. Rich individuals would be less inclined to invest their money due to the lack of return, or otherwise only invest in established, high-return companies, stalling entrepreneurship. Further critics of the plan, such as tech entrepreneur and fellow democratic candidate Andrew Yang, pointed out the previous failure of wealth taxes in Europe. France and Germany had both repealed their taxes due to logistical issues and the fact that the taxes did not generate the expected revenue. There has also been debate over the constitutionality of such a proposal under the sixteenth amendment, due to its ambiguity.
For all its social benefits, the plan fails to account for upper-class economic behaviors once these taxes are levied. Perhaps, this plan won’t cash out the way Warren had in mind, but only time will tell.
