OLIVIA GINGOLD – APRIL 10TH, 2018
Unlike last week’s presidential hopeful, Elizabeth Warren is not new to politics. Quite the contrary, Warren has been a senator of Massachusetts since 2013. Prior to that, she was a law professor at multiple universities, developing expertise in the financial difficulties that plague middle class families. It is this economic strain on the middle class that is the primary focus of Warren’s economic policies. She hopes to accomplish a reorientation towards the middle class through new taxation policies that aggressive tax the “uber-rich,” American citizens who hold extreme amounts of money and wealth, along with investments that “create economic opportunity, address rural neglect, and a legacy of racial discrimination.” She wants to funnel a significant amount of the money raised from these new tax strategies towards building an economy that supports universal childcare, student loan debt relief, a Green New Deal, and Medicare for all.
Warren’s most significant—and controversial—proposal is what she calls a “wealth tax.” Instead of focusing on income, this would be a tax on the wealth that people have accumulated over time. Her proposal was designed by UC Berkeley professors Emmanuel Saez and Gabriel Zucman. They propose taxing a family’s wealth above $50 million at 2 percent, with an additional 1 percent for all families worth over $1 billion. This tax on just America’s 10 richest families alone (none of whom are worth less than $20 billion) would raise approximately $13.8 billion. For the top 25 richest families this policy would raise more than $21 billion. The wealth tax proposal extends this to show that, in the first year, the tax would raise $250 billion from approximately 212 billionaire families. The report also estimates 85% participation, accounting for tax avoidance and evasion to ensure that their predictions are accurate.
Although the amount of money the wealth tax is expect to raise may seem high, it is still miniscule compared to the cost of a program like Medicare. Last year, Medicare cost the government around $583 billion. Beyond just raising money, the wealth tax would help redistribute wealth. By taxing families who have passively accumulated their wealth, funding the money raised from these taxes into welfare programs, money redistributed to the less wealthy, hopefully reducing economic inequality in America in the process.
The most significant argument against this tax is a constitutional one. The tug of war between Congress and taxpayers is an ongoing one, going all the way back to the early 1900’s. It states in the original constitutional document that Congress does have the power to levy taxes, but the taxation has to be uniform throughout the country. Since taxing individuals based on how much they make is not uniform from person to person, the income tax was challenged in the mid to late 1800’s challenged for being unconstitutional. Congress attempted to levy a miniscule wealth tax through an income-tax amendment in the Wilson-Gorman Tariff Act of 1894, but this was brought under constitutional question in the Supreme Court case Pollock v. Farmers Loan & Trust Co. in 1895. The tariff act was ruled unconstitutional by the Supreme Court because, at the time, direct taxes had to be directly proportional to state populations. In the early 1900’s, the 16th Amendment was passed, giving Congress the power to levy an income tax. Since then, Congress has been able to tax incomes at their own discretion without any Supreme Court hindrance.
The difficulty here is that a wealth tax is neither a tax on income, nor proportional or uniform across the people. For this reason, it would not be surprising if Elizabeth Warren created a wealth tax, that the wealth tax would likely be challenged in Court. Because of the conservative majority on our panel of justices right now, it is likely that the wealth tax would be struck down as unconstitutional. Elizabeth Warren, on the other hand, has already consulted legal experts. A report by a Dawn Johnsen and Walter Dellinger, two law professors at Indiana University, concluded in an analysis of the wordings in Article 1 of the Constitution that the wealth tax is in fact constitutional, and therefore has the potential to be upheld as constitutional in the Supreme Court. In light of this insight, there is potential that the wealth tax is a viable policy to be implemented.
Although the wealth tax is Warren’s primary economic focus, her other policies and platforms also relate to the economy. She hopes to break big business and erect antitrust measures in order to reduce corporate power. Many of her policies have been developed with the middle class in mind, including proposals for universal child care, reducing student loan debt (an issue that is acute and relevant for many, many UC Berkeley students), and Medicare for all. She is also proposing a housing plan for America that she calls the “American Housing and Economic Mobility Act,” which would reduce mortgages, make housing more affordable for Americans.
Warren’s proposals speak to a lot of economic issues that are relevant today, like reducing inequality, addressing big business in America, empowering labor power to “save the middle class,” and addressing the residual impacts of the 2008 financial and housing crisis. The biggest credit due to these policies, however, is not necessarily their economic merit, but rather the thoroughness with which she has considered these proposals. From consulting economists at UC Berkeley and law professors at Indiana University, the diligence with which Warren has considered her platforms is apparent and may be indicative of the diligence she will bring to office. Many of her policies echo New Deal and Roosevelt era proposals, and are relevant and worth paying attention to due to the the close proximity still to the 2008 financial crisis. With multiple months left until the primaries, it will be interesting to see how Warren’s campaign fares.
If you are curious about Warrens proposals, her campaign page is linked here and questions about her wealth tax are addressed here and here.
Featured Image Source: The Byte
Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.
