One of these things is not like the other one.
BRENDAN SMIALOWSKI/Getty Images
The actual policy disagreements between Elizabeth Warren and Bernie Sanders—nos. 1 and 3 in the latest national Quinnipiac poll—are mostly small and, given that as president both would almost certainly face a Congress far to their own right, probably not that significant . But once in a while, they diverge in interesting and informative ways.
Take their approaches to a wealth tax. Warren popularized the idea, mostly by keeping the concept simple, proposing a 2 percent charge on a household’s net worth above the $50 million mark to pay for her ambitious social programs. Now Sanders has take the idea to a logical—and dare I say, kind of wonky—conclusion (more on that in a sec). It’s an odd reversal of how the two are usually typecast.
Warren has made taxing the fortunes of the rich a centerpiece of her presidential campaign. On stage, she does her best to make the idea sound modest, quaint even, emphasizing that it’s just a “two-cent” tax on each dollar of wealth (until it hits 3 cents for billionaires, anyway). The Senator hasn’t exactly shied away from the language of class warfare: She calls it an “ultra-millionaire tax” and emphasizes that it claw back money from the “small group of families” that have become outrageously wealthy while the “middle class has been hollowed out.” But mostly, she’s emphasized it as a common sense idea to fund the government.
“If we put that 2-cent wealth tax in place on the 75,000 largest fortunes in this country, 2 cents, we can do universal child care for every baby 0 to 5, universal pre-K, universal college and knock back the student loan debt burden for 95 percent of our students and still have nearly a trillion dollars left over,” she said in one typical riff this June. The approach seems to have been effective. According to Morning Consult, 61 percent of voters approve of her idea. Even Bill Gates, currently the world’s second wealthiest man, has suggested he’d be comfortable with a wealth tax, in theory.
On Tuesday, Bernie Sanders introduced his own, much more aggressive version of a wealth tax. Though the senator’s plan would raise more money than Warren’s ($4.35 trillion over a decade versus $2.6 trillion), his rollout didn’t focus so much on paying for social programs. Instead, he borrowed a line from Rep. Alexandria Ocasio-Cortez and the activist left, and frontloaded the class war. As he put it on Twitter:
Or, to phrase it another way, Abolish Jeff Bezos.
Now, Sanders’ plan would not, in fact, liquidate America’s billionaires as a class. But like he told the New York Times, it would confiscate “a lot” of the wealth they currently enjoy. His tax reaches more households than Warren’s, and takes a larger bite out of their assets. For married couples, the rates would start at 1 percent on their net worth between $32 million and $50 million, then rise, step by step, to 8 percent on all wealth above $10 billion.
It is, in other words, far more aggressive, both in its rhetorical framing and substance, than Warren’s, as shown in this analysis by University of California Berkeley economists Emmanuel Saez and Gabriel Zucman, the world’s two leading academic advocates of wealth taxation. In 2018, Bill Gates was worth roughly $97 billion. If Warren’s tax had been in place since 1982, he would have been worth $36.4 billion—still unfathomably wealthy, but not richer than Harvard, Yale, and Princeton combined. Under the Sanders tax, however, Gates’ net worth would be a comparatively tiny $9.9 billion. Not banning billionaires, but getting there.
Scoping out a bit further: Under the Warren plan, the fortunes of the 15 richest Americans would be 54 percent smaller today. Under Sanders’, they would be about 80 percent smaller. Here’s a good breakdown from Saez and Zucman:
Zucman and Saez 2019
You can see how all this would slot easily into the standard narratives about Warren and Sanders. She talks wonkishly about plans to fix capitalism. He talks moralistically about bringing about a Democratic socialist revolution. She goes big (Forgive most student debt!). He goes bigger. (Forgive all student debt!)
But on closer inspection, Sanders’ bill is about a lot more than a moral statement, or a expression of the idea that when it comes to taxes, more is more. It’s actually a careful exercise in designing a progressive wealth tax that maximizes revenue while theoretically arresting, rather just slowing, the growth of wealth inequality between billionaires and the middle class.
Take a glance at Sanders’ proposed tax brackets for married filers. What do you notice?
•$32 million to $50 million net worth: 1 percent marginal rate
• $50 million to $250 million: 2 percent
• $250 million to $500 million: 3 percent
• $500 million to $1 billion: 4 percent
• $1 billion to $2.5: 5 percent
•$2.5 billion to $5 billion: 6 percent
• $5 billion to $10 billion: 7 percent
• More than $10 billion: 8 percent
It looks…a little complicated, right? I mean, that’s a lot of tiers. But when you average all those different marginal rates together, Saez and Zucman conclude that America’s billionaires would initially be paying about a 6 percent average tax rate on all of their wealth.
That number is significant for at least two reasons.
First, it falls right near the sweet spot when it comes to raising cash. In separate work, Saez and Zucman have shown that the wealth tax rate on billionaires at 6.25 percent maximizes revenue for the government. Go higher, and it will raise less cash for the government over time by crimping the fortunes of the rich. Things become more complicated when you consider how the wealth tax interacts with other taxes, but the bottom line is that Sanders has structured his version to look pretty ideal on a budget estimate. “The Sanders plan is essentially maximizing long-term revenue collection on billionaires,” Zucman confirmed for me in an email.
Second, a 6 percent average tax rate could stop wealth inequality from getting much worse, at least by some measures. In recent years, Saez and Zucman note, the richest U.S. households have seen their wealth grow by about 4 percentage points faster annually than the average family’s. Warren’s plan would erase part of that gap. Sanders’, they say, would erase it “entirely.”
So Sanders has shown us what a revenue maximizing wealth tax that puts a halt to rising inequality would roughly look like on paper. That also makes it easier to imagine what the downsides of such a policy might be (I expect a lot of venture capital investors and tech types would start talking about moving to Canada). Warren’s version might be an easier sell, but compared to Sanders’, the structure of her tax seems a bit arbitrary. If your definition of wonkiness involves making policy decisions to accomplish specific goals in the most efficient manner possible, it seems pretty clear who the wonk is this time.
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