Politico: Soaking the rich won't pay for progressives' agenda, you know

Strip all of America’s billionaires of their wealth and you still wouldn’t have enough money to fund many of the Green New Deal agenda items individually, let alone collectively. No need to explain that to Republicans, as Politico’s Bernie Becker tacitly admits in this Politico analysis. Instead, Becker tries explaining it to Democrats, whom Becker reports “are going big on” soak-the-rich tax schemes as a way to explain just how they plan to pay for the progressive agenda after 2020.

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In fact, as Becker notes, that’s only one-third of the problem. The first third is that a wealth tax is likely unconstitutional anyway. Secondly, they just don’t work:

There are many reasons a direct tax on wealth might not work: First, rich people have a wide range of tax avoidance schemes. Second, it’s hard to measure wealth in order to assess tax levels, especially assets like art. On top of that, there are legal and constitutional questions about targeting a particular demographic.

Even in places where they have been tried — like Europe — wealth taxes have largely been abandoned.

“A wealth tax could raise a lot of revenue — unless it raises absolutely zero,” said Daniel Hemel, a law professor at the University of Chicago and a one-time clerk for Justice Elena Kagan. “I’ve much less confidence in the constitutionality of a wealth tax than I did that Hillary Clinton would get elected.”

Becker provides a history of attempts to expand federal taxes to income and wealth, which courts blocked on the basis of unequal application. It took the 16th Amendment to get around that issue for an income tax, and it would likely take another constitutional amendment to impose a federal wealth tax. Or so one could argue, perhaps especially with a Supreme Court majority of constitutional purists now on the bench, although we’ve already been burned on a “tax” issue by Chief Justice John Roberts.

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More to the point, however, it wouldn’t be sufficient — not even in the short run:

Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, who are among the key intellectual backers for higher taxes on wealth, believe Warren’s plan can get around a lot of the flaws that plagued other wealth taxes. They project that rich taxpayers would be able to reduce their exposure to the tax only by about 15 percent because of safeguards like an exit tax on anyone who tries to renounce their citizenship to avoid the tax and increased resources for the IRS.

“The proposed wealth tax has a comprehensive base with no loopholes and is well enforced through a combination of systematic third party reporting and audits. Therefore, the avoidance/evasion response is likely to be small,” Saez and Zucman wrote in a letter where they estimated that Warren’s plan could raise $2.75 trillion over a decade.

Er … great. In case anyone’s keeping score, the Medicare for All proposal that sits at the heart of the progressive agenda will cost more than ten times that amount, $32 trillion. When added together with the rest of the Green New Deal, the price tag for the first decade runs anywhere between $52-$93 trillion. That makes the <$3T revenue from the wealth tax so inadequate to the task as to seem entirely irrelevant — even if it actually did raise that much money.

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Which it wouldn’t, of course. Those who propose sweeping taxes always argue that they’ve figured out how to plug the loopholes, but those exist for a reason. Pulling that much capital out of the hands of investors will inevitably slow the economy as investments for innovations dissipate, which will result in lower tax revenues almost immediately. Congress will be forced to construct “loopholes” to get around the tax law and keep economic growth moving forward, plus people learn very quickly from tax incentives how to structure their money. A soak-the-rich tax might hit close to the target the first year, but after that, forget it.

That’s why other nations have largely abandoned this approach too. We should learn a lesson from that … or at least learn how to do math.

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