Sen. Elizabeth Warren (D-MA) is teaming up with some Democrats as well as Sen. Bernie Sanders (I-VT) to put forth the wealth tax she campaigned on as a Democratic presidential candidate to fight the rising inequalities exacerbated by the pandemic.
"We have watched the wealth of the billionaire class in America increase by more than a trillion dollars over the last year," Warren said at a press conference on Monday. "A two-cent wealth tax, or just help level the playing field a little bit, and create the kind of revenue that would let us build back better as Joe Biden says."
The legislation was introduced on Monday by Warren and Reps. Pramila Jayapal (D-WA) and Brendan Boyle (D-PA). If implemented, Warren's Ultra-Millionaire Tax (UMT) would impose a 2% annual tax on net worth of households and trusts between $50 million and $1 billion. For those making above $1 billion, the annual tax rate would be 3%.
The legislation is expected to generate $3 trillion in tax revenue over 10 years by raising taxes on only 100,000 American families, according to an analysis by the University of California-Berkley.
"Wealth at the top has boomed during the COVID crisis. Billionaires' wealth has literally exploded while many Americans struggle with job and income loss," Emmanuel Saez and Gabriel Zucman, authors of the report, said in a statement on Monday. "The ultra-millionaire wealth tax is the most direct and powerful tool to curb growing wealth concentration in the U.S. and make sure the ultra-wealthy pay their fair share in taxes."
Under Warren's proposal, America's billionaires would owe $114 billion in wealth tax for 2020, according to estimates by the Americans for Tax Fairness (ATF) and the Institute for Policy Studies Project on Inequality (IPS).
For instance, Amazon founder and CEO Jeff Bezos would pay $5.7 billion in wealth taxes for 2020 under the proposal, lowering his net worth from $191.2 billion to $185.5 billion, while Tesla's Elon Musk would pay $4.6 billion in 2020 wealth, reducing his net worth to $148.9 billion from $153.5 billion, the analysis found.
'It would probably raise much less revenue'
While wealth taxes reached their peak in OECD countries in the 1990s, the number of OECD countries that currently have a wealth tax dropped to five from 12 by 2019 because of the challenges those taxes create, according to the Tax Foundation.
Critics say that Warren's proposed tax may be difficult to calculate and be enforced. The revenue generated might not be as much as expected, while the costs of administering the tax could be higher than calculated.
"There's also a lot of uncertainty over how much revenue a wealth tax could actually generate," Erica York, an economist with the Tax Foundation, told Yahoo Money. "It would probably raise much less revenue than what Senator Warren estimates."
The tax would cover the individual's net worth — including bonds, stocks, real estate as well as art collections and private business assets minus any debts. Some of those assets, like art collections, may be harder to value, requiring more resources at the Internal Revenue Service to support those operations.
Warren's proposal included $100 billion of funding to the IRS to "hire and train additional personnel, modernize IT systems, and implement the new asset valuation, reporting, and enforcement requirements" but it is unclear whether those resources would be enough.
Tax evasion and avoidance could be other reasons that the wealth tax may not generate as much revenue as initially estimated, according to York.
"While I think Senator Warren and her proposal would try to beef up the IRS, you would still have the incentive for wealthy households to try to reduce their liability," York said."The problem exists today with the estate tax and I don't think you could just make it disappear when you implement a far more broad-reaching tax like the wealth tax."