Elizabeth Warren isn’t a Marxist, but she has certainly read her Piketty. Her wealth tax is completely consistent with the Piketty book, and her two principal advisers on the subject are, as I understand it, collaborators of his.
The wealth tax proposal has far-reaching consequences that I will address in three separate posts in the future. The first will focus on the tax as a campaign tactic; the second will talk about the political premises of the proposal; and the third will discuss its economic impacts, if implemented.
For today, however, I will limit myself to the legal and administrative problems with the tax, which are as follows:
- IT WOULD PROBABLY BE FOUND TO BE UNCONSTITUTIONAL: There is a fairly lively debate among the commentators as to whether a wealth tax would survive legal scrutiny. I am more persuaded by the no side, but the merits of the arguments really don’t matter much, because the decision would ultimately be made by the Roberts Court, and how do you think that would turn out?
- IT WOULD BE AN ADMINISTRATIVE NIGHTMARE: Warren is no fool, and she knows that the people who are potentially subject to the tax will do everything possible to avoid it, so part of her proposal is money for increased enforcement. The principal issues would be valuations, the movement of money overseas, and more or less fraudulent conveyances. It would take a small army of lawyers and accountants assigned to each taxpayer to make the tax work. Basically, the country would be treating every person who is potentially subject to the tax as a quasi-criminal, or a dangerous animal at a zoo. Does that sound fair to you?
I would agree with Warren that the extremely wealthy should pay more taxes, as they have benefited disproportionately from globalization and automation, and that inequality has reached levels that are making our economy unnecessarily unstable. The best way of dealing with these problems, however, is not a wealth tax, but higher marginal rates of income tax at the top levels and a beefed-up estate tax without stepped-up basis. These measures would address 80 percent of the issue at close to zero percent of the cost and risk.