While Republicans love to falsely claim that tax cuts for the wealthy pay for themselves through increased economic activity, in the case of increasing the minimum wage, it’s actually true.
Elizabeth Warren’s wealth tax proposal has certainly sparked debates not just about basic questions of fairness, of morality, but also about the economic effectiveness and very meaning of taxation.
The debate raises the question of what it means to invest in America.
Beto O’Rourke, in the last debate, jumped on the Warren-bashing bandwagon, accusing Warren’s policies of being “more focused on being punitive or pitting one part of the country against the other instead of lifting people up.”
Elaborating O’Rourke’s critique in terms of the impact of the proposed tax on the economy, Lawrence Summers, Treasury secretary under President Bill Clinton, and law professor Natasha Sarin argued in a paper they wrote that a wealth tax would “undermine business confidence, reduce investment, degrade economic efficiency and punish success in ways unlikely to be good for the country or even to be appealing to most Americans.”
While we tend to hear in the media from billionaires like Bill Gates and Leon Cooperman and not the 99/9% of households that would not pay more taxes under Warren’s proposal, polls directly contradict Summer’s and Sarin’s claim, showing overwhelming public support for a wealth tax.
But let’s assess Summer’s and Sarin’s claims that the tax would “undermine business confidence, reduce investment, and degrade economic efficiency.”
In short, let’s explore the question of what it means to invest in America and whether a wealth tax would really constitute a reduction of investment in America.
First, let’s just reflect intuitively on whether a tax on just .1 percent of American households seems likely to “undermine business confidence” and “reduce investment.” Consumer spending makes up roughly 2/3 of the U.S. economy, so it stands to reason that policies geared toward fostering a consistently robust consumer and encouraging consumer confidence in the 99.9% of households just might be a more effective approach to stimulating economic activity and ensuring the long-term economic health. Just saying.
For example, a recent study from the Illinois Economic Policy Institute highlights the many ways raising the minimum wage would significantly improve Illinois’ economy. The study contends, “By raising the minimum wage, Illinois can boost worker incomes, reduce income inequality, increase consumer spending, grow the economy, generate tax revenues, and decrease taxpayer costs for government assistance programs.”
In a nutshell, raising the minimum wage to $15 would both save taxpayers money by decreasing the need for public assistance for the working poor (saving $87 million alone in food stamp outlays, according to the study), increase the revenue the state brings in from income and sales tax (generating, the study says, $380 million in new state tax revenue), and overall generate $19 billion in economic activity.