For the past four decades, this country has slogged under a system promoting the discredited theory that if we give more tax breaks to rich people, they will generously dole out more to the rest of us, and the country will be more prosperous.
It may not sound that catchy to say, “Let’s make American Ok.” In reality, though, it’s an incredibly ambitious and humane goal, and it’s absolutely visionary.
Leon Cooperman, an investor and hedge fund manager worth roughly $3.2 billion, has criticized Senator Elizabeth Warren (D-Mass.) for her proposed wealth tax, calling the idea “foolish.”
“The idea has no merit. It’s foolish. It probably is not legal,” he said in an interview with CNBC’s “Squawk Box.” “If the wealth tax passes, go out and buy yourself some gold because people are going to rush to find ways of hiding their wealth.”
In a recent interview with CNN, billionaire Leon Cooperman choked up, visibly upset as he talked about the future he envisioned for his vast fortune and the havoc he imagines a wealth tax, like those proposed by Elizabeth Warren and Bernie Sanders, would wreak on his plans. He characterizes her proposal as “socially and morally bankrupt” and complains, echoing Chase CEO Jamie Dimon, that Warren has been engaging in the “vilification” of billionaires.
“I don’t need Elizabeth Warren telling me that I’m a deadbeat and that billionaires are deadbeats,” Cooperman told CNBC. “The vilification of billionaires makes no sense to me.”
Cooperman sobs in this interview, verklempt that his plans to give away half of his fortune through philanthropic endeavors and to leave the other half to his family is somehow legitimately threatened by Warren’s proposal.
Should we “pity the billionaire,” to borrow the title of one Thomas Frank’s books?
Well, let’s think rationally and try to calculate the extent to which Cooperman’s hopes and dreams have been dashed.
Warren, who has been embroiled in a public argument with Cooperman and Bill Gates, created a tax calculator for billionaires so at least their complaints could be accurately informed rather than replete with overblown exaggerations that Robin Hood Warren is going to drain their bank accounts, leaving them penniless.
Bill Gates, whose worth is valued at $107 billion, has said he now pays roughly $10 billion in taxes and can see fairly paying up to $20 billion in taxes, joking that he doesn’t think paying $100 billion would be fair.
He has said, “I’d love for somebody to find a middle-ground approach.”
According to Warren’s calculator, Gates would pay an additional $6 billion in taxes, less than the $10 billion even he sees as reasonable.
Is this middle ground?
Cooperman’s worth is valued at $3.2 billion. Let’s say he had to pay an additional $18 to $25 billion in taxes. He’d still have some $275 billion, while Gates would have roughly $100 billion.
A reasonable mind might conclude they’ll still have quite a vast fortune to leave to their heirs or pursue new ventures.
Let’s keep in mind that the top marginal tax rate for individuals in the U.S. through the 1950s and 1960s exceeded 90%; from 1971 through 1980, the top rate was 70%; and Ronald Reagan cut the top rate to 50% in 1982. In recent years, the top rate has fluctuated between the mid- to high-30s. So the proposed rates in these wealth taxes are nowhere near restoring even historical rates.
And let’s keep in mind, as we think about what’s reasonable and fair, that
40% of Americans don’t have $400 to be able to cover an emergency expense.
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.
The wealth taxes Democratic presidential candidates Elizabeth Warren and Bernie Sanders have proposed continue to provoke the malice of Wall Street, corporate democrats, and now even other Democratic candidates running for president.
As I have written in PoliticusUsa.com (here and here), the intensity of the energy devoted to this criticism, combined with the lack of substance typically informing these critiques, is puzzling because the policies would impact, in the case of Warren’s proposal, only .1 percent of American households. The intensity seems disproportionate to the impact.
Is this outrage on behalf of the 99.9 percent of Americans?
Is the 99.9 percent of Americans voicing these criticisms?
Let’s look at who’s talking:
When Warren surged in the polls in September, CNBC published an article with the headline: “Wall Street Democratic donors warn the party: We’ll sit out, or back Trump, if you nominate Elizabeth Warren.” The article offered this quotation as representative of the widespread opinion among “high-dollar democratic donors and fundraisers in the business community”: “You’re in a box because you’re a Democrat and you’re thinking, ‘I want to help the party, but she’s going to hurt me, so I’m going to help President Trump.’”
To whom is this quotation attributed? The reporting tell us: “a senior private equity executive, who spoke on condition of anonymity in fear of retribution by party leaders.”
Clearly, this is a proud voice representative of average Americans worried about healthcare and how they’ll take care of their children and pay for college. In case you missed my irony, the opposite seems to be true.
A more recent critic appearing in the headlines on CNBC.com is Barry Sternlicht, CEO of Starwood Capital, a company possessing $60 billion in assets. On CNBC’s “Squawkbox,” he said, “I think it’s a crazy idea.” He questioned the ability of the IRS to arrive at an accurate valuation of his business: “It’s impossible to do—multiples, changes in interest rates. It’s almost an impossible thing to do.”
Really? The IRS, or even the company that files its own taxes and reports on its value, cannot figure out what the company is worth?
If it’s a matter of fluctuating values, Gabriel Zucman, an economist at UC Berkeley who helped craft Warren’s proposal, countered: ““The IRS would come up with the best valuation possible. If the taxpayers disagree, they can pay, in kind, with shares.”
Sternlicht’s main complaint, though, is this: ““You’re going to empower a lot of accountants. They’re going to be the biggest, fastest-growing industry in the world.”
So the reasons Warren’s wealth tax is “crazy” is because it’s difficult to calculate the value of a company (even though the companies themselves do it every day in market environments) and because it would create more work for accountants. Should we also not seek to pass necessary environmental policies because they might entail more work for scientists?
There is little push-back in the media when these criticisms are voiced, even when those voices pretend to speak for the majority of Americans.
For example, 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.”
Again, is this critique compelling and does it really capture, while it pretends to speak for the majority, what is really “appealing to most Americans”?
The idea that a tax that would impact .1 percent of American households, costing these households two cents on every dollar of wealth over $50 million, would “undermine business confience,” sounds, on the surface, rather ludicrous, as is the idea that it will reduce investment and make the economy function less efficiently.
Let’s just think historically for a minute, and we can see that America prospered when tax rates were much higher for the wealthy. In thinking about these critiques, let’s keep in mind that the top marginal tax rate for individuals in the U.S. through the 1950s and 1960s exceeded 90%; from 1971 through 1980, the top rate was 70%; and Ronald Reagan cut the top rate to 50% in 1982. In recent years, the top rate has fluctuated between the mid- to high-30s.
Was this punishing to the wealthy? They seem to have done just fine.
And what has not been talked about are the economic efficiencies and investments Warren’s plan would spur, not to mention what most Americans would find appealing. She proposes with the revenues to provide universal childcare, to make college at public institutions tuition-free, and to address the student debt burden that creates a major drag on the economy.
Just take the last point:
College debt levels have topped $1.4 trillion and, according to many economists, constitute a major drag on our economy. Think about it: college graduates saddled with debt are reluctant, and frankly unable, to purchase a home, start a family, or create a small business, constraining key sectors that drive economic growth and vitality under capitalism such as the housing market and entrepreneurial development.
According to a study from the Levy Institute, canceling the $1.4 trillion in student debt would spur economic activity to the tune of creating between 1.2 and 1.5 million new jobs in the first few years, creating tax-paying citizens who buy houses, start families, create businesses, and so forth.
And we know that providing childcare helps people work and contribute to the economy.
So what about these efficiencies?
Beto O’Rourke, in the last debate, jumped on the 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.”
It would be good to hear from most Americans, those already feeling punished in this economy. They’ve been pushed down for years by policies favoring the .1%.
Would not a wealth tax, such as Warren proposes, help lift them up?
It would be good to hear from the 99.9%. Maybe this constituency can get an interview on CNBC.
Imagine picking up a newspaper, or scrolling through your favorite internet news source, and coming across articles with headlines such as “How to Burglarize Your Neighbor’s Home,” “How to Undermine Public Education for America’s Children,” or “How to Destroy Sidewalks and Streets and Sabotage Other Infrastructure.”
I like to think you’d find that news source rather anti-social, even criminal, in its violent and vandalistic hostility toward our neighbors, our fellow people living in the United States. You might even think this news source must be the publication of some underground fringe group and certainly not mainstream media production.
And yet recently CNBC.com featured a video with the headline “How Married Couples Can Avoid Elizabeth Warren’s Wealth Tax.”
If you think about it, an article instructing people in how, put nicely, to avoid—or, put more bluntly and accurately, downright evade—paying taxes is really not all that different from the articles I invented above. Tax evasion is, of course, a federal crime; and while it might commonly be understood as a crime against the government, it is really, also, a serious and violent crime against the people.
Taxation, properly understood, is the mechanism we have for enabling people to pay their part, their fair share, for the services, projects, and infrastructure of which we all necessarily avail ourselves in the course of our daily lives and most certainly in the conducting of our livelihoods, the business and work we in earning our daily bread and supporting our families.
America, indeed, provides a fertile environment for growing and accumulating wealth. And, undeniably, as Elizabeth Warren has famously pointed out in the past, those who have had the good fortune through their genius, hard work, talent, or just dumb luck to experience great financial success have surely taken advantage of what the nation has provided them in the form of roads, bridges, ports, educated workers, security, military and police protection, and so forth.
While we can argue over what constitutes one’s fair share, we can’t really argue the fact that paying taxes is simply paying the bill for all the services and infrastructure the nation provides for individuals to generate wealth.
Not paying taxes, conversely, is equivalent to taking money from one’s neighbor or helping to destroy the public infrastructure we all need and use. If you avoid or evade paying taxes on the wealth you’ve earned in this nation, then I’m either going to need to pay more to get the same services I’ve been receiving or else those services will be curtailed. The education I receive won’t be as effective; my access to healthcare will be diminished; bridges and roads may crumble; social security benefits may vanish leaving me high and dry in my senior years; and so forth.
Put another way, when people engage in tax evasion they are defaulting on their obligation to support the infrastructure and the cooperative public enterprise, in which we all one way or another participate, that makes all of our lives possible, that keeps us healthy, that educates us, that basically keeps alive.
Hence, evading one’s tax obligations, paying one’s bill, is in fact a violent crime against people. It’s a dine and dash of great magnitude.
And let’s really think about the minimal impact on people’s wallets and substantial benefits for people’s lives in the nation Warren’s proposal, under attack all week on CNBC, would have.
When it comes to the tax bill Warren is proposing, here are the basics: For every dollar in assets people own over $50 million, they pay a 2% tax—or 2 cents per dollar. For every dollar over $1 billion, they pay 3%.
The tax would impact, it is projected, about 75,000 households (less than .1%) and raise $275 trillion over ten years. These revenues would be used to pay for universal child care and pre-K ($700 billion over ten years); free college tuition at public institutions, money for historically Black colleges, and the forgiving of a good portion of student loan debt (together all of this costs $1.25 trillion over ten years); and then she proposes the remaining $750 billion would be down payments on medicare-for-all and the green new deal.
And, let me repeat, this tax impacts less than .1% of households. The benefits seem transformational for our nation’s people, for our nation. And while some dispute whether the tax can really bring in the $275 trillion Warren’s team projects because of tax avoidance schemes, imagine if it brought in even half of what is projected. The good for people’s lives would be tremendous.
And yet on CNBC, the energy and thought go to pondering the legality of schemes for those who own more than $50 million assets to evade the tax.
Robert Frank explains:
The strategy is fairly simple. Warren’s plan would impose a 2% annual tax on wealth over $50 million and a 3% tax on wealth over $1 billion. If a wealthy couple is worth $100 million, they would pay a 2% tax on any wealth over $50 million, which in their case would amount to $1 million a year. But if they divorce and split their fortune in half, they would each be worth $50 million and neither would owe any wealth tax.
Nobel Prize-winning economist Paul Krugman made the case this morning that Americans are very open to raising taxes on the rich despite protestations from billionaires — and many Republicans — to the contrary.
And his conclusions seem to be supported by numerous public opinion surveys conducted over the past two weeks.
The New York Times columnist wrote in a morning tweetstorm that a Washington Post article he cites shows that there has been a “profound shift” in the way that American voters view proposals to shift more of the tax burden on the rich. He points out that an increasing number of people are much more comfortable talking about it now than they have been for many years.
According to Krugman,
“Suddenly, taxing the rich is on the political agenda. Candidates are talking frankly about taxes as a way to limit inequality in a way we haven’t seen for decades. But why is this happening now? The WaPo says there’s a ‘profound shift in public mood’.”
Using charts showing tax rates, the prominent economist went on explain,
“The public has *always* favored higher taxes on the rich — which also makes nonsense of claims that Dems are moving too far left on this issue. But obviously something has changed. It looks as if the veto power of the 1% over taxes has eroded.”
He then posed a question to political scientists as to why attitudes have changed, before adding, “In a way the question is why soaking the rich wasn’t on the agenda before — at least explicitly.“
Suddenly, taxing the rich is on the political agenda. Candidates are talking frankly about taxes as a way to limit inequality in a way we haven't seen for decades. But why is this happening now? The WaPo says there's a "profound shift in public mood" 1/ https://t.co/LG8SyIvTTm