Friday, January 25, 2019

The Real Deal

Commenting on a remark about the new tax proposal from Senator Elizabeth Warren, Australian economist Cameron Murray tweets "Enforcing our existing tax law is the best bang for your buck investment available for government- >10x return on investment per year."

Australia in 2015 inaugurated a Tax Avoidance Taskforce, which reportedly increases its "focus on the top 1,000 multinational and public companies as well as the top 320 private groups and the high wealth individuals who control them." The federal government claims the taskforce in its first two years raised a little more than $5.6 billion and over $10 billion in tax liabilities at a cost of $679.9 billion.

The Senator's plan would feature a two percent wealth tax on individuals with assets greater than $50 million and a three percent wealth tax on persons with more than $1 billion. Additionally, as luck- or design- would have it

Warren’s proposal includes at least three new mechanisms to combat tax evasion, according to a person familiar with the plan. Those are a significant increase in funding for the Internal Revenue Service; a mandatory audit rate requiring a certain number of people who pay the wealth tax to be subject to an audit every year; and a one-time tax penalty for those who have more than $50 million and try to renounce their U.S. citizenship.

the Massachusetts Democrat is being advised by economists Emmanuel Saez and Gabriel Zucman, who earlier this week penned (typed?) an op-ed in The New York Times defending and supporting a proposal by Representative Alexandria Ocasio-Cortez advocating a marginal tax rate of 70% on incomes above $10 million. Saez and Zucman sent to Warren a letter on January 14 and

The wealthiest 1 percent of families currently face a total tax burden, including state and local taxes, of about 3.2 percent relative to wealth, Saez and Zucman write in their letter.

The bottom 99 percent of families currently has a tax burden of 7.2 percent relative to their wealth, the economists say.

“One of the key motivations for introducing a progressive wealth tax is to curb the growing concentration of wealth,” Saez and Zucman wrote to Warren in their Jan. 14 letter. “The top 1 percent wealth share has increased dramatically from about 22 percent in the late 1970s to around 40 percent in recent years. Conversely, the wealth share of the bottom 95 percent of families has declined from about 50 percent in the late 1970s to about 40 percent today.”

Thus far, seven Democrats- Julian Castro, Kirsten Gillibrand, Kamala Harris, Tulsi Gabbard, John Delaney, Richard Ojeda, and Andrew Yang- have either formally or informally entered the race.  The Democratic electorate deserves to hear from each of them, as well as from all others who become candidates, on Warren's idea.

Raising a vast sum of additional, necessary revenue and reducing wealth disparity among individuals and families are the two most important reasons to adopt Senator Warren's proposal, or something very similar to it. However, there is an additional though more subtle factor, as Jared Bernstein, former economic adviser to Vice President Biden, explains

The “miracle of compounding” is a tremendous force for those sitting on a large pile of large assets. It’s also terribly skewed away from minorities. As Valerie Wilson has shown, the black/white median income ratio is about 60 percent. For net worth, it’s 10 percent.

In addressing both income and wealth disparity, the plan has potential to improve substantially the financial outlook of black and Latino families and strike a blow for racial, as well as economic, opportunity. This is not the low-hanging fruit of criminal justice reform, which counts no one among its powerful opponents.

Tax reform of this magnitude goes to the heart of economic justice and powerful opponents lie in wait. The response of high-profile Democrats may be critical, and will be telling.

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