Finance

Warren's surge brings new scrutiny to signature wealth tax

Sen. Elizabeth Warren's (D-Mass.) emergence as a front-runner in the Democratic presidential primary is bringing new attention, and scrutiny, to her proposed wealth tax.

The Massachusetts senator first called for the new tax in January, and it's become the foundation for how she plans on funding some of her other policy proposals.

The idea polls well and has been championed by progressives, with fellow presidential candidate Sen. Bernie Sanders (I-Vt.) releasing his own wealth-tax plan last month.

But as Warren has started to edge out former Vice President Joe Biden in a number of state and nationwide polls, her policy stances - along with how she communicates them - are being put under a magnifying glass, more so than similar plans by other White House hopefuls. That scrutiny was evident on Tuesday night, when for the first time her wealth-tax proposal was the focus of much discussion at the primary debate in Ohio.

"She clearly went into the debate the other day as the front-runner or the co-front-runner, which is why she was subject to so many attacks," said Democratic strategist Craig Varoga, who is unaffiliated with any of the presidential campaigns.

Warren has called for a 2 percent tax on household net worth between $50 million and $1 billion, and a 3 percent tax on net worth above $1 billion. She has said she wants to use that revenue to finance a host of education-related proposals.

Warren has described her plan as a 2-cent tax on the wealth of the ultra-rich. Supporters can often be heard chanting "2 cents" at her rallies.

Michael Linden, executive director of the Groundwork Collaborative, a progressive nonprofit focused on economic policy, said Warren's wealth-tax proposal has helped to set the terms of the tax discussion in the Democratic primary. 

He said proposals to tax the rich have moved toward center stage in the 2020 race, and that taxing the rich has become a goal in and of itself, rather than just a means to pay for spending plans.

"A lot of that has to do with the popularity and the capturing of the imagination of the wealth tax," he said.

Still, Linden said, there remains a debate among Democrats about whether raising taxes on the rich is punitive.

"That idea was still apparent on that stage," he said, referring to Tuesday night.

The wealth-tax proposal received little attention at the first three Democratic presidential debates that Warren participated in. It wasn't explicitly mentioned in her first debate, and in the third debate she brought up the proposal but wasn't asked about it by the moderators. 

In the second debate, there was only a brief exchange on the proposal between Warren and former Rep. John Delaney (D-Md.).

Tuesday's debate - the first since Warren took the lead in a number of polls - was different. Moderators devoted a considerable amount of time to the issue, but in doing so Warren was forced to play defense.

Fellow candidate Andrew Yang, an entrepreneur, criticized wealth taxes during the debate, arguing it would make more sense to create a value-added tax.

He said other countries repealed their wealth taxes because they had "massive implementation problems and did not generate the revenue that they projected."

Warren's other onstage rivals didn't attack wealth taxes directly, and several even suggested they might be open to a wealth tax. But they did take issue with how Warren spoke about her proposal.

Warren defended her proposal by saying the question isn't why she and Sanders are backing wealth taxes, "it's why is it does everyone else on this stage think it is more important to protect billionaires than it is to invest in an entire generation of Americans."

More moderate candidates who haven't proposed wealth taxes but have offered other proposals to raise taxes on the rich took offense with the notion that they wanted to help billionaires.

"No one is supporting billionaires," Biden said.

Sen. Amy Klobuchar (D-Minn.), who expressed openness to a wealth tax, added that "no one on this stage wants to protect billionaires" but that candidates have different approaches to taxing the rich.

"Your idea is not the only idea," she said to Warren, noting her own desire to roll back portions of President Trump's tax-cut law.

Former Rep. Beto O'Rourke (D-Texas) said he thinks a wealth tax could be part of a plan to combat income inequality but added that he thinks Warren sometimes "is more focused on being punitive or pitting some part of the country against the other."

Warren in turn argued that taxing income isn't as effective as taxing wealth, and that Democrats succeed when they "dream big and fight hard, not when we dream small and quit before we get started."

She also said she doesn't have a problem with billionaires but instead thinks that those at the top should pay more in taxes so that "every other kid in America has a chance to make it."

Progressives said they thought Warren did a good job withstanding criticisms during the debate.

"Attempts to attack her actually put oxygen in the room for one of her most popular ideas, which is taxing the very wealthy in order to pay for things like universal child care and canceling student debt," said Adam Green, co-founder of the Progressive Change Campaign Committee, which has endorsed Warren. 

But a debate persists among economists and other tax policy experts about whether a wealth tax is smart policy.

Linden criticized Yang's argument that a wealth tax would be hard to implement, saying people had similar concerns before the U.S. instituted an income tax.

When Warren released her wealth-tax plan, her campaign said the IRS already has rules for valuing assets for estate-tax purposes, and the IRS would be authorized to tighten those rules. Warren has also proposed measures to prevent people from evading the wealth tax, including an exit tax for wealthy people who renounce their U.S. citizenship.

Jim Kessler, executive vice president for policy at the center-left think tank Third Way, said he thinks it will be challenging to figure out how to assess what people are worth every year.

"The wealth tax is almost impossible to implement," he said. Instead, he recommended raising the top individual income tax rate, making changes to capital gains taxes, and reverting the estate tax back to its previous parameters as good starting points for how to raise taxes on the rich.

Warren's wealth tax isn't the only tax issue of hers that has come under increased scrutiny as she rises in the polls. Some of her Democratic rivals have been criticizing her for refusing to give a direct answer to questions about whether she would raise taxes on the middle class to pay for her "Medicare for All" plan.

Varoga said a primary is a vetting process, and "part of the vetting process is making sure you can take the hit and keep on moving."

If Warren maintains her status as a leading candidate, she's likely to come under more pressure to defend her policy stances.

"Barring some very unforeseen collapse of her campaign, this scrutiny and pressure from her opponents, both at the top and at the bottom, is going to continue," Varoga said.

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