Elizabeth Warren’s Ultra-Millionaire Tax

Elizabeth WarrenThe most exciting thing in the Democratic presidential primary has been Elizabeth Warren’s stream of policy proposals. Over time, I’d like to dive into them. Today, I will look at her Ultra-Millionaire Tax.

She starts by highlighting work by economists Emmanuel Saez and Gabriel Zucman (PDF) who first looked into this idea in 2016. It includes an amazing fact that I don’t think most people grok: in 1986, the bottom 90 percent of Americans owned 38 percent of the wealth here. In 2014, it was 25 percent. So let me provide a little context.

The average wealth of the bottom 90 percent in 1986 was roughly $80,000. In 2014, it was roughly $83,000. These are inflation-adjusted numbers, so the bottom 90 percent did see real gains: 0.1 percent per year.

During the same time, the average wealth of the top 1 percent increased from $5.2 million to $14 million. That’s a real gain of 6.0 percent per year — 45 times the relative gains of the bottom 90 percent. I don’t have the data for the top 0.1 percent, but it would be much more extreme.

Note also that during the housing bubble the wealth of the bottom 90 percent went way up — as did the wealth of the top 1 percent. After the crash, both groups saw their wealth decline. But the top 1 percent didn’t see it decline as much, and after two years, it had turned around. The bottom 90 percent saw their wealth decline and then stagnate.

This is not an accident — just the way the world is in a globalized economy. Dean Baker (PDF) has shown that the current situation we have where most people see little or no gain from productivity growth is the result of government policy. This is the way that our leaders have chosen to make it.

The Rich Aren’t Taxed Enough

I’ve written before about how the poor and middle classes get screwed by the tax system. One part of this is shown by how much everyone but the very rich pay compared to the very rich:

Group Wealth Taxed Relative Taxation
Top 0.1% 3.2% 100%
Bottom 99% 7.2% 225%

Like most taxation in the United States, this is regressive. Conservatives always claim that they want a flat tax. But they only apply this to progressive taxes. They don’t even mention all the regressive taxes.

Beyond Income Tax

Warren makes an excellent point about why the income tax — even if improved to be more progressive — is not enough:

While we must make income taxes more progressive, that alone won’t straighten out our slanted tax code or our lopsided economy. Consider two people: an heir with $500 million in yachts, jewelry, and fine art, and a teacher with no savings in the bank. If both the heir and the teacher bring home $50,000 in labor income next year, they would pay the same amount in federal taxes, despite their vastly different circumstances. Increasing income taxes won’t address this problem.

As a result, she proposes a wealth tax.

Ultra-Millionaire Tax

There are various policies we need to change to reverse this that go beyond taxation (intellectual property law, for example). But Elizabeth Warren’s proposal is essential.

The tax itself is pretty modest: 2% on net worth over $50 million and below $1 billion; and 3% on net worth over $1 billion. There would be no new tax on anyone with a net worth of less than $50 million. That’s pretty generous, I would say. That means only 75,000 American households would pay any of this modest tax. That doesn’t mean they won’t fight it with all their substantial resources.

Saez and Zucman estimate this would bring in $2.75 trillion over the first decade. According to the CEPR Budget Calculator, this represents an increase of about 5 percent in revenue.

To give you some scale, SNAP and other food assistance programs costs the federal government roughly $70 billion per year — that’s roughly one-quarter of how much the Ultra-Millionaire Tax would raise. That provides some kind of idea how much good could be done with the money. At the same time, our military budget is roughly $600 billion per year — roughly 2.2 times as much as the wealth tax raises. (Eternal war is expensive.)

Details, Details

Some people may be thinking that the rich will just find a way to evade this tax. But Warren has put in a number of measures to avoid this. One is that the tax applies to all wealth — even that held outside the country. It also increases enforcement by funding more IRS agents and establishing a minimum audit level for people with wealth above $50 million.

Perhaps best of all, the Ultra-Millionaire Tax goes after the (false) claim of the rich that they will just leave the country. Warren says, “Fine!” But there is a 40 percent tax on net worth above $50 million for people who emigrate.

Warren also claims that the Ultra-Millionaire Tax would allow us to improve our procedures in the implementation of the Estate Tax to remove loopholes. So we would likely get more from it. (Also: we need to greatly increase the Estate Tax.)


There’s more about the Ultra-Millionaire Tax at Elizabeth Warren’s website. Win or lose, she is expanding the policies that Democrats think about. And these policies are wildly popular with the bases of Bernie Sanders, Kamala Harris, and Joe Biden alike.

Article updated to reflect Barney’s criticism.