Democratic Massachusetts Sen. Elizabeth Warren along with Democratic Washington Rep. Rep. Pramila Jayapal and Pennsylvania Rep. Brendan Boyle have introduced the Ultra-Millionaire Tax Act, which would tax American households with a net worth above $50 million.
“The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began,” Warren said in a statement. “A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations.”
Billionaire wealth is 40% higher now than when the COVID crisis began – but our tax system is still tilted toward the ultra-rich. Today @RepJayapal, @CongBoyle and I are introducing our #WealthTax bill to make the wealthiest Americans pay their fair share. https://t.co/sDgDOKr07F
— Elizabeth Warren (@SenWarren) March 1, 2021
The Ultra-Millionaire Tax Act would place a 2% annual tax on households that have a net worth between $50 million and $1 billion. For anyone with a net worth of more than $1 billion there would be an additional 1% surtax. Warren said that approximately 100,000 households would be affected by the tax proposal.
Revenue generated from the proposal would be invested in child care, early education, infrastructure and K-12, according to Warren’s statement. (RELATED: 60 Days In California Could Earn You 10 Years Of Taxes)
An analysis from University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman found that the tax would bring in roughly $3 trillion in revenue over the next decade.
“As working families struggle to put food on the table, keep the heat on, and pay the rent during this devastating economic crisis that has caused the poverty rate to jump by the largest amount in at least 60 years, the rich have only gotten richer and the wealth of billionaires has jumped by 40%,” Jayapal said in a statement. “The Ultra-Millionaire Tax Act will help level the playing field, narrow the racial wealth gap, ensure the wealthiest finally begin to pay their fair share, and invest trillions of dollars into our communities so we can make a real difference in the lives of people across America.”
The proposal also includes anti-evasion measures such as a 40% tax on any citizens with a net worth above $50 million who renounce their citizenship “in order to escape paying their fair share in taxes.”
There would also be a 30% minimum audit rate for taxpayers who have a net worth greater than $50 million. Other measures include investing $100 billion into the IRS to hire additional employees to enforce the tax, according to Warren’s proposal.
A 2019 analysis by the Penn Wharton Budget Model (PWBM) found that Warren’s plan would reduce GDP by roughly 1 to 2% depending on how the revenue is spent.
PWBM also estimates that hourly wages, including the wages of Americans not subject to the tax, would fall anywhere between .8 and 2.3% “due to the reduction in private capital formation.”
In 1990, 12 of the 36 member countries in the Organization for Economic Co-Operation and Development (OECD) imposed a wealth tax. By 2o17, only 4 imposed a wealth tax. A review conducted by the OECD found that administrative issues, low revenues and the failure to “meet their redistributive goals” were the primary reasons that nations abandoned the wealth tax.
The Tax Foundation found that Warren’s proposal “would reduce long-run GDP by .37 percent” and that the tax “could have dramatic short-run effects – including a more than doubling of the trade deficit.”
Daniel Hemel, a law professor at the University of Chicago, and Rebecca Kysar, a law professor at Fordham University School of Law, wrote a piece for The New York Times (NYT) in 2019 that Warren’s proposal likely won’t pass constitutional muster.
Hemel and Kysar, both self-identified “liberal Democrats,” say the proposal would violate the “direct tax” clause of the Constitution.
Article 1, Section 9, Clause 4 of the Constitution reads that “no capitation, or other direct, Tax shall be laid, unless in proportion to the Census or enumeration herein before directed to be taken.” This means that a direct tax must be apportioned among states based on population.
California is home to 12% of the U.S. population so under the direct tax clause, Californians would be responsible for 12% of any direct tax, according to Hemel and Kysar.
Hemel and Kysar surmise that in order for Warren’s proposal to pass constitutional muster, then the wealth tax rate in West Virginia, who is the poorest state per capita, would “need to be roughly 10 times the rate in more affluent California and more than 20 times the rate in prosperous Connecticut.”
The tax as written, however, applies to individuals and is not apportioned among states based on population.
The Supreme Court has also ruled that taxes on real property are “direct taxes,” according to Hemel and Kysar. In Eisner v. Macomber, the Supreme Court ruled that any tax on real estate is a direct tax.