A new analysis of Democratic presidential candidate Sen. Elizabeth Warren’s wealth tax proposal cast doubts on if it can achieve its purported goal of financing a broad range of programs.
The Massachusetts senator has said that a 2 percent tax on individuals with $50 million or more and a 6 percent tax on billionaires would help fund universal child care, free tuition at public colleges and “Medicare-for-all,” according to Fox News.
However, the University of Pennsylvania Penn Wharton Budget Model estimates Warren’s tax would raise between $2.3 trillion and $2.7 trillion in 10 years, somewhere between $1 trillion and $1.4 trillion below the $3.75 trillion that Warren said she would rake in. The report from the nonpartisan, independent applied research organization housed at the Wharton School of the University of Pennsylvania was released Thursday
“That does mean — to the extent that they’re thinking about this money being used to pay for spending priorities and things like that — they will need to figure out how to come up with that difference,” Kent Smetters, director of the Penn Wharton Budget Model, told CNBC.
The wealth tax also carries some negative side effects, the analysis showed.
The taxes would cause the economy to shrink between 0.9 percent and 2.1 percent by 2050. As a result, wages are projected to drop between 0.8 percent and 2.3 percent, Penn Wharton said in a statement.
“There’s a fundamental trade-off between how much money you raise and the impact it’s going to have on the economy,” Smetters told CNBC. “A wealth tax doesn’t just affect the billionaires: It has a broader impact on everybody because those billionaires are investing in companies that employ everybody.”
“They’re not just employing other billionaires,” he said
Warren spoke out against the findings.
“They didn’t actually analyze my wealth tax. They changed provisions and then analyzed something else,” Warren told Fox News.
“Before I ever rolled the wealth tax out, I had independent economists look at it and we got evaluation from economists, from tax experts, about how much wealth it would produce and I’m very confident about our numbers on this.
“I understand there are people who want to throw up a lot of dust around this because they don’t really have any comeback to that central question and that is why aren’t we asking folks at the very top to pitch in a couple of cents so that we can actually invest in opportunity in everyone else,” Warren said.
Other experts have also said the wealth tax may not produce all the revenue Warren hopes, according to Reuters.
“It’s not hard to believe billionaires are going to use every resource to avoid paying the tax,” Mark Zandi, chief economist at Moody’s Analytics, said.
He said that taken in a vacuum, the tax might achieve its projections.
“I’m skeptical the wealth tax will generate the same amount of revenue after considering all her plans together,” he said.
Zandi said a wealth tax would be hard to enforce.
“There will be more avoidance and IRS enforcement may not be up to the task,” he said.
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