Senator Elizabeth Warren continues to rise in the Democrat presidential primary polls. She led the field by 4 points in the latest Economist/YouGov weekly tracking survey. In Quinnipiac University’s national poll released on September 25th, Warren received 27 percent while Biden got 25 percent of Democratic voters and independent voters who lean Democratic. “Dig a little deeper, and the reasons behind Warren’s rise become more clear. She generates a lot of excitement as a potential nominee,” said Quinnipiac University Polling Analyst Tim Malloy. “On top of that, half of Democrats want a presidential candidate that supports big changes – even if it means things are harder along the way.” Senator Bernie Sanders, whose far left ideology is the closest to Warren’s among the presidential primary contenders, had seen his poll numbers slipping even before he suspended his campaign appearances and events until further notice following a heart procedure for a blocked artery.
Warren has tried to distinguish herself from Sanders, a self-declared democratic socialist, by portraying herself as a believer in capitalism so long as it is heavily regulated and fundamentally restructured to favor those further down the economic ladder. She has claimed that she is a “capitalist to my bones.” However, no matter how hard Warren tries to sugarcoat her ideas to appeal to more moderate voters without losing her progressive base of support, Warren is a far leftist with a radical, anti-capitalist ideology.
“There is nobody in this country who got rich on his own — nobody,” Warren said in 2011 – an idea that Barack Obama picked up a year later with his “You didn’t build that” remark.
“You built a factory out there? Good for you,” Warren said. “But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.”
Elizabeth Warren also claimed credit for creating “much of the intellectual foundation” of the radical Occupy Wall Street movement. “I support what they do,” she exclaimed in 2011. Here are some of things they did in the course of their “occupations” in the name of “social justice” – violence, vandalism, sexual assaults, and arson.
Fast forward to the 2020 presidential campaign. A center piece of Senator Warren’s current pitch is her wealth tax proposal. She wants to pay for her radical redistributionist programs such as tuition-free public college, cancellation of student debt, universal child care, “Medicare for all,” and the economy-wrecking New Green Deal with a 2 percent tax on net worth over $50 million. To the catchy chant at a September campaign rally of “Two cents, two cents, two cents,” Warren responded, “Yes, that is a two cents tax on fortunes over $50 million.” Her tax would increase to three cents on every dollar above $1 billion.
Warren is serving up class warfare par excellence to her leftist base. Only the super-rich would be impacted by the new tax, the “richest 0.1 percent of Americans,” according to its proponents. And who cares about them, especially if you believe Warren’s claim that that they didn’t get rich on their own anyway? Indeed, Warren repeated her collectivist refrain from 2011 in defending her wealth tax proposal this past August and September. Warren believes that “all of us” – by which she means the government on our behalf – deserve much of the credit for helping those fortunate enough to “build a great fortune…we’re saying that if you make it really, really, really big, bigger than 50 million dollars, then pitch in two cents so everyone else can have a chance.”
Elizabeth Warren’s pitch is disingenuous, to say the least. True, entrepreneurs, factory owners and business owners, indeed “all of us,” benefit from certain government programs such as education, defense and infrastructure spending that help facilitate individuals’ ability to fully realize the American dream. However, what she leaves out in her speeches is that many of the dollars she claims are used by the government to do all the things for the “fortunate” have come, in the first place, from owners of factories and businesses – entrepreneurs who take risks and create tax revenue-producing jobs for many other Americans. Moreover, government inefficiency, corruption and harebrained social engineering schemes too often waste taxpayer money. Why should the government be permitted to seize even more money from law-abiding taxpayers to squander on such extremist proposals supported by Warren as free health care for illegal immigrants?
Economists Natasha Sarin and Lawrence H. Summers have critiqued the wealth tax on several grounds. First, they argued, efforts to minimize the impact of the 2 percent annual rate are misleading. “A 50-year old who has accumulated a substantial fortune can expect to pay more than half of it in taxes before she dies,” they wrote. “Imagine that a wealthy person invests in 10-year treasury bonds, with a 2.4 percent return. The wealth tax would extract 2 of the 2.4 percent return. Combined with income taxes levied at a 40 percent rate, the wealth tax could make the effective tax rate on capital income well over 100 percent. And then at the end of life would come the estate tax.”
Second, Sarin and Summers wrote that “wealth taxes are likely to be burdensome on entrepreneurial businesses in their private phase, when entrepreneurs are liquidity-constrained. Perversely, this could disincentivize transformative innovation…If America had had more figures like Bill Gates, Warren Buffett, and Steve Jobs over the last generation, it would have been a good thing, associated with a stronger economy even if measured inequality increased.” That’s because a stronger economy means more jobs for more Americans. “Turning the tax code into a vehicle for confronting what some call ‘oligarchic drift’ would undermine business confidence, reduce investment, degrade economic efficiency, and punish success in ways unlikely to be good for the country or even to be appealing to most Americans,” the economists added.
Third, there are valuation issues, particularly with respect to intangible assets such as intellectual property or shares in a privately-owned company that has not yet generated a profit.
Fourth, Sarin and Summers pointed to other countries’ unsuccessful experiences with a wealth tax. “Twelve countries had wealth taxes in 1990, and only three still do today,” they wrote.
There is also a problem with Warren’s wealth tax proposal that Sarin and Summers did not expressly address. The 2 cents slogan makes it sound so modest, with only a tiny part of the population who would be directly impacted. But as with many such modest-sounding beginnings, the camel will be getting its nose under the tent. A brief look at the history of the federal income tax illustrates the point.
The Sixteenth Amendment to the Constitution, which permitted Congress to levy an income tax without apportioning it among the states based on population, was officially ratified and added to the Constitution in February 1913. During the negotiations later in 1913 leading up to the enactment of the legislation that included the federal income tax, President Woodrow Wilson wrote Senate Finance Chairman Furnifold M. Simmons (D-N.C.) in support of the lower of two alternative rates under consideration. He wrote that “my own opinion in the matter is that it is much safer to begin upon somewhat moderate lines.” President Wilson signed the Revenue Act of 1913, which lowered tariff rates as well as enacting the income tax, into law on October 3, 1913. It imposed a one percent tax on incomes above $3,000, with a top tax rate of an additional six percent on those earning more than $500,000 per year. The amount of $500,000 in 1913 “is equivalent in purchasing power to about $12,682,163.30 in 2018,” according to the CPI calculator. By 1918, the top tax rate rose to 77 percent, presumably to help defray World War I costs. It went down to levels in the mid-twenties during the next decade. However, the top tax rate rose again to levels between 63 percent and 94 percent, until finally brought down to far more reasonable levels during the Reagan administration that led to rapid economic growth.
Now, on top of Elizabeth Warren’s proposed wealth tax, some of Warren’s kindred progressives are calling for a return to a top federal income tax rate of 70 percent not seen since 1980. And Warren has ducked questions on whether her version of “Medicare for all,” which would eliminate private insurance in favor of a government take over of the health care industry, would entail increased taxes on the middle class.
Everyone who values innovation, jobs, and protection of the inalienable right of Americans to the “pursuit of happiness” proclaimed by the Declaration of Independence should be alarmed by Elizabeth Warren’s radical ideas as she continues to climb in the polls. Do not be fooled by the low key, folksy tone that she uses to deliver her left wing, anti-capitalist nostrums.