The big problem with Elizabeth Warren and Bernie Sanders’ new ‘ultra-millionaire tax’ proposal

The public loves it but the truth is that it would descend very quickly into a logistical nightmare

La aspirante a presidente demócrata, la senadora Elizabeth Warren, habla durante un ayuntamiento de campaña en la Universidad George Mason en Fairfax, Virginia (Alex Wong/Getty)

Ronald Reagan famously said of the government’s view about the economy, “If it moves, tax it.”

Along with several other liberal Democrats in Congress, this week Massachusetts Senator Elizabeth Warren resurrected a wealth tax proposal. Called the “Ultra-Millionaire Tax”, the scheme would impose a 2 percent annual tax on the net worth of households and trusts between $50 million and $1 billion and a 1 percent yearly surtax (3 percent tax overall) on the net worth of households and trusts above $1 billion. Warren featured the idea during her 2020 presidential run, and we know how that turned out. 

The Senator’s press release featured all the usual utterances about rich people paying their “fair share” (a phrase that appears eight times in the release) and ticking off all the wondrous federal programs the booty would cover, such as infrastructure, child care, education, and so on. 

Warren claimed necessity for the legislation because “the ultra-rich and powerful have rigged the rules in their favor so much”. But passing the buck is something many members of Congress do better than anything else. The ultra-rich didn’t “rig the rules.” Congress created the tax laws, and any “rigging” is merely people with means of hiring accountants or attorneys to work within the rules to reduce their tax liability. 

In addition to the initial levy, the bill features an eye-watering “exit tax” of 40 percent levied against anyone with a net worth of over $50 million who decides they want to renounce their citizenship and jettison away to the Cayman Islands to relieve the tax burden. Any attempts to enforce the penalty will undoubtedly face legal challenges that will stretch on for years. 

Liberals are fond of pointing to Europe as models of success for government action. However, Warren and Bernie Sanders, another wealth tax proponent, aren’t holding up nations across the pond as beacons of enlightenment on this issue because most of them flopped. Twelve European countries had wealth taxes in 1990. That number now stands at just four. 

Critics of the European models point to their design, saying the failures came about as the result of allowing too many exemptions for various asset classes, undercutting their ability to draw in revenue. Warren’s plan has no exemptions, so easy peasy, right?

Not exactly. When a person reads an article highlighting Jeff Bezos’s net worth, it typically presents an immensely rough estimate calculated by multiplying his shares owned in Amazon by their current share price. But Bezos has other investments. He also owns real estate, antiques, art and has other assets that contribute to his wealth. How does Warren expect to calculate it every year?

For example, in 2019, Bezos paid $52.5 million at a Christie’s auction for Ed Ruscha’sHurting the Word Radio #2. Since Warren’s plan has no exemptions for art, who will determine the value of that painting every year to account for the tax the well-known billionaire will pay? The Internal Revenue Service? Once you start to think about it, things get complicated — almost impossibly complicated.

The enforcement issues exist outside the possible Constitutional hurdles the plan must overcome. The Constitution forbids the federal government from implementing direct taxes except for the federal income tax allowed via the 16th Amendment. States collect property taxes and sales taxes. There is no authority for the federal government to look at Bezos’s paintings, antiques, his yacht (assuming he has one), properties, and other physical assets and say, “Pay us.” 

Finally, the political battle won’t be an easy one. The public has a favorable view of the wealth tax, as is the case with most “soak the rich” initiatives. President Biden, however, is not necessarily on board. When asked about it, press secretary Jen Psaki managed to regurgitate the “fair share” piffle but wouldn’t go much further. 

The Democratic Congressional majority is so slim, Biden likely won’t invest a boatload of political capital pushing for a bill that will face legal challenges the moment he signs it. That said, it also shows how much the party’s left wing is attempting to pull Biden in their direction. Hidden in the back, helping them out, is the Republican Party, happy to make it easier for them to win back control of Congress in 2022.