Eliminating these deductions would not just raise more money, but also reduce distortions in the economy, experts think: The government would no longer nudge billionaires to spend extravagantly on big houses or concert halls or hospital naming rights, or subsidize the cost of living in New York or California. There’s a whole slew of other deductions and exclusions, such as provisions for the owners of corporate jets, that the government would do well to erase, too.
There’s also a strong case for raising the country’s preferential, low tax rates on dividends and capital gains and getting rid of the carried-interest loophole—provisions that cost the government about $130 billion a year. Right now investors pay a top rate of 23.8 percent on long-term-investment earnings, versus 37 percent on ordinary income. The argument for keeping that rate low is that it encourages investment. But the carried-interest loophole is a straightforward tax dodge for hedge-fund managers. Investment income is income and should be taxed more like regular income, many tax experts think.
As for Warren’s wealth tax, that proposal comes from two of the world’s preeminent scholars on inequality, Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley. (The former is in part responsible for much of the data showing the rise in income inequality in the United States; the latter literally wrote the book on the role of tax evasion in widening inequality.) Their wealth tax would raise an estimated 1 percent of GDP a year, or about $200 billion.
Read: How America’s vision of progressive tax reform died
“The main argument is that an annual progressive wealth tax is the most direct way to limit the increase in wealth concentration,” Zucman told me. “The wealth share of the top 0.1 percent has increased from 7 percent in 1980 to about 20 percent today. The wealth tax is the most powerful tool to catalyze wealth concentration—depending on the rate, to limit its increase or to make it shrink.” He added that a wealth tax would also “enable the government to tax people who have a lot of wealth, not a lot of income,” such as Jeff Bezos of Amazon. His 2017 salary: $81,840. His net worth: $135 billion or so, depending on the state of the stock market.
With a wealth tax, very high-net-worth individuals would tally up the value of their estates—property, racehorses, art, business holdings, licensing fees, you name it—and pay a small share of that sum to the government annually; the government could use land, investment, and asset registers, as well as audits, to ensure compliance. “It’s very important that there are no exemptions,” so that the rich do not just shift assets around into classes that are not counted, Zucman told me.
Still, tax experts said the wealth tax would be difficult for the government to administer. “If we all had all of our wealth in publicly traded securities, it would be easy, but we don’t, and that’s what makes it hard,” Mazur said. “People hold a lot of wealth in closely held businesses, like a car dealership or a ranching operation, or in partnerships that trade assets, like hedge funds. Those things are hard to value. What a wealth tax does is have the government say, ‘Rich people, raise your hands and tell us what your wealth is!’ They’re probably not going to give you a good answer.”