Sen. Elizabeth Warren snagged a placement on the influential Senate Finance Committee in the new Congress, and she didn’t wait long to introduce a signature piece of legislation: the Ultra-Millionaire Tax Act of 2021. The bill, which has seven co-sponsors in the Senate, would establish a wealth tax on fortunes over $50 million, one of the more memorable policy proposals of her presidential campaign.
Here’s what you need to know about the proposal, which Warren announced yesterday, from how much money it could raise, to whether it actually stands a chance of becoming law.
What is the Ultra-Millionaire Tax Act of 2021?
Warren’s bill is simple. A wealth tax is a tax on the wealth a family owns — the difference between the value of its assets (e.g. a house, stocks, bank accounts) and the value of its debts. It’s not a transaction tax like the income tax, capital gains tax, or sales tax which collect money from either the transferor or recipient of a transfer of wealth. This makes it something of a departure from most of the taxes levied in the United States, though countries from Canada to Argentina to the Netherlands currently have a wealth tax on the books.
In addition to raising revenue, wealth taxes can help to reduce income inequality, and an analysis by the Washington Center for Equitable Growth found that “the burden of a net worth tax would be highly progressive” in the United States because the income inequality is so pronounced here.
What are the specifics of this plan?
The Ultra-Millionaire Tax Act would levy a tax of two percent of wealth over $50 million and three percent of wealth over $1 billion. It would also provide $100 billion in funding to rebuild the IRS after years of Republican cuts, mandate that 30 percent of households subject to the UMT are audited, and levy a 40 percent exit tax on the net worth above $50 of any U.S. citizen who renounces their citizenship.
The bill would also fund the creation of new tools to value hard-to-value assets and incorporate systematic third-party reporting to help determine the actual net worth of America’s ultra-rich.
How much money will it raise?
An analysis by a pair of Berkeley economists found that about 100,000 American families, what Warren termed the top 0.05 percent, would be liable for the UMT in 2023 and that the tax would raise around $3 trillion between 2023 and 2032, about one percent of GDP per year. It would raise the tax burden of the wealthiest 0.1 percent of families from 3.2 to 4.3 percent; by contrast, the bottom 99 percent of families have a total tax burden of 7.2 percent relative to their wealth.
Where would the money go?
In her press release, Warren called for the funds raised via the UMT to go to childcare and early education, public schools, and infrastructure. She also called for the wealth-tax plan to do the same thing when she was running for President. However, there is no language in the bill itself restricting where the funds can be used, so it’s not set in stone.
Is there popular support?
Yes. Sixty-four percent of those polled by Reuters and Ipsos last January said “the very rich should contribute an extra share of their total wealth each year to support public programs,” including a majority (53 percent) of Republicans.
But recent history tells us that public support, thanks to the counter-majoritarian institutions of the American government, and the deep-pocketed donors who have undue influence on American politics, is far from enough to ensure a proposal becomes law.
What do other Democratic leaders think?
President Biden’s press secretary refused to say he supported Warren’s proposal when asked about it on Monday, saying instead that Biden “strongly believes that the ultra-wealthy and corporations need to finally start paying their fair share.” Whether or not he will support the bill (few can forget when told a room of mega-rich donors “No one’s standard of living will change, nothing would fundamentally change,”) or veto it is not yet foreseen. But it looks like he’d lean towards some kind of progressive tax plan.
Janet Yellen, Biden’s newly minted Secretary of the Treasury, said recently that a wealth tax is “something that has very difficult implementation problems.”
A spokesperson for Sen. Chuck Schumer said that the Majority Leader “believes the federal tax code must be made more progressive, and he is looking at a variety of proposals from Senate Democrats, including Senator Warren’s, to accomplish that.”
Long story short, a cadre of progressive Democrats is proposing a measure with broad popular support that is anathema to the rich and powerful. Centrist Democrats, meanwhile, appear sympathetic to the goals a wealth tax would achieve but have so far refused to sign on to a specific policy that could accomplish them.
If anything has changed. it’s the context with which the conversation is happening. The wealth tax debate is going to take place in an America in which direct government payments are no longer unheard of, and billionaires have spent the last year getting even richer while millions of middle- and working-class people have lost their jobs, their homes, their livelihoods, and more. Whether the circumstances are different enough for the progressives to eke out a victory on the wealth tax remains to be seen, but it’s easy to be more optimistic about their chances now than one would have been before the pandemic.