Wealth taxes proposed by Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) would result in more than $1 trillion in lost earnings for workers over a decade, according to a report released Friday by the conservative American Action Forum (AAF).
“It turns out that no man is an economic island, and if you tax a handful of wealthy Americans, it affects the whole economy,” report co-author Douglas Holtz-Eakin, a former head of the Congressional Budget Office, told The Hill.
Raising taxes on the rich has been a top priority for Warren and Sanders, the two leading progressive candidates in the field of White House hopefuls.
Warren’s proposal would tax net worth between $50 million and $1 billion at 2 percent, and net worth above $1 billion at 6 percent. Sanders’s proposal includes a 1-percent bracket for married couples’ wealth between $32 million and $50 million, and rises to an 8-percent bracket for married couples’ wealth over $10 billion, with several brackets in between.
AAF commissioned the accounting firm Ernst & Young to analyze the two proposals. Holtz-Eakin, who has advised GOP presidential candidates in the past, said the goal was to ensure the report conformed with the modeling standards used by the nonpartisan Joint Committee on Taxation and Congressional Budget Office.
Under AAF’s analysis, Warren’s proposal would reduce gross domestic product (GDP) by 1 percent annually in the long run, compared with a 1.3 percent reduction in the Sanders plan.
The proposed taxes would also reduce consumption, private investment and the labor supply in the long run, according to the report.
Warren’s wealth tax would lead to $1.2 trillion in lost earnings, in 2018 dollars, for workers from 2021 to 2030, compared with $1.6 trillion under Sanders’s tax. Both proposals in the long run would impose “an effective tax of 63 cents on workers for every dollar the government raises in revenue from the wealthy,” the report said.
Warren’s campaign criticized AAF’s report, saying the investments financed by her wealth tax would benefit the economy.
“This analysis from a right-wing think tank relies on disproven assumptions about how taxes on the ultra-rich affect the economy,” Warren campaign spokeswoman Saloni Sharma said in a statement. “Elizabeth’s wealth tax will produce trillions in revenue to fund middle-class investments that will grow our economy and provide families with more financial security.”
Sanders’s campaign did not immediately respond to a request for comment.
The AAF report generated other criticism on the left. Michael Linden, executive director of the Groundwork Collaborative, a progressive nonprofit focused on economic policy, said on Twitter that wealth taxes can help correct economic problems caused by large concentrations of private wealth.
“Arguments that a wealth tax will ‘hurt the economy’ always ignore negative effects of wealth inequality, and rely on an empirically unsupported idea of the relationship between taxes and investment,” Linden tweeted. “Remember how the corporate tax cut was supposed to unleash an investment boom?”
Warren has said she would use revenue from her wealth tax to help pay for “Medicare for All” and finance several education-related priorities. Sanders has said his plan would generate Medicare for All funding and help pay for his affordable housing and universal child care proposals.
The AAF report did not analyze those spending proposals. The report’s base assumes that the revenue raised by the wealth-tax proposals would be distributed to households in the form of transfer payments that have no impact on productivity.
Under other estimates in the report that assume government transfers have a high impact on productivity, the two proposals would increase GDP in the long run.
But Holtz-Eakin said such findings have nothing to do with wealth taxes.
“That tells you that if there are some really productive investments the government can make, you should finance them in a less destructive fashion,” he said.