Sanders, Warren Compete for Who Can Tax Billionaires the Most

(Bloomberg) -- Senator Elizabeth Warren’s wealth tax proposal is big. Senator Bernie Sanders’ is about 60% bigger.

Sanders’ plan for a wealth tax attaches his name to one of the most salient tax ideas in Democratic circles that Warren, one of his main presidential primary opponents, has popularized.

Sanders, Warren Compete for Who Can Tax Billionaires the Most

Struggling to maintain his top-three position in voter preference polls, Sanders follows Warren in proposing a tax that has becoming a popular rallying cry of “2 cents” during her campaign speeches. The cries refer to the 2% levy that would kick in on the assets of fortunes worth more than $50 million. Sanders’ tax goes a few steps further -- taxing wealth above $32 million at 1%, with an increasing rate that tops out at 8% over $10 billion.

“This is the Sanders response to the Warren surge: My plan is bigger than yours,” said Brad Bannon, a Democratic political consultant. “They’re trying to out-progressive each other.”

Warren has topped the Democratic field in polls of voters in Iowa and New Hampshire, the first two states to hold nominating contests next February. Part of that rise comes from support for her wealth tax that she says would raise $2.75 trillion over a decade and pay for universal child care, free college and student-debt elimination.

Sanders’ tax would raise an estimated $4.35 trillion over a decade.

The two are competing to be the top progressive candidate to challenge former Vice President Joe Biden, a moderate. Sanders, a self-described democratic socialist, has for years spoken about income inequality and the problem of so many “millionaires and billionaires,” and he has proposed taxes and regulations that until this election have been outside the mainstream of Democratic politics.

Sanders, Warren Compete for Who Can Tax Billionaires the Most

“It’s a campaign. People outbid each other,” said Gordon Gray, the director of fiscal policy at American Action Forum, a conservative think tank. “This is the left’s version of Republicans vying to have the biggest tax cut in 2016. Instead, it’s bigger tax increases.”

In fact, Democrats were having much different -- and less ambitious -- discussions in 2016, as well. Hillary Clinton proposed about $1.4 trillion in tax increases when she ran against Sanders, with slight increases for top earners and businesses. Sanders proposed $13.6 trillion in tax hikes but both campaigns focused on raising rates of existing taxes, rather than introducing expansive new levies on the richest Americans.

In this election, nearly every campaign is talking about significantly higher taxes on wealthy with a greatly expanded estate tax, a new tax on Wall Street trades and a significant hike on capital gains income by taxing it the same as wages.

Warren and Sanders are both campaigning on a universal Medicare-For-All plan that would require at least $30 trillion in tax increases, plus more if they want to pursue other social programs, such as universal childcare and renewable energy programs.

“We’re seeing such a dramatic change in the debate,” Steve Wamhoff, the director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy, said. “There is a lot of agreement on the principle of wealth tax, though the average American may not differentiate between the two plans.”

Sander’s plan could come with many of the same downsides that critics have pointed to in Warren’s plan: It would likely face constitutionality questions, it could be difficult for the Internal Revenue Service to enforce, and wealthy individuals would likely find ways to minimize their tax bills or escape the tax altogether. And that’s assuming it could get through Congress, which is unlikely.

Sander’s larger version of the wealth tax would likely compound some of those downsides -- a more expensive tax means that people would be even more motivated to avoid it, Gray added.

Sanders called such people unpatriotic.

“Look, if rich people want to run away from the United States because we are asking them to pay their fair share of taxes, that shows the level of love that they have for this country, which apparently is not very much,” Sanders said while campaigning with union workers in Iowa. “I hope that the billionaires understand that it is these guys -- the working class of this country -- that made them their money.”

The higher rates would also winnow down fortunes faster, meaning that the tax would raise less tax revenue in future, Gray said. And winnowing down fortunes is part of Sanders’ stated goal -- he said he wanted to halve Americans’ billionaires’ wealth in 15 years.

Economists for the Sanders campaign estimate that had the wealth tax been enacted in 1982, the total wealth of the Forbes 400 richest Americans would be 40% of what it is now, and they would have a net worth of $3 billion on average, instead of the average $7.2 billion they held last year.

But a single plan is unlikely enough to help Sanders build momentum and support to overtake Warren, Bannon said.

“The Sanders decline isn’t about plans or taxes or climate change,” he said. “It’s that Democratic primary voters like Warren better than Sanders.”

©2019 Bloomberg L.P.

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