Warren’s wealth tax is put on hold by President Joe Biden
According to several people familiar with the White House’s thought, President Joe Biden would not advocate for a wealth tax to help pay for his multibillion-dollar Build Back Better initiative. By doing so, he would avoid a plan that progressive Democrats, led by Massachusetts Senator Elizabeth Warren, claim would collect trillions of dollars in revenue and narrow income inequality.
The announcement comes amid lively debate in Washington about how to pay for the president’s massive stimulus package, which could cost more than $3 trillion. To finance the bills, Democrats are calling for a number of tax hikes, while Republicans have vowed to reject any package that depends on tax increases to collect revenue.
Biden shied away from a complete acceptance of the wealth tax as a presidential candidate, which Warren popularized on the campaign trail and has since implemented in Congress. The proposal proposes a 2% annual tax on households with a net worth of more than $50 million, rising to 3% for those with a net worth of more than $1 billion.
The Biden administration had not officially opposed the proposal, and Treasury Secretary Janet Yellen said earlier this month that the administration was unsure on whether to implement it. This encouraged supporters to believe that some kind of wealth tax will be implemented in the future to help fund Democratic priorities such as infrastructure, renewable energy, increased internet, and hospital and school repairs.
Supporters argue that it will be both profitable — some economists estimate that it could raise $3 trillion over ten years — and common, with polls showing that nearly seven out of ten voters favor it somewhat or strongly. Warren’s early rise in the 2020 presidential campaign was fueled by the notion, which she transformed into a nationalist campaign slogan that had audiences shouting “two cents!” at her events.
Instead, the White House is expected to turn to a number of other pay-furs, including a corporate rate hike, the elimination of federal fossil fuel subsidies, and a drive to eliminate corporate tax havens.
Despite his opposition to Warren’s tax structure throughout the referendum, Biden has embraced redistributive tax reform as a broader principle. Though their solutions differ, the president agrees with Warren that “middle-class families are paying more than their fair share, and those at the top are not doing their part,” according to a Biden administration official.
On the campaign trail, Biden said, “We have to start rewarding jobs, not just wealth.”
Inside the White House, it was difficult to reconcile Biden’s acceptance of Warren’s strategy after openly opposing it during the campaign. According to several people familiar with Biden’s thought, aides don’t see any political danger in abandoning a wealth tax, pointing out that he already supports several tax hikes on the rich. Increasing capital gains and estate taxes, or raising the top individual income tax rate, for example, will target wealthy individuals while avoiding a debate about the wealth tax itself.
According to a Warren spokesperson, Biden and Warren both agree on several other steps to raise taxes on the rich, such as closing the stepped-up basis loophole, which allows the wealthy to transfer their fortunes to heirs tax-free. According to the spokeswoman, Warren will continue to lobby the White House and Treasury Department on her wealth tax plan.
“The bottom line is that Democrats seem to no longer be fearful of raising taxes on the wealthy in a significant way, and to be really open about it,” said Adam Green, co-founder of the Progressive Change Campaign Committee. “That’s a significant improvement from where we were only a few years ago.”
Though there is universal support for the concept of a wealth tax, there is real concern on Capitol Hill that enacting it as Warren proposes will be unconstitutional — and that federal courts packed with Donald Trump-appointed judges would be unlikely to rule in the Biden administration’s favor. According to a Democratic aide, the White House was reluctant to back the concept when it could rely on other pay-for that the majority of lawmakers approve of.
Because of how difficult it would be to accurately estimate Americans’ wealth each year — and how convenient it would be for wealthy families to conceal their assets — there is some doubt that a wealth tax would collect the $3 trillion that Warren mentions. Last year, a study led by Treasury’s Matthew Smith estimated that a Warren-style wealth tax would have raised $117 billion in 2016, much less than other forecasts.
Meanwhile, the revenue measures adopted by Biden are still aimed at removing or reducing “the problem of people accumulating vast sums of wealth over time that is never taxed,” according to Sharon Parrott, president of the Center on Budget and Policy Priorities.
“There are a variety of mechanisms,” Parrott said. “What matters is that we follow through.”