Sen. Elizabeth Warren wants to spend trillions of dollars on education, child care, green energy and health care. She argues that these proposals will supercharge the economy, boosting growth and wages. And she plans to pay for it all with a bevy of taxes on the wealthy, Wall Street and corporations.
Most of her assertions are backed by an all-star panel of experts, including Mark Zandi of Moody’s Analytics, Simon Johnson, former chief economist of the International Monetary Fund, and leading inequality and tax specialists Emmanuel Saez and Gabriel Zucman of University of California, Berkeley.
But a growing chorus of other authorities – including former Treasury Secretary Lawrence Summers – are voicing doubts about the impact of Warren’s proposals, including how much her spending initiatives would cost, how much her tax plans would raise and what effect they would have on the economy.
The studies underscore the risk Warren took introducing so many – and such detailed – plans so early in the campaign.
The latest questions come from experts at the Penn Wharton Budget Model. The independent research organization issued a report Thursday that looked at what a massive wealth tax like Warren’s would do to the economy and wages, even if the revenue from that tax is spent on education, training and other public investment.
Warren wants to levy a 2% tax on net worth above $50 million and a 6% tax on wealth above $1 billion. She would use these funds to pay for her education and universal child care initiatives, as well as part of her Medicare for All plan.
A wealth tax like that would shrink the economy between 0.9% and 2.1% by 2050, depending on how the additional tax revenue is spent, according to Penn Wharton. That’s mainly because the rich will invest less in the economy, said Kent Smetters, the group’s faculty director.
“If you know you are going to get hit with a 6% tax, you are just not going to engage in as much economic activity,” he said.
That pullback will also affect workers’ earnings. Average hourly wages would fall between 0.8% and 2.3% in 2050, the study found.
In its analysis, Penn Wharton took into account spending that would produce economic returns of 12 cents on the dollar, including from investments in early childhood education and infrastructure (which Warren is not proposing). But researchers feel it would take 15 cents on the dollar to have a neutral impact on the economy by 2040.
Warren’s campaign, however, argues that Penn Wharton’s analysis does not take into account the economy-juicing measures in her universal child care and education proposals.
They point to an analysis by Zandi, who argues that Warren’s child care plan “quickly lifts economic growth” because of the financial support provided to lower-income and middle-class families, who would in turn have more money to spend and be able to work more. Plus, Warren calls for raising the wages of child care workers and expanding their ranks.
“Based on my own analyses, Warren’s plans for child care, housing and green manufacturing would spur economic growth and produce more tax revenue,” Zandi wrote in an op-ed published last month on CNN.com.
Also, Johnson, one of Warren’s experts, takes issue with the idea that a relatively small wealth tax would greatly cut investment by the rich, particularly entrepreneurs.
“The economy has changed a lot,” said Johnson, who teaches an entrepreneurial course at the Massachusetts Institute of Technology. “Their model reminds me of the 1990s, which we don’t live in anymore.”
The Penn Wharton researchers also say that Warren’s wealth tax plan will not raise the roughly $3.75 trillion in revenue over a decade that the candidate maintains it would.
Instead, it is expected to bring in between $2.3 trillion and $2.7 trillion. That’s largely because the rich will try to reduce their exposure to the tax in a variety of legal and illegal ways, including setting up charitable foundations, moving the money offshore and putting a lower value on their assets.
The report does take into account various anti-evasion measures, but without more details of what Warren would propose, researchers could not evaluate their effectiveness.
The campaign responded that it developed detailed anti-evasion efforts to address problems encountered in other countries.
“This analysis does not study Elizabeth’s actual plans – it does not account for the strong anti-evasion measures in her wealth tax and does not even attempt to analyze the specific investments Elizabeth is committed to making with the wealth tax revenue,” said Saloni Sharma, Warren’s national deputy press secretary.
Warren, along with her 2020 rival Sen. Bernie Sanders, says that a wealth tax is needed to reverse the growing concentration of wealth among country’s richest households and to pay for programs that will aid struggling middle and working class families.
The proposals have rankled the nation’s wealthy, including JPMorgan Chase CEO Jamie Dimon and hedge fund billionaire Leon Cooperman, who called Warren a “superficial, nasty hater.” Even Microsoft co-founder Bill Gates, who has said he supports higher taxes on the wealthy, expressed concerns about the size of Warren’s tax.
Warren, however, remains undeterred. Last month, she launched an ad blitz on CNBC, which frequently hosts billionaires on air, to make a case for her wealth tax.