Presidential contender Elizabeth Warren suggested a new tax on the rich Thursday that could cost American billionaires $85 billion a year, according to a Forbes analysis. The plan would not directly affect anyone worth less than $50 million, but it would subject those with fortunes of more than $50 million to a 2% incremental wealth tax. The rate would rise to 3% for any fortune that crossed the $1 billion threshold.
That means billions of dollars would be transferred from the richest Americans to the larger population. Jeff Bezos, whose $137 billion fortune makes him the wealthiest person in the world, would have to fork over $4.1 billion annually under such a plan. Bill Gates would pay an additional $2.9 billion in taxes, and Warren Buffett would owe $2.5 billion more. President Donald Trump, whose estimated $3.1 billion fortune made him the 259th-richest person in America as of September, would owe an additional $80 million.
“We are now in an America where one-tenth of 1% has about the same wealth as 90% of America,” Warren, a senator from Massachusetts, said in an appearance on MSNBC. “And here’s the deal. Forty percent of America today can’t come up with $400 bucks in an emergency. That is not an economy that is sustainable, and it’s not a democracy that’s sustainable.”
Some billionaires who would be paying the tax characterized it as a step toward communism. “The leftists are ‘communist light’ for now,” Rockstar Energy Drink founder Russ Weiner, who is worth an estimated $4.5 billion, wrote in an email to Forbes. “They will continue to get more dangerous with their demands and actions. It will never be enough.”
Frank VanderSloot, who grew up poor and now sits atop a fortune worth an estimated $4.2 billion, offered a more measured reaction. “On the surface, it’s such an easy sell to sell people, especially young people,” VanderSloot said, “that hey, if we just took from those that had it, and we took it and kept it ourselves or gave it to people who don’t, wouldn’t that be a wonderful thing? I mean the whole idea of Robin Hood was Robin was the hero, right? But it’s been tried. And it creates an economic disaster.”
John Arnold, a billionaire Democrat, expressed skepticism on Twitter, asking how Warren’s plan would handle a case like Elizabeth Holmes, who allegedly defrauded investors into backing blood-testing company Theranos—making Holmes appear to be the richest self-made woman in America for a time. “Holmes was theoretically ‘worth’ $4.5 billion for a while,” Arnold tweeted. “Was she supposed to pay $90 million a year?”
Warren contends that the plan would raise $2.75 trillion over a decade, money she said could be funneled into lower costs for childcare, student debt and healthcare. “It’s the kind of money where you give somebody else in this economy a chance,” she said on MSNBC. “A government that’s not just working for the tippy top, a government that starts to work for the rest of America.”
That sort of thinking seemed to resonate with venture capital billionaire Chris Sacca, who broke with his rich peers in expressing optimism for such a plan. “Very lucky guy here (who got rich in part thanks to public schools, access to health care, etc.),” he tweeted, “weighing in to say that [Warren’s] proposal to put a 2-3% annual tax on wealth over $50 million is extremely and radically… reasonable.”
“Details will be everything,” he added. “Not everyone who is rich is liquid and able to pay cash. Asset valuation is hard. Ownership can be murky. There will be workarounds. And so on. But, the idea of a very modest tax (below expected yields) on accumulating assets, is interesting.”
Warren painted her proposal as a matter of fairness. “Compare two people,” she said in the MSNBC interview. “One has inherited $500 million and has paintings and yachts and airplanes and brings in $50,000 a year in doing some work. The other one, public school teacher, doesn’t have anything in savings and makes $50,000 a year. Currently, in America, they get taxed exactly the same. That’s a tax system that is really helping the rich and the powerful.”
But two people in those scenarios would probably not be taxed the same. Anyone with $500 million is likely collecting some passive income like dividends or interest, which would be taxed in addition to the theoretical $50,000. And under current law, anyone wishing to suddenly hand their heirs $500 million would need an additional $300 million or so to cover estate taxes upon their death.
In addition, most of the money billionaires would pay under such a tax proposal would come from entrepreneurs rather than lucky heirs. That’s because roughly two-thirds of America’s billionaires are considered “self-made,” meaning their fortunes stem from their own work. In addition, those people tend to be, on average, slightly wealthier than their peers who inherited fortunes. Forbes estimates $59 billion would come from America’s self-made billionaires, $13 billion would come from heirs who are actively growing their family fortunes, and another $13 billion would come from people who inherited their riches but aren’t doing much to increase them.
Even if the richest 1% controls more than one-third of the wealth in America, it does not control one-third of the vote. The son of one billionaire, who called wealth taxes “very dangerous,” wondered whether the tides are starting to shift in American politics, citing the 70% income tax bracket floated by New York Democrat Alexandria Ocasio-Cortez. “This is akin to the Tea Party movement in 2010,” he said. “It’s just on the opposite end of the spectrum. And these ideas sound crazy at first, but they begin to take hold.”
Author: Dan Alexander
With additional reporting by Chase Peterson-Withorn.