Editor’s Note: Edward J. McCaffery is Robert C. Packard trustee chair in law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler” and founder of the People’s Tax Page. The opinions expressed in this commentary are his own. View more opinion at CNN.
Ever since former President George H.W. Bush coined the phrase to criticize then-candidate President Ronald Reagan’s tax policies, Democrats and progressives have been accusing Republicans of “voodoo economics.” They are right to do so. The oft-repeated mantra that tax cuts for the rich will trickle down to help all of us, most recently heard in the Trump White House’s claim that his trillion dollar tax cut for corporations would give each worker a $4,000 raise, keeps coming up empty.
“Supply-side economics” seems to work only for those with a ready supply of wealth. Forty years of voodoo have left America with skyrocketing debts that cripple present and future policy, while workers keep paying more and more taxes. Americans deserve more honesty and responsibility when politicians talk about the people’s pocketbooks.
Which is where the wealth tax and other proposals coming from the Democrats’ left wing, Senators Elizabeth Warren and Bernie Sanders, come in. It isn’t that wealth inequality isn’t a massive and growing problem in America. It is, perhaps at the root of all our problems. And it is not that a wealth tax is not a serious proposal to address this serious problem. It is.
It is rather that it is wrong – voodoo wrong – to assert that a wealth tax would bring in massive amounts of revenue, any time soon, to meet the spending demands of the progressive platforms. The plan, or dream, comes down to this: Tax other people – rich people – a few cents on every dollar they own and voila, we will suddenly have enough revenue to pay for lots of goodies, like student loan forgiveness, college tuition, Medicare for all and a higher minimum wage.
Sen. Sanders claims his wealth tax will raise an estimated $4.35 trillion over 10 years, about three times the price tag of the Trump 2017 tax cuts. Sen. Warren’s plan, in which she recently doubled the tax rate for billionaires from 3% to 6% (showing how easy it is to practice progressive voodoo economics) to help pay for her Medicare plan, would raise less, but still more than $3 trillion.
These projections are progressive voodoo economics.
Whatever the merits of a wealth tax – and there are many – there are political, legal and practical obstacles to overcome before we will see anywhere near the funds that Warren and Sanders tout, if we ever do.
Politically, the plan would have to clear both the House and the Senate, and to do so free of added-on exemptions and tax breaks that typically undermine such ambitious tax plans. The politics might even mean getting 60 votes in the Senate. Good luck with that.
Legally, there will be serious constitutional challenges to any new wealth tax. Given the way courts work, such a challenge would take years. Given the makeup of the current Supreme Court, such a challenge is unlikely to go fully in the progressives’ favor.
Practically, for any wealth tax to work, it would have to be designed and implemented in a way that prevents the wealthy and their paid advisers’ best efforts – through trusts and other tricks – to avoid paying it.
Winning this battle is something that has never been done in the history of taxation, including with the wealth transfer (or “death tax”) tax system in the US. France, home to the economists behind the Sanders/Warren plan, recently abandoned its own wealth tax, in part because it was raising very little revenue.
Finally, there is this: If a wealth tax were to pass congressional muster, and judicial review, and administrative implementation, and actually work the way that Senators Warren and Sanders hope it does, it will …. stop working after a bit.
This is because the wealth tax has two goals that conflict. One is to break up billionaires. The other is to raise revenue. But if the first works, the second dries up, because there will be no more annual taxes to collect from the billionaires we have abolished. All the programs funded with the initial rush of cash will be left unfunded. Massive deficits – the price, today, of Republican voodoo economics – will haunt our present and future.
Without resorting to witchcraft, there are plenty of tax policy steps that Democrats could take to get us to a better place. We could cut the payroll tax, as former President Barack Obama did from 2010-2012. A 2% payroll tax cut would mean $1,000 a year to a worker earning $50,000, and $4,000 a year to a married couple earning $200,000 (soon thereafter, the benefit would plateau, as the payroll tax only applies to wages up to $132,900 per person).
This is real money, not voodoo incantations.
How could we pay for this? We could restore some of the corporate tax revenues, now at their lowest level as a percent of GDP since 1936 as a result of the Trump cuts. We could also close up loopholes in the income tax, such as the “Angel of Death” provision that allows capital gains to magically disappear on the wealthy’s deathbeds.
And there is more for creative and willing minds to explore including, one day, a real wealth tax.
But while we wait for a better promised land, Democrats can meet a basic promise to restore fairness to America’s workers by getting America’s wealthy to pay more so its workers can pay less. Let us hope that they do so honestly, without resorting to voodoo. As anyone who has read Harry Potter knows, using the dark arts never ends well.