Sen. Elizabeth Warren (D-Mass.) just dropped a tax policy bombshell that should explode any lingering doubt that her party is veering left on the issue — and preparing to make the yawning wealth gap a central focus of the 2020 presidential campaign.
The proposal, word of which was first broken yesterday by my colleagues Jeff Stein and Christopher Ingraham, would apply a 2 percent annual “wealth tax” on the net worth of those 75,000 households with more than $50 million in total assets. Those with more than a billion dollars in assets would face an additional 1 percent tax.
It would generate $2.75 trillion over a decade, according to Emmanuel Saez and Gabriel Zucman, the University of California at Berkeley economists who advised Warren on the plan.
But Warren, notably, is pitching the idea foremost as a means of rebalancing the concentration of wealth, a phenomenon she frames as a threat to democracy itself, rather than leading with the ambitious programs the new revenue could fund.
“Today in America, the top one-tenth of 1 percent has amassed about as much wealth as 90 percent of America: Upper middle class, middle class, working class, working poor and the poor poor,” Warren said in an interview last night on MSNBC’s “All In With Chris Hayes.” “And the consequence of having amassed that much wealth is bad for our economy — a tiny group of people making decisions that always tend to favor a lot of big corporations — and bad for our democracy. Because it means, just like you hear, it’s now a democracy that is influenced by the wealthy, the well connected, and it's not working for the people.”
The ultra-rich have rigged our economy & rigged our tax rules. We need structural change. That’s why I’m proposing something brand-new: An annual wealth tax on the tippy-top 0.1%. We’d get $3 trillion in new revenue to invest in rebuilding the middle-class. Let’s make it happen. pic.twitter.com/B0ImiSTxez— Elizabeth Warren (@ewarren) January 25, 2019
It was no accident that Warren unveiled the plan as the globe’s wealthiest and most powerful gathered this week in Davos for the World Economic Forum, a conclave that has become totemic of the billionaire class’s world-bending influence. (A dozen Davos attendees — including financiers Jamie Dimon and Stephen Schwarzman —have seen their fortunes surge by a combined $175 billion, "even as median U.S. household wealth has stagnated," a Bloomberg analysis found. And "UBS and PwC Billionaires Insights reports show that global billionaire wealth has grown from $3.4 trillion in 2009 to $8.9 trillion in 2017.")
But the rollout also happened to land on a day that featured two members of Trump’s administration with Wall Street pedigrees sounding particularly out of touch when it comes to the struggles of federal workers missing paychecks during the neverending shutdown.
Warren, in the MSNBC interview, talked up the promise of paying for universal child care, student debt relief, clean energy projects, and expanding health care. But she circled back to her point that the proposal is about “basic fairness.”
It also underscores her position as a policymaking pacesetter in the 2020 Democratic field. Rep. Alexandria Ocasio-Cortez (D-N.Y.) kick started a debate within the party over how hard to push for higher taxes on the super rich when she floated a 70 percent top marginal rate on income over $10 million. Warren is the first presidential hopeful to follow up with a fleshed-out plan, one that will force the still-evolving field to respond in kind.
Warren said she’s aware those facing the tax will attempt to minimize their exposure to it.
She is proposing three enforcement mechanisms. “Those are a significant increase in funding for the Internal Revenue Service; a mandatory audit rate requiring a certain number of people who pay the wealth tax to be subject to an audit every year; and a one-time tax penalty for those who have more than $50 million and try to renounce their U.S. citizenship,” Jeff and Christopher write.
Still, the proposal would face a number of hurdles. “A wealth tax faces political, legal and practical obstacles,” The Wall Street Journal’s Richard Rubin writes. “Unlike estate and income-tax plans, wealth taxes don’t have a long track record of support in Congress, even among Democrats. Wealthy taxpayers would begin looking for ways to escape or avoid the tax, and there would be frequent disputes about the value of illiquid assets such as businesses, real estate and art. And taxpayers would consider constitutional challenges, pointing to the limits on so-called direct taxation.”
Conservatives are criticizing the idea as extreme and unworkable. “Capital investment has to be financed by savings,” says Alan Viard, a former Federal Reserve economist now at the American Enterprise Institute. “Over the long haul, there would be a negative impact on investment and the growth of the economy.” Adam Michel, a tax policy analyst at the Heritage Foundation, said Warren’s proposal “really comes down to the politics of envy and whether or not we should be increasing taxes on the wealthy more than they already are.”
Conservative critics of higher taxes on the wealthy cite the disproportionate share of overall tax revenue they contribute. But economists supporting Warren’s proposal looked at the relative tax burdens another way. “The wealthiest 1 percent of families currently face a total tax burden, including state and local taxes, of about 3.2 percent relative to wealth,” they note, per The Post. “The bottom 99 percent of families currently has a tax burden of 7.2 percent relative to their wealth, the economists say.”
Polling shows strong public support for hiking taxes on the ultra-rich. A Reuters/Ipsos survey taken during the congressional debate over the tax code in the fall of 2017, for example, found 53 percent of adults “strongly agree” the wealthiest should pay higher taxes, and another 23 percent “somewhat agree” with that proposition. An earlier Pew Research Center study found 60 percent of poll respondents believe the wealthy don’t pay their fair share of taxes.
And one person close to Warren notes those attitudes are remarkably stable over the last quarter-century. Gallup polls since 1992 show Americans believe the wealthy pay too little in taxes by an average margin of 42 percent, with the margin never dipping below 29 points, according to this source.
But the politics of the issue are trickier for Republicans, who split along income lines.
Higher-earning Republicans “are far more likely to criticize the complexity of the code and the amount of taxes they pay than to complain about the conduct of corporations and wealthy individuals,” according to Bill Galston of Brookings. “Economic class makes a big difference for Republicans, but very little for Democrats: Upper-income Democrats are just as likely as middle- and lower-income Democrats to believe that some corporations and wealthy individuals are shirking their responsibility to help fund the government.”
The Democratic policymaking elite have been arguably slow to reflect that consensus. But developments over the course of the last several weeks suggest that may be changing.
Ocasio-Cortez’s idea received wide backing; and some more traditionally establishment figures are already declaring support for Warren’s proposal. From Gene Sperling, who chaired the National Economic Council in the Obama administration:
Wealth inequality in our nation is a national scandal. This type of wealth tax that @SenWarren is proposing is essential. It frees up dramatic amounts of resources that make it more likely the vast number Americans can have economic security & a shot at their own small nest egg. https://t.co/bYxTZS0lGn— Gene Sperling (@genebsperling) January 24, 2019
And from David Kamin, another Obama administration economist:
1/ We need to change how we tax the richest Americans. We right now do it ineffectively. The Warren wealth tax proposal is a big move to try to change that and make sure the best off really pay according to ability. https://t.co/TxoRgnYiL9— David Kamin (@davidckamin) January 24, 2019
And from Lily Batchelder, a deputy director of the NEC in the Obama administration:
Some have argued it is more efficient to increase taxes on capital income and inheritances directly. They make good points. But absent mark-to-market taxation, repealing stepped-up basis, and including inheritances in income, a wealth tax is worth serious consideration. 6/6— Lily Batchelder (@lilybatch) January 24, 2019
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— Welp, that was a big bust. Senators, as predicted, yesterday rejected both offerings on the table to end the longest-running government shutdown. Two measures failed to garner the 60 votes needed for passage: One including $5.7 billion for President Trump's border wall, and the other that would have opened the government immediately through Feb. 8. Some hoped the dual failures would result in the president and lawmakers working harder to compromise, according to The Post's Felicia Sonmez and John Wagner.
In that vein, Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Chuck Schumer (D-N.Y.) met privately following their failures on the floor. Schumer refused to elaborate afterwards: "We’re talking, we’re talking," he said. "Senators remained uncertain about whether a deal would emerge — and if it did, what it would look like," The Post's Erica Werner, Sean Sullivan and Mike DeBonis write.
Tension is building among Republicans. "Republican senators clashed with one another and confronted Vice President Pence inside a private luncheon on Thursday, as anger hit a boiling point over the longest government shutdown in history," The Post's Sean Sullivan and Paul Kane report. "'This is your fault,' Sen. Ron Johnson (R-Wis.) told [McConnell] at one point... 'Are you suggesting I’m enjoying this?' McConnell snapped back."
— And the real-world effects of the shutdown are piling up:
- The Post's Tracy Jan reports on 650 contracts that the Housing and Urban Development Department allowed to lapse for low-income residents in subsidized housing. Another 525 contracts are slated to expire by the end of next week, and 550 more will expire in February.
- Johnson Space Center workers are being asked to clean the bathrooms, according to the Houston Chronicle's Alex Stuckey.
- Steve Reaves, a Federal Emergency Management Agency employee who leads the union for FEMA workers, said he knew firsthand of six experienced people who had left the agency since the shutdown began. Two went to BP, the oil giant, per the New York Times.
- Unions for air traffic controllers, pilots and flight attendants said the shutdown posed a dire safety threat, calling it “unprecedented” and “unconscionable,” reported the Times. JetBlue's CEO says airlines are approaching a "tipping point."
- The government is piling up $90 million daily in back pay it owes furloughed federal employees, Government Executive reports.
- J.P. Morgan Asset & Wealth Management Chief Executive Mary Callahan Erdoes warned CEOs will start canceling investments.
@JohnCornyn @SenTedCruz @RepBrianBabin This is our reality at the Johnson Space Center. We now have no custodial services while we work without pay to keep the International Space Station operating😡#EndTheShutdown pic.twitter.com/QjDDpJuxwo— Elizabeth Blome (@SpaceEliz) January 24, 2019
— Trump officials show off their tin ears. "On Day 34 of the government shutdown, with federal workers set to miss their second straight paycheck on Friday, the Trump administration was prominently represented by two denizens of Wall Street: Wilbur Ross and Larry Kudlow," The Post's Philip Rucker, Josh Dawsey and Damian Paletta report. "Ross, the commerce secretary, on Thursday morning bemoaned air traffic controllers, who he incorrectly said were calling in sick, and added in a CNBC interview, 'I don’t really quite understand why' federal workers were visiting food banks. Instead, he suggested they apply for loans from banks.
"Then came Kudlow, the top White House economic adviser, who called the shutdown 'just a glitch.' He went on in a midday gaggle with reporters: 'Am I out of touch? I don’t think I’m out of touch. I’m addressing the problem. I’ve met with my individual staff members and God bless them. They’re working for free. They’re volunteering. But they do it because they believe government service is honorable and they believe in President Trump.'"
Meanwhile, for those Commerce workers actually seeking loans, the department's credit union is charging almost 9 percent interest. That, despite Ross saying financial institutions are offering "very, very low-interest-rate loans to bridge people over the gap."
My colleague Jackie Alemany went to a food bank a mile from the White House to talk with some furloughed workers feeling the pain.
Here was Trump attempting to clean up Ross's remarks:
Donald Trump, defending Wilbur Ross, says government workers not receiving a paycheck because of the #TrumpShutdown can simply convince their local grocery stores to “work along” with them. pic.twitter.com/bIvu2CJxHb— Keith Boykin (@keithboykin) January 24, 2019
Someone dubbed Ross's voice over Mr. Burns from The Simpsons and it works surprisingly well:
Fixed it: Wilbur Ross dubbed over Mr. Burns pic.twitter.com/a0zebOBZoR— ElElegante101 (@skolanach) January 24, 2019
— Big bank CEOs to testify. WSJ's Andrew Ackerman and Emily Glazer: "The chief executives of the six largest U.S. banks are poised to testify together before House lawmakers in Congress this spring, according to people familiar with the matter, for the first time since shortly after the financial crisis. The hearing before the House Financial Services Committee marks an opening salvo in House Democrats’ plans to put the industry back in Washington’s crosshairs. It is expected to include the chief executives of JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co... Precise timing for the hearing with chief executives had yet to be nailed down, but the panel is eyeing dates in March or April, these people said. The banks are all expected to participate."
— Trump casts in with Venezuela's opposition government. The Post's Anne Gearan and Karen DeYoung: "Trump’s bold decision to throw U.S. support behind a self-declared opposition government in Venezuela carries risks for a president whose foreign policy is staked on prizing American interests over others and keeping the country out of foreign quagmires. In support of the government declared by opposition leader Juan Guaidó, U.S. officials refused to rule out military action or far-reaching economic measures, including an oil embargo that would harm U.S. business. 'I think that speaks for itself,' national security adviser John Bolton said when asked Thursday what Trump meant by saying 'all options' are available to him."
The country's bondholders are making the same bet. "Regime change could be afoot in Venezuela. At least that's what holders of the country's defaulted bonds are betting," FT's Colby Smith writes. "As the US joins Brazil, Canada and Argentina, among others, in recognising opposition leader Juan Guaidó as interim president, Venezuela's defaulted bonds have jumped, now trading above 30 cents on the dollar for the first time in seven months. In fact, in the three weeks since January 1, these so-called Vennie bonds have gained nearly 40 per cent."
— Goldman's Solomon: 50 percent chance of recession next year. CNBC's Michael Sheetz: "Goldman Sachs CEO David Solomon told CNBC on Thursday he thinks the chances of a recession are steadily rising over the next two years. ‘Fifteen percent this year, 50 percent next year,’ Solomon said on ‘Squawk Box’ at the World Economic Forum… Solomon quickly followed by saying he's ‘not good at predicting these things.’ A day earlier, Goldman economists a report saying the U.S. economy is less prone to recession than in the past. The economists think the current economy is better built to absorb the kind of shocks that would typically trigger negative growth.
— Companies are struggling to prepare for a no-deal Brexit. Bloomberg's Joe Mayes and Jill Ward: "It was Airbus SE and clothing designer Burberry Group Plc this week. Rarely a day passes in Britain without another corporate warning about the perils of leaving the European Union without an agreement. While the focus has been on trade with the EU, the problem is that what’s become known as a 'no-deal Brexit' might be just as bad for companies doing business with other parts of world. And executives and policy makers say there’s little they can do to prepare.
"Politicians in London are seemingly at an intractable impasse, and the U.K.’s failure to guarantee free-trade agreements with countries like South Korea, Turkey and Norway has left exporters and importers concerned they too will be cut adrift. About 11 percent of Britain’s trade is currently covered by deals struck by the EU for its member states, ones the U.K. will have to replicate to maintain unencumbered exports and imports to and from more than 30 countries."
— Ross: U.S.-China deal isn't close. CNBC: "Ross said Thursday the U.S. is still 'miles and miles' from a trade deal with China. 'Frankly, that shouldn't be too surprising,' Ross said in a "Squawk Box" interview. The U.S. and China have 'lots and lots of issues,' he continued, and the Trump administration will need to create 'structural reforms' and 'penalties' in order to resume normal trade relations with Beijing. 'We would like to make a deal but it has to be a deal that will work for both parties,' he said. 'We're miles and miles from getting a resolution.'"
Kudlow: Everything hinges on next week's talks. Bloomberg: "Kudlow said the conversations with Liu’s team next week will be a crucial test of whether the two sides can come to an agreement. 'The Liu He talks will be determinative,' Kudlow told Fox News on Thursday, adding that Trump has told him that he remains 'rather optimistic.' 'The scope of the talks are huge and the talks are going to continue at the highest level,' said Kudlow. Right now 'we have nothing on paper, there is no contract, there is no deal.'"
The Chinese delegation will arrive in Washington on Monday, per Bloomberg.
Chinese join e-commerce talks at the last minute. More from Bloomberg: "China will join a group including the U.S. and the European Union in negotiating new rules to cover the $25 trillion e-commerce market. The EU and 47 other members of the World Trade Organization launched the discussions, according to a Friday statement. If successful, a digital trade accord hashed out through the Geneva-based trade body would establish a baseline international regime for 21st century trade and reduce cross-border hurdles to e-commerce. China, which for years has heavily restricted use of the internet inside its borders, had resisted joining the talks until Thursday, raising concerns over the language in the statement advocating a 'high standard outcome.'"
— BREAKING: Roger Stone indicted. The Post's Roz Helderman, Devlin Barrett and John Wagner: "Roger J. Stone Jr., a longtime informal adviser to [Trump], was arrested by the FBI on Friday after being indicted in the investigation by special counsel Robert S. Mueller III. Stone was charged with seven counts, including one count of obstruction of an official proceeding, five counts of false statements and one count of witness tampering, according to Mueller’s office. With Stone’s indictment, Mueller has struck deep inside Trump’s inner circle, charging a long-standing friend of the president and one of the first people to promote Trump for the White House... The GOP operative has been a key focus of the special counsel for months as Mueller has investigated whether anyone in Trump’s orbit conspired with Russia to interfere in the 2016 presidential campaign."
- “Officials rejected Jared Kushner for top secret security clearance, but were overruled.” NBC’s Laura Strickler, Ken Dilanian and Peter Alexander.
“Senate Intelligence Committee subpoenas Trump attorney Michael Cohen.” NYT’s Maggie Haberman, Nicholas Fandos and Eileen Sullivan.
— Some cities are so sure a recession is coming that they're stashing money away for the inevitability. Los Angeles, for instance, “has set aside close to $500 million across several funds to help weather emergencies and financial shocks, said Matt Szabo, Mayor Eric Garcetti’s top budget adviser. It had about $192 million in reserves before the last recession, which officially lasted from December 2007 to June 2009. It wasn’t enough: police overtime, fire service and street repairs took a hit, among other city services, Mr. Szabo said,” reports The Wall Street Journal's Scott Calvert and Jon Kamp.
“JPMorgan Chase & Co. gives about a 40% chance for a recession in the next 12 months, up from about 33% last fall. S&P Global Ratings, which says some cities are still struggling to rebuild reserves from the last downturn, recently put recession odds for this year at 15% to 20%.”
— Davos-goers do some soul-searching on finance. From the Wall Street Journal's James Mackintosh: “Michael Sabia, who runs $270 billion Canadian pension fund Caisse de dépôt et placement du Québec, fears that finance has forgotten its original purpose as backers of corporate investment. Instead, financiers have become mere tourists who care little about the companies they own . . . Without action, the French gilets jaunes [yellow vests] protests that paralyzed the country last month are just a foretaste of the populist unrest to come, he said. “Our returns are only as healthy as the societies we invest in over the long term.”
From The Post's Tom Toles:
Sen. Michael Bennett's (D-Colo.) flashed uncharacteristic anger as he discussed the shutdown on the Senate floor yesterday: