If you’ve followed Sen. Elizabeth Warren’s (D-Mass.) presidential campaign, you know she has a series of ambitious plans, many of which involve substantial government spending. Since she’s a Democrat, she has to say where she’ll get the money (an obligation that, for some reason, Republicans are relieved of), and she claims that she’ll do it largely via a wealth tax.
In her plan, assets over $50 million would be taxed at 2 percent per year, and assets over $1 billion would be taxed at 3 percent. She calculates it would raise $275 billion a year, which could be used for all kinds of wonderful things such as universal pre-K, eliminating college debt and boosting affordable housing.
Conservatives, of course, find the very idea of taxing the wealthy to be morally abominable. But there is another argument against a wealth tax, which is laid out in an article in The Post:
Warren’s ambitious agenda relies on two assumptions that defy a long history of U.S. policymaking: First, that the country’s wealthiest taxpayers won’t find ways to evade the targeted tax hike she proposes; and second, that new entitlement programs won’t result in ballooning costs that plunge the federal government deeper into debt.
“She’s gone big. There’s nothing small about these proposals,” said Mark Zandi, who, as chief economist at Moody’s Analytics, has analyzed policies for Warren and other presidential candidates. “Will the wealthy do things that wealthy people can do to avoid paying the tax? That’s the real concern that I have. . . . A lot of other countries have tried this and backtracked because of tax avoidance issues.”
There is no doubt that rich people will try to avoid a wealth tax because, as a group, the rich are more likely to be selfish and immoral than the rest of us. They also tend to think that there’s something fundamentally unfair about the very idea of paying into the system that makes their wealth possible.
Look no further than our current president, who may be one of the great tax cheats in American history. As the New York Times exhaustively documented, Donald Trump, his father, and his siblings engaged in a massive tax-fraud scheme during the 1980s and 1990s, which enabled them to cheat the government out of hundreds of millions of dollars.
Another investigation found that, over the course of a decade, Trump had declared more than a billion dollars in losses, to which he responded that he was not in fact a terrible businessman, but it was just a scam to avoid paying taxes, calling it “sport.” And, of course, in 2016, when Hillary Clinton alleged that Trump might not be paying any taxes, he responded, “That makes me smart.”
So yes, wealthy people have the means, motive and opportunity to avoid paying a wealth tax. So what should we do about it?
Warren says that she wants to beef up Internal revenue Service enforcement to make cheating more difficult. But there’s no doubt that it’s a real problem, particularly since hiding wealth can be easier than hiding income. Even some liberal economists have warned that cheating would be rampant if a wealth tax was in place.
That leaves you with a few options. You can scrap it and try something else; you can just accept that there will be lots of cheating, but use a wealth tax anyway to get whatever revenue you can; or you can put it in place and massively increase enforcement. Like, massively — by hiring thousands of new IRS agents, giving them the resources they need, and imposing serious penalties for those who cheat. Start sending billionaires to San Quentin and the rest of them might decide it isn’t worth the risk.
Unfortunately, in recent years, we’ve been moving in the other direction. As ProPublica has documented, Republicans have waged a highly successful war on the IRS budget that has yielded results, including letting tax cheats off the hook and leaving billions of dollars in lost revenue every year:
As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will.
The IRS conducted 675,000 fewer audits in 2017 than it did in 2010, a drop in the audit rate of 42 percent. But even those stark numbers don’t tell the whole story, say current and former IRS employees: Auditors are stretched thin, and they’re often forced to limit their investigations and move on to the next audit as quickly as they can.
Which means that a huge increase in funding for the IRS will be necessary if we’re going to have a fair tax system. Because a fair system is one not only where people are asked to pay their fair share, but where it’s difficult for them to just decide they won’t.
I don’t blame Warren for not focusing too much on this aspect of the problem; it’s not like “We have to double funding for the IRS!” is the kind of line that gets people jumping out of their chairs and cheering. But if she’s going to make a wealth tax work, something like that will be necessary. In fact, it’s what we ought to do even if the tax code stays just as it is.