Most of the Democratic candidates for President want to raise tax revenue to pay for new programs of various sorts. Senator Elizabeth Warren of Massachusetts has in fact suggested creating a new wealth tax, 2% annually on wealth over $50 million and an additional 1% on wealth over $1 billion.
Is a wealth tax a good idea?
Normally I am skeptical of the economic ideas of Harvard University’s Larry Summers. He has stated many times that slow economic growth may be the new normal. He has also said quite recently that we should stop worrying about trillion dollar budget deficits. These are both very dangerous ideas. (here and here)
But he has two recent columns in the Boston Globe about wealth taxes which make a lot of sense. First of all, he points out the many problems in trying to tax wealth rather than income. Secondly, he identifies several ways to broaden the income tax base and close loopholes which would raise significant amounts of new money.
- Auditing the tax returns of even just 25% of million dollar earners could greatly increase the compliance rate and likely raise $400 billion over ten years.
- Closing corporate tax shelters would raise $360 billion over ten years.
- Closing individual tax shelters would raise $420 billion over ten years.
- Eliminating the stepped up basis for unrealized capital gains on inheritances would raise $250 billion over ten years.
Just these four tax revenue enhancements alone would more than pay for the $1 trillion cost of the Trump tax cuts passed in December 2017.
Summary. The Democrats want a variety of new government programs which will have to be paid for. And the trillion dollar annual deficits already projected for the future are totally unacceptable and need to be greatly decreased. Broadening the tax base and closing loopholes, as suggested by Larry Summers, will meet both of these needs.