Warren’s plan rattles the establishment
BERKELEY — The New York Times reported last week on a study showing that Sen. Elizabeth Warren’s proposed wealth tax (and presumably Sen. Bernie Sanders’ even more ambitious version) would reduce economic growth by nearly 0.2 percentage points a year over the course of a decade.
With a story headlined “Warren Wealth Tax Could Slow the Economy, Early Analysis Finds,” the Times trumpeted the analysis from the Wharton School of the University of Pennsylvania as “the first attempt by an independent budget group to forecast the economic effects” of the wealth tax, a centerpiece of Warren and Sanders’ campaigns.
It sounded like a game-changer. The super-rich obviously don’t like a wealth tax, but if it also slows the economy, a wealth tax could harm everyone.
But wait. In order to arrive at their conclusion, the study’s authors make two bizarre leaps of economic logic. They assume, first, that wealthy Americans would save and invest less in order to avoid accumulating wealth that would be subject to the tax, and that this drop in investment would retard economic growth.
Baloney. If we’ve learned anything over the last 40 years, it’s that the savings and investments of wealthy Americans don’t necessarily trickle down in ways that grow the economy or benefit most Americans.
The investments of the wealthy are parked all over the world in everything from exotic tax shelters to real estate and works of art. And rather than generate social benefits, those investments are more likely to keep legions of investment bankers, money managers, wealth advisers and tax lawyers busily employed gaming the system.
The study also assumes that the revenue raised by the Warren (and Sanders) wealth tax will go toward reducing the federal debt. It totally disregards what the wealth tax would finance, such as Warren’s proposals for universal child care, increased education funding, student loan forgiveness, green manufacturing and infrastructure.
This isn’t a minor oversight. Warren has repeatedly argued that taxing the super-rich is the fairest and most efficient way to pay for these critical needs.
Such spending, not incidentally, would spur growth. Enabling more parents to work, young people to become better educated, green technologies to take root, greater access to health care and the nation’s infrastructure to be upgraded would improve productivity.
How can an analysis of the wealth tax focus only on its trickle-down effects and not consider these crucial bottom-up consequences? Just as peculiarly, why would The New York Times prominently report this one-sided study?
The answers to both questions, I fear, have less to do with economics than with where power is located in the American system.
The denizens of corporate board rooms, C-suites and Wall Street don’t regard Bernie Sanders as a threat because they don’t believe he has a chance of being nominated. But they are panicked by Elizabeth Warren.
Financier Leon Cooperman accuses Warren of “trying to demonize wealthy people because there are more poor people than wealthy people.” Facebook’s Mark Zuckerberg calls Warren an “existential” threat. Billionaire (and possible presidential candidate) Michael Bloomberg describes her tax plan as anti-capitalistic.
These billionaires have such an obvious stake in preventing a wealth tax from ever seeing the light of day that their charges carry little weight. If anything, they’ve given Warren political ammunition. (Last week, she launched a new ad, “Elizabeth Warren Stands Up to Billionaires,” that targets several of her billionaire critics).
But more insidious attacks on the tax plan are now emerging from sources that don’t bear the direct imprimatur of the wealthy, including some presumably liberal enclaves such as a think tank at the University of Pennsylvania, and The New York Times, which chose to highlight a questionable study.
Earlier this month, Stephen Rattner, a former Wall Street executive and Obama administration and now a contributing opinion writer for the Times, called a Warren presidency a “terrifying prospect” that would abandon “the limited-government model that has mostly served us well” and “turn America’s uniquely successful public-private relationship into a dirigiste, European-style system.”
I know Rattner as a thoughtful man who is typically more measured, as is the Times op-ed page. But the establishment’s panic has apparently enflamed even its usually restrained surrogates and platforms.
This is no orchestrated conspiracy. It is more a matter of affiliation and class, revealing once again that biggest divide in America isn’t between Republicans and Democrats, conservatives and liberals, or right and left. It’s between the establishment and the anti-establishment, the oligarchy and the rest.
Warren (and Sanders) have stirred up a hornet’s nest. Beware. Bipartisan stingers are out.
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Robert Reich’s latest book is “The Common Good,” and his newest documentary is “Saving Capitalism.”