Warren's plan to address inequality rattles the establishment
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?