Elizabeth Warren's proposed wealth tax will raise $1 trillion less than expected and slow the economy, study finds
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Democratic presidential hopeful Senator Elizabeth Warren speaks at Exeter High School in Exeter, New Hampshire during a campaign stop town hall in November 11, 2019.
- Sen. Elizabeth Warren's proposed wealth tax would set back US economic growth by 0.9% in 2050, according to a new study released Thursday, possibly undercutting the signature plan helping to power her progressive campaign for the White House.
- The analysis from the Penn Wharton Budget Model - a nonpartisan research institution at the University of Pennsylvania - also estimated that Warren's signature plan would raise between $2.3 trillion to $2.7 trillion in revenue from fiscal years 2021 to 2030. That's significantly less than her campaign forecast.
- Richard Prisinzano, the director of Policy Analysis at the Penn Wharton Budget Model, told Business Insider the study assumed that the wealthiest citizens would pay it and ultimately invest less in the economy, leading to a slowdown in its growth.
- The study is likely to face criticism among some economists who argue the Penn Wharton Budget Model downplays the possible economic boost from Warren's sweeping agenda.
- Visit Business Insider's homepage for more stories.
Sen. Elizabeth Warren's proposed wealth tax would set back US economic growth by 0.9% in 2050, according to a new study released Thursday, possibly undercutting the signature plan helping to power her progressive campaign for the White House.
The analysis from the Penn Wharton Budget Model, a nonpartisan research institution at the University of Pennsylvania, also estimated that Warren's signature plan would raise between $2.3 trillion to $2.7 trillion in revenue from fiscal years 2021 to 2030.
It's significantly less than the Warren campaign's $3.75 trillion revenue projection.
Richard Prisinzano, the director of Policy Analysis at the Penn Wharton Budget Model, told Business Insider the study assumed that the wealthiest citizens would pay the tax and ultimately invest less in the economy, leading to a slowdown in its growth.
"Rather than reduce their consumption, they're gonna pay that tax out of savings. And because they're reducing savings, it shrinks the economy and GDP goes down," Prisinzano said.
The 0.9% cut in gross domestic product relied on the scoring conventions used by the Congressional Budget Office where additional government revenue generated from plans is directed towards reducing the deficit - a move that bolsters growth in the study's framework.
"Paying down debt is the best you can do in terms of how much the economy shrinks," Prisinzano said. "Unless you assume that the productivity boost you're gonna get from the program is really big."
Prisinzano also said the lower revenue forecast resulted from fewer tax dollars going to government coffers because of lower wages in a shrunken economy. Wages are estimated to drop between 0.8% to 2.3%.
The study's authors, though, conceded they couldn't fully analyze wealth tax avoidance by billionaires without specific legislative language and noted the Warren campaign has stressed that significant enforcement efforts would be in place. They relied instead on studying existing tax behavior of the richest citizens.
Warren's wealth tax plan would kick in for Americans with net worths over $50 million, with households paying a 2% annual tax on their assets like stocks, yachts, real estate - everything they own. Then it would be ramped up to 6% for fortunes totaling over $1 billion.
Her campaign has said it would use the revenue to fund her plans for universal childcare, tuition-free college, and drastically reducing student debt. She doubled the top tax rate to 6% to help cover the cost of her "Medicare for all" proposal.
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Democratic presidential candidate, Sen. Elizabeth Warren (D-MA) speaks to her supporters after officially filing to be on the ballot for the New Hampshire state primary at the State House on November 13, 2019 in Concord, New Hampshire.
The study also attempted to model the effect of tax revenue spent on government programs with varying productivity outcomes on workers, both neutral and positive.
It projected Warren's wealth tax would be a drag on growth regardless of the program its spent on, though it would stifle growth at lesser rate if revenue was directed towards a program that boosted worker productivity.
If revenue is spent on a program that improved worker productivity levels, the tax plan would cut the nation's GDP by 1.1% in 2050. That's compared to the 2.1% rate if revenue went towards a program that didn't affect their productivity.
"An investment in early childhood education might lead to additional labor-market dynamics that boost the economy," the study said. But it also maintained that "a considerable amount of wealth inequality in the United States has historically been driven by entrepreneurship, a factor that has received very little attention in tax models and analysis."
The study is likely to face criticism among some economists who argue the Penn Wharton Budget Model downplays the possible economic boost from Warren's sweeping agenda.
Emmanuel Saez, an economist who helped design Warren's wealth tax plan, told Business Insider last month that the proposal wouldn't hurt the economy's production of goods and services.
"The Penn Wharton model assumes that the wealth tax reduces the capital stock of the economy as revenue is simply used to pay down debt," he said in an email. "But if revenue is used for productive public investments such as public infrastructure, it would not necessarily reduce the capital stock."
Mark Zandi, an economist who also analyzed the wealth tax for the Massachussetts senator's campaign, wrote last month for CNN that "Warren's plans for child care, housing and green manufacturing would spur economic growth and produce more tax revenue."
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