Warren’s war on billionaires will not reduce US inequality

DEMOCRATIC presidential candidate Elizabeth Warren’s war on billionaires with a planned wealth tax would raise at least $300bn (£230bn) but have virtually no effect on overall inequality, a leading US economist has said.

Ms Warren’s plans involve a 2pc annual tax on wealth above $50m, rising to 3pc above $1bn. Last month she doubled the top rate to 6pc, claiming to be able to raise $3trillion to fund “Medicare for all”, in echoes of an anti-billionaire theme adopted by Jeremy Corbyn, the Labour leader, in his failed election campaign.

Both politicians claimed to be tackling inequality with their plans, following in the footsteps of Thomas Piketty, the Left-wing “rock star” economist.

But Edward Wolff, a professor of economics at New York University, has said that the original Warren proposals, including the 3pc billionaire tax, would have a “minuscule” impact on the Gini coefficient, a commonly-used measure of inequality which expresses the income distribution of a country as a number between 0 and 1.

Based on 2016 tax figures, the US’S Gini coefficient – where a higher number signals greater income inequality – is 0.88. Ms Warren’s tax would raise an estimated $303bn from billionaires, but this is so small as a share of the total $84 trillion of US household wealth that it would have barely any effect at all on reducing inequality.

A Swiss-style tax, with a lower threshold and rate, would also have little impact, due to even lower returns.

Mr Wolff said: “Neither tax produces much tax revenue relative to total household wealth. So, if one objective of a wealth tax is to substantially reduce wealth inequality, neither of these taxes will achieve that objective.”