Warren doesn't just frighten billionaires – she scares the whole establishment
On Thursday, the New York Times reported on a study showing that Elizabeth Warren’s proposed wealth tax (and presumably Bernie Sanders’ even more ambitious version) would reduce economic growth by nearly 0.2% a year, over the course of a decade.
Under the headline “Warren Wealth Tax Could Slow the Economy, Early Analysis Finds”, the Timestrumpeted 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 a centerpiece of the 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, it could harm everyone.
But wait. In order to arrive at their conclusion, the authors of the study 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 do not 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. Rather than generate social benefits, they 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 the revenue raised by a 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 childcare, increased education funding, student loan forgiveness, green manufacturing and infrastructure.
This is no 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, more access to healthcare, 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 Timesprominently report this onesided 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 do not regard Bernie Sanders as a threat because they do not 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 Mike Bloomberg describes her tax plan as anti-capitalistic.
These billionaires have such an obvious stake in preventing a wealth tax that their charges carry little weight. If anything, they have given Warren political ammunition: this week she launched an ad, “Elizabeth Warren Stands Up to Billionaires”, that targets several of her super-rich critics.
But more insidious attacks on the tax plan are now emerging from sources that do not bear the direct imprimatur of the wealthy, including some presumably liberal enclaves such as a thinktank at the University of Pennsylvania and the New York Times, which chose to highlight its questionable study.
Recently Steven Rattner, a former
Wall Street executive, official in the Obama administration and 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 Timesop-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.
Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. He is also a columnist for Guardian US
Warren has repeatedly argued that taxing the super rich is the fairest and most efficient way to pay for critical needs