Two years ago, the House rejected a budget blueprint drafted by the Congressional Progressive Caucus that envisioned raising taxes by $9 trillion over a decade, plowing $5 trillion of that into new spending and leaving the rest for deficit reduction. Considered radical at the time, the plan was defeated 108-314, with 79 Democrats opposing it.
Democratic Sen. Elizabeth Warren of Massachusetts is running for president on a platform that makes House progressives’ 2017 budget look milquetoast. Still, by some metrics Warren’s got a plausible shot at the Oval Office: She’s polling well in Iowa and New Hampshire, and handily beats President Donald Trump in head-to-head nationwide polls.
But Warren’s odds of winning the nomination have taken a dive in the RealClearPolitics average over the last month, coinciding with big question marks about her fiscal policies and their economic impact.
And even through impeachment proceedings, Trump’s approval numbers are remarkably stable, recession fears are fading, and the stock market continues to soar. Critics are already painting a Warren presidency as kryptonite for workplace retirement accounts held by some 80 million Americans.
Nonetheless, Warren is betting that a massive redistribution of wealth — trillions of dollars in tax increases on rich people and businesses, funneled to seniors, students and families struggling with health and child care expenses — will sell on the campaign trail.
Below is CQ Roll Call’s analysis of Warren’s campaign proposals, by the numbers.
Really big government
$30 trillion. That’s a rough estimate of how much more the federal government would collect and spend over the next decade, based on figures supplied by Warren’s campaign and her outside advisers and previous proposals scored by the Congressional Budget Office.
That figure is equal to more than 11 percent of estimated U.S. gross domestic product over 10 years, according to the CBO. It’s also the approximate level of debt held by the public that would remain piled up at the end of the decade, since total deficits would remain largely unchanged from current projections.
According to the National Taxpayers Union Foundation, Warren — a “capitalist to my bones,” she says — would impose more new taxes than the self-styled Democratic socialist also running for president, independent Sen. Bernie Sanders of Vermont.
Federal revenue has averaged just over 17 percent of GDP since World War II; under Warren it would average over 28 percent. Federal spending since WWII has averaged about 20 percent of GDP; Warren would boost that to over 33 percent.
Based on data from the Organization for Economic Cooperation and Development, Warren’s plans would vault the U.S. from 29th to 12th on a list of 34 mostly rich countries in terms of tax revenue as a share of GDP, just behind Norway and ahead of Iceland and Germany. Total U.S. government spending as a percentage of GDP, currently near the bottom of the list, would jump into the top tier of the OECD in line with Italy, Sweden and Austria.
Not just millionaires
$250,000. That’s the income threshold where Warren’s new taxes would start.
Warren would impose a new 14.8 percent payroll tax on income above $250,000, split between employee and employer, to help finance a major expansion of Social Security benefits while keeping the program solvent another two decades. Some 5 million households could be affected at that income threshold, according to IRS data.
Warren also says she’d reverse the 2017 tax cuts for high earners, which could herald a restored “Pease” limit on itemized deductions, named for its author, the late Rep. Donald Pease, D-Ohio. Pease limited deductions above certain adjusted gross income thresholds, which in 2017 were $261,500 for single filers and $313,800 for joint filers.
A married couple filing jointly with an adjusted gross income of $320,000 today has an effective marginal tax rate — the amount taken out of the next dollar earned — of just over 27 percent. Under our hypothetical Warren tax regime, that rate could jump to 40 percent, or roughly what a household earning twice that much under current law pays. If Warren also restored the pre-2018 tax brackets, their effective marginal rate could top 48 percent.
$500,000. In 2019, it takes single filers at least $510,301 and joint filers $612,351 in taxable income, after deductions, to be in the 37 percent top bracket. Warren would return that rate to 39.6 percent, and possibly restore the old, lower income thresholds to capture all of the “top 1 percent,” which in 2017 began at $515,371 in adjusted gross income, according to IRS data.
Including increases in income and payroll tax rates under our hypothetical Warren plan, top bracket earners could pay a nearly 55 percent effective marginal rate. The last time the comparable U.S. rate was higher was 1971, when the top bracket threshold was about $1.27 million in today’s dollars.
Including state and local taxes as well as payroll taxes, the top tax rate on wages and salaries in the U.S. under Warren would be higher than in France, Denmark, Norway, Italy and Austria, according to OECD data. Only Belgium, Finland, Portugal, Slovenia and Sweden’s top rate would be higher.
Soaking the rich
59 percent. That’s the potential top tax rate on capital gains, where the real money is for the super-rich, under Warren’s plans.
The top 0.001 percent — 1,433 households earning at least $63.4 million in 2017, according to the IRS — reported 63 percent of their income as capital gains and dividends that qualify for a lower 23.8 percent tax rate. As a result, the top 0.001 percent paid a lower average income tax rate than those earning as little as $233,000.
To help correct what critics view as an unfair twist in the tax code, Warren’s new 14.8 percent tax to bolster Social Security would also apply to investment gains, starting at $250,000 for single filers and $400,000 for married couples. That would result in the highest investment tax rates since the mid-1970s.
But Warren wouldn’t stop there. For the top 1 percent, capital gains and dividends would be taxed at the same higher rate as other income. That would take the top rate on investment gains up to 59 percent, leaving the current highest OECD rate — Denmark at 42 percent — in the dust.
Investors would also likely face the brunt of a new $800 billion tax on stock and bond purchases, as financial institutions pass along the costs.
160 percent. The top 1 percent under Warren would also face annual taxes on capital gains, even if they haven’t actually sold any assets. That means well-to-do investors would pay taxes on gains that only exist on paper, though they’d be able to carry forward losses to offset future gains.
Technically, paper gains wouldn’t be subject to the new 14.8 percent Social Security tax, or the existing 3.8 percent investment income tax paid by those earning more than $200,000 ($250,000 for joint filers). But many could be forced to sell assets in order to pay the tax on paper gains, meaning they’d bear the full brunt of all three investment taxes.
And for the richest households, Warren’s wealth tax would lop 2 to 6 percent off total net worth each year. For billionaires earning 10 percent on their investments, or roughly the historical average return on the S&P 500, the tax would claw back 60 percent of that gain; if they earned a mere 6 percent, the tax would be 100 percent. Including regular capital gains tax, a billionaire’s effective marginal rate on investment returns could hit nearly 160 percent in the lower-gain scenario.
Uber-wealthy investors would need a roughly 15 percent return just to avoid the government taking every dime of their gains. That’s OK for a Bill Gates, whose Microsoft stock has rocketed by some 48 percent so far this year. But as the proposal’s authors proudly advertise, billionaires would still see their total wealth decline over time. As the Tax Policy Center’s Howard Gleckman pointed out in a recent blog post, that’s a “feature, not a bug” in Warren’s plan.
The constitutionality of a wealth tax is the subject of much debate. But if it could be done, the U.S. would join only six other OECD countries — Belgium, Italy, the Netherlands, Norway, Spain and Switzerland — with some form of wealth tax, according to research by the Tax Foundation’s Daniel Bunn.
Tougher than the Swedes
$76,800. That’s roughly the income threshold, in U.S. dollars, at which Swedes start paying the top income tax rate; the top U.S. bracket starts at more than five times that income threshold. As the Tax Foundation’s Kyle Pomerleau noted in 2015, in the early days of Sanders’ presidential aspirations: The European social democracies Warren and Sanders would emulate generally raise more revenue from a greater share of the population than just the mega-rich.
Even the handful of wealth taxes applied among OECD countries kick in at substantially lower net asset values — Norway’s is the equivalent of roughly $163,000 U.S. dollars, at recent exchange rates — or no threshold at all.
European countries get more revenue from regressive taxes generally than the U.S. does. The U.S. generates revenue from consumption taxes totaling 4.3 percent of GDP, for example, while Sweden raises three times as much. Denmark’s consumption tax haul is almost 15 percent of GDP, and their top marginal income tax rate starts at about $80,400.
Most goods and services are subject to a 25 percent value-added tax in Sweden and Denmark, for example, something U.S. policymakers have studiously avoided for decades. Detractors say such a tax on goods and services would disproportionately hit the poor and decimate the retail sector. But that tax has allowed many of these countries to reduce their corporate tax rates to the low 20s, a trade-off they’ve viewed as beneficial to their economies.
78 percent. Warren would restore the old 35 percent corporate tax rate, which Republicans lowered to 21 percent in 2017. On top of that, she’d impose a 7 percent profits surcharge on corporations earning more than $100 million. After new investment taxes facing high earners, plus state and local taxes, the all-in tax rate on corporate earnings could hit 78 percent, up from nearly 48 percent today.
The corporate tax rate would easily be the highest among OECD countries. By contrast, other OECD nations have consistently lowered their corporate rates in recent years, with the non-U.S. average dropping from 30.1 percent in 2000 to 21.7 percent this year.
$6 trillion. The corporate tax rate increases would raise about $2.4 trillion. Warren would also raise multinationals’ tax rate on their foreign profits by close to 20 percentage points, her advisers say, by establishing a minimum 35 percent tax rate in every jurisdiction they book profits, raising another $1.65 trillion. And they’d have to pay that tax annually, rather than the tax deferral on earnings reinvested overseas that multinationals used to enjoy.
Warren would also repeal depreciation and amortization rules that let companies take bigger write-offs for equipment purchases, research and development, advertising costs and more, raising $1.25 trillion. Another $150 billion would come from closing unspecified corporate “loopholes.” Then there are industry-specific taxes such as a new fee on large financial institutions and repeal of fossil fuel industry tax breaks, raising a combined $200 billion.
Economists say around 25 percent of corporate taxes affect workers, and stock ownership is much more widespread than just the very rich: 52 percent of all U.S. households held stock in 2016, according to the Federal Reserve. According to a 2013 Joint Committee on Taxation study, a little under half of the impact of a corporate tax increase would fall on households earning less than $200,000.
Arrayed against these new costs are a potential $200 billion savings to employers that would result from moving to a single-payer health care system. Still, Warren’s plans envision close to $6 trillion in new taxes over a decade on U.S. businesses, while moving the U.S. corporate tax system in the opposite direction from much of the developed world.
$9.7 trillion. That’s the net after-tax household savings over the next decade from never having to pay health care premiums and out-of-pocket expenses under Warren’s “Medicare for All” plan, which would be phased in over three years. Gross savings over 10 years would total $11.1 trillion, before $1.4 trillion in taxes taken out.
According to the Kaiser Family Foundation, an average family of four getting health insurance through the 2010 health care law’s exchanges was likely to pay $12,550 in 2017, and an average family with employer-sponsored insurance about $7,600. A separate Kaiser study found Medicare beneficiaries on average paid about $5,500 in 2013.
Workers with employer-sponsored coverage now would pay taxes on wages that previously went to premiums, so the average family would end up with a reduced net savings of about $6,300. Warren would also eliminate deductions for large out-of-pocket expenses, which some 10 million households claimed in 2017, as well as tax-deductible health savings accounts that defray additional costs.
Warren’s projected costs for her health plan, including covering some 32 million without insurance today and adding new benefits that aren’t covered by Medicare, are about $7 trillion lower than Urban Institute experts anticipate. If the savings don’t materialize, some or all of those cost savings could have to come from raising taxes or cutting benefits.
$5.4 trillion. Warren would spend trillions of dollars on expanding Social Security benefits, child care subsidies and lowering college costs. The average senior, on top of paying thousands of dollars less for Medicare, would see an extra $2,400 in annual Social Security benefits.
Annual bills for day care, preschool and nurseries — which according to Moody’s typically range from about $3,600 to $12,000, depending on income — would be wiped out for households earning up to 200 percent of the poverty line, or $51,500 in 2019 for a family of four.
No families would pay more than 7 percent of income for child care, for an average savings of about $1,200, according to Moody’s. That would be especially beneficial to households who earn too much to qualify for Head Start, which typically cuts off at the poverty line, but too little to benefit from child care tax credits, which are nonrefundable.
In addition, Warren’s plan would provide free tuition and fees at U.S. public colleges, which averaged $8,800 in 2016-17 for a four-year institution, according to the National Center for Education Statistics. She’d spend $100 billion more on Pell Grants for lower-income students, which today provide a maximum $6,195 per school year, boosting overall spending on the program by nearly one-third to help chip away at room and board costs that can average $11,000 to $12,000.
And then there’s student debt cancellation: up to $50,000 wiped off the books for families with household income up to $100,000, reduced by 33 cents on the dollar up to $250,000 in income, above which families wouldn’t be eligible. According to JPMorgan Chase, the average borrower in 2018 had about $33,000 in student debt, with annual repayments running about $2,150.
The bottom line: Including health care savings, households with less than $250,000 in annual income are promised some $15 trillion in benefits over the next decade, generally paid for with taxes on people making more than that — in some cases a lot more. That’s the message the Warren campaign needs to break through in the 2020 campaign, without scaring away the suburban voters both parties covet.