Economist Dean Baker on the shortcomings of Elizabeth Warren’s wealth tax plan

Dean Baker of the Center for Economic and Policy Research (CEPR) is one of the sharpest minds in the progressive economic space. He is one of the few economists who saw the housing bubble coming, and tends to deftly cut through media misinformation on the economy.

But part of being a sharp mind is not always automatically agreeing with your ideological cohort. So I asked him what he thinks about New York Democratic Congresswoman Alexandria Ocasio-Cortez’s belief that the super-rich should pay income tax rates of 60 or 70 percent, and the proposal some advisers to Massachussetts Democrat Elizabeth Warren have floated of a direct tax on the wealth of the super-wealthy.

“I am glad to see people talking about taxing the rich, more talk increases the probability of action. Also, the  bone-headed response of the right to AOC, showing they don’t understand  the distinction between marginal and average taxes (or at least implying they don’t) really helps to make the case,” he wrote to me.

But that doesn’t mean he was necessarily a huge fan of the wealth tax, or even necessarily much higher taxes on the rich.

“Anyhow, as far as the wealth tax, I am not a big fan since I think there will be large-scale avoidance-evasion. France has a wealth tax that raises 0.2 percent of GDP. I don’t know the specifics of the design, but I would guess that it is intended to raise at least 2-3 times that
amount. (Warren’s folks are talking about 1.0% of GDP, give or take.),” he noted. “I am skeptical that we will do any better at enforcement than France. They have much more extensive government records than we do. Also, their
unions are much stronger and presumably a force supporting stronger enforcement.”

“It is a bad idea to have a tax that is not collected,” he continued. “It means both that
we are fostering a large tax shelter industry (a complete economic waste) and it undermines respect for the tax code more generally. Since
tax collection always depends to a large extent on voluntary compliance, this is a bad development.”

Baker instead suggested that we look at the rules of the market. (This is generally what Warren prefers to do, as I noted in a Jacobin piece, she is more a pre-distribution economic wonk while Independent Vermont Senator Bernie Sanders is more in the tax-and-spend mold.)

“While I support more progressive taxation, I think it is important to  keep people from getting that rich in the first place — weaker and  shorter patent and copyright protections, FTTs to downsize the financial  industry, and reform of corporate governance so that CEOs can’t rip off  the companies that employ them,” he said.

Still, he applauds Warren for sparking a debate. “In any case, I am happy to see Warren
throw the idea out there. She is establishing herself as a solid  progressive candidate,” he said. “Rich people will not be contributing to her campaign.”

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