# Warren’s wealth tax would raise less than she claims — even using her economists’ own assumptions

## Using their cited assumptions around avoidance and economic growth cuts revenue by a quarter

In January, Elizabeth Warren proposed a two percent (“two cent”) wealth tax on families worth $50 million or more, graduated to three percent for those worth $1 billion or more. Last Friday, she announced an additional three percent tax on billionaires as part of her Medicare for All plan.

Warren’s plans rely on revenue from this wealth tax. It’s how she would fund student debt cancellation, tuition-free public college, teacher pay hikes, subsidized child care, and now, part of single-payer healthcare.

Her campaign has cited a $2.75 trillion 10-year revenue estimate for her original two- to three-percent tax, and estimated that the three percent Medicare for All surtax on billionaires would raise another $1 trillion. These estimates come from UC Berkeley professors Emmanuel Saez and Gabriel Zucman, who produced them in three steps:

- Assemble a consolidated wealth dataset from government surveys and Forbes
- Calculate avoidance and evasion based on academic studies
- Extrapolate over a decade based on government economic growth projections

Saez and Zucman have laudably made the data from Step 1 openly accessible. In Steps 2 and 3, however, they deviated from their cited research methodology in ways that significantly inflated the revenue estimates. I estimate that addressing these issues would reduce the revenue by a quarter, nearly eliminating the Medicare for All revenue.

# Discrepancies among Saez and Zucman’s own estimates

When Warren announced her first wealth tax, Saez and Zucman published wealthtaxsimulator.org (WTS), where anyone could estimate the revenue from a wealth tax using the same methodology. They also released another calculator last month at taxjusticenow.org (TJN), along with their book, *The Triumph of Injustice*. When economists Simon Johnson, Betsey Stevenson, and Mark Zandi scored Warren’s Medicare for All funding proposal, they used TJN for the wealth tax.

These three sources — the Warren campaign paper and the two calculators — produce different estimates. In the Warren campaign paper, this can be partly attributed to intermediate rounding, though the two calculators also differ when entering the same tax parameters, indicating differences in the underlying data.

One large difference is that TJN shows Warren’s new three-percent billionaire surtax to raise $1.08 trillion, 27 percent more than the WTS estimate; TJN’s estimates 10 percent more total revenue than WTS for the base plus Medicare for All taxes. Since only the WTS data was made available to researchers, I used that for my analysis.

# Does the tax rate affect avoidance?

Saez and Zucman estimate that people will understate their wealth holdings by 15 percent, based on a survey of four studies on avoidance and evasion:

Our 15% tax avoidance/evasion response to a 2% wealth tax is based on the average across these four studies (2%*(.5+.5+2.5+28.5)/4=16%).

These studies did not estimate a single avoidance rate, but rather an *elasticity* of avoidance with respect to the tax rate. The average elasticity is 8, which they multiply by two percent to arrive at 16 percent. In reality, the formula to translate elasticity to avoidance is more complicated than multiplication; coincidentally, an elasticity of 8 with a two percent tax translates to the 15 percent avoidance they rounded to.

Warren’s wealth tax was never a flat two percent rate. Assuming that billionaires would expend the same effort to avoid a three — now six — percent tax as they would to a two percent tax is neither sensible, nor supported by the evidence cited by Saez and Zucman. Based on their elasticity, a three percent tax would cause 21 percent avoidance, and a six percent tax would cause 38 percent avoidance.

Warren’s total base + Medicare for All wealth tax raises 19 percent less revenue with these higher avoidance rates. The Medicare for All component raises 65 percent less revenue, falling to $300 billion.

# Ten-year projections do not match government agencies

Saez and Zucman also inflate their estimate when extrapolating one-year estimates over a decade.

In their original Warren campaign paper, they say:

To project tax revenues over a 10-year horizon, we assume that nominal taxable wealth would grow at the same pace as the economy, at 5.5% per year as in standard projections of the Congressional Budget Office or the Joint Committee on Taxation.

This is incorrect. In its latest budget outlook, the CBO projected a 3.8 percent average annual rate of nominal GDP increase from 2019 to 2029, and these projections are used by the Joint Committee on Taxation.

Using the CBO’s 3.8 percent growth rate instead reduces the ten-year projection by an additional 8 percent.

Warren’s final proposal of a two percent tax on wealth above $50 million and six percent tax on wealth above $1 billion would now raise $2.6 trillion. Adding in the unexplained 10 percent boost from Saez and Zucman’s new calculator brings that to $2.9 trillion.

That’s $850 billion missing — a quarter of the $3.75 trillion projection — even before considering how Saez and Zucman may be overestimating wealth at the top of the distribution, how avoidance may be far higher, how it would interact with other taxes to shrink total revenue, and how the Constitution may prevent wealth taxes from raising a single dollar.

Without twisting the avoidance research and manufacturing growth projections, the $3.75 trillion Warren needs for her range of policy proposals doesn’t exist.

**Addendum (2019–12–06):** Bernie Sanders has also proposed a wealth tax, which has more brackets that reach higher rates than Warren’s:

It would start with a 1 percent tax on net worth above $32 million for a married couple. That means a married couple with $32.5 million would pay a wealth tax of just $5,000.

The tax rate would increase to 2 percent on net worth from $50 to $250 million, 3 percent from $250 to $500 million, 4 percent from $500 million to $1 billion, 5 percent from $1 to $2.5 billion, 6 percent from $2.5 to $5 billion, 7 percent from $5 to $10 billion, and 8 percent on wealth over $10 billion. These brackets are halved for singles.

Saez and Zucman estimated that Sanders’s wealth tax would raise $4.35 trillion over a decade, using the same assumptions as in scoring the Warren plan. This is a bit higher than the $4.18 trillion projected from their wealthtaxsimulator.org tool.

Proper avoidance modeling has a larger effect on the Sanders plan than on the Warren plan, reducing its revenue by 22 percent. After applying the CBO’s growth projection, **revenue drops by a full 28 percent.**