Magazine December 09, 2019, Issue

What Conservatives Can Learn from Elizabeth Warren’s Economic Advisers

Senator Elizabeth Warren following the Democratic presidential debate at Otterbein University in Westerville, Ohio, October 15, 2019 (Aaron Josefczyk/Reuters)
The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, by Emmanuel Saez and Gabriel Zucman (W. W. Norton, 232 pp., $27.95)

The Triumph of Injustice, a brief and digestible book from Elizabeth Warren economic advisers Emmanuel Saez and Gabriel Zucman, landed with a splash, thanks to a breathless New York Times write-up that focused on one of the work’s most shocking claims: that the American tax system as a whole, including federal, state, and local taxes, is basically flat — with the wealthy paying the same share of their income as the poor, and indeed with the ultra-wealthy paying the lowest tax rates of any income group.

Within a week or two that claim had fallen apart. As many others showed in detail, Saez and Zucman had taken countless liberties with the numbers to get the results they wanted. They had inflated the tax rates paid by the poor in several ways, such as ignoring refundable tax credits; they had overestimated just how rich the rich are; they had exaggerated how much the recent corporate-tax cut had reduced the tax burden of the wealthy. The American tax system is in fact progressive. You can argue it’s not progressive enough, but you can’t truthfully say it’s flat.

These debunkings do serious damage to the book as a whole. Indeed, the notion that the rich are scandalously undertaxed serves as the premise for a whole flood of soak-’em-good policy proposals. And yet The Triumph of Injustice remains a valuable read for those of us on the right, both because its analysis, however flawed, is proving heavily influential on the other side of the aisle, and because some of the ideas here might genuinely be appealing to conservatives.

As to the former, the Left has fallen in love with the notion of a wealth tax. In one Saez-Zucman proposal, adopted with some changes by Warren, wealth above $50 million would be taxed at 2 percent each year, with wealth above $1 billion getting hit at 3 percent. These rates would dramatically reduce the pace at which a fortune could grow, as typical returns on aggressive investments such as stocks are maybe 8 percent. And the tax would hammer rich people, such as Jeff Bezos and Warren Buffett, who have large ownership stakes in valuable companies but receive relatively little of that value as taxable income.

The Triumph of Injustice defends this tax against numerous criticisms, in particular one holding that a wealth tax is impossible to administer because many assets are too hard for the government to value. This concern is “overblown”: About 80 percent of the top 0.1 percent’s money is tied up in assets with obvious market values (e.g., publicly listed equities), and the other 20 percent is mainly in private businesses whose shares are bought and sold often enough to provide a price. It’s also not that hard to estimate the value of companies for which this is not the case, based for example on their profits. And if someone thinks the government has overvalued a business he owns a stake in, he should be allowed to pay the wealth tax with the overvalued shares. Someone who created a successful start-up but has little liquidity could also pay in shares.

To a conservative, there still isn’t a particularly good reason to tax the simple ownership of wealth. We already have taxes in place that cover each bit of income — whether from labor, capital gains, inheritances, etc. — that’s added to someone’s bank account. If we want our various other taxes to be higher or more progressive, let’s adjust them rather than punishing people merely for owning “too much,” a problem they could solve simply by wasting all their money. It’s also rather likely that rich people would prove more adept at evading the tax than Saez and Zucman think, and rather disturbing to force business owners to turn over shares to the government when they don’t have the liquidity to pay the tax. Nonetheless, this book provides intelligent responses to some of the most common practical criticisms of a wealth tax, and for that reason alone it’s worth engaging with.

The Triumph of Injustice also takes aim at the various tax-evasion schemes that corporations employ, such as “booking” profits in Ireland or Bermuda even though there’s no plausible connection between the money and those locations — the cash didn’t come from work that took place there or sales to customers there. Saez and Zucman write that it would be far easier than one might think to levy higher taxes on these companies: Any country could require its multinationals to pay “remedial” taxes to make up for the low rates they enjoy in tax havens, and require foreign multinationals operating domestically to book their profits in proportion to their sales. (For instance, “if Nestlé makes 20% of its global sales in the United States, . . . the United States can assert that 20% of the company’s global profits have been made in America and are taxable there.” Some U.S. states already manage their corporate taxes this way.) Populist conservatives especially will like the idea of making sure that corporate giants such as Google pay what they owe to the jurisdictions where they operate.

Conservatives should also endorse Saez and Zucman’s suggestion to “integrate” the corporate tax with the personal income tax. Indeed, the right-leaning Tax Foundation has supported the idea for years. In the current system, corporate profits are taxed twice, once when they are made (via the corporate tax) and then again when they are distributed to shareholders (via the capital-gains tax). Saez and Zucman would give shareholders credit for the taxes already paid at the corporate level, and also tax this money at the normal income-tax rate. This would ensure that all businesses are taxed the same, including small businesses whose owners already pay all their taxes through the individual income tax. It would also reduce the incentive to evade the corporate tax, since every avoided dollar would cost shareholders a dollar in tax credits.

Another fascinating proposal is for a “national income tax,” in which all labor income, business profits, and interest income would be taxed at a flat rate. (This tax would come on top of our current tax system, but businesses would pay a set percentage of their total labor costs to cover the labor share, so tax-filing wouldn’t get more complicated for everyday working individuals.) Like a value-added tax (which focuses on consumption rather than income), it would hit an incredibly broad base and thus could raise a lot of money with low rates. Saez and Zucman see this as a great way to fund generous new social spending; conservatives might see it as a replacement for other, less economically sound taxes; deficit hawks might see it as a solution to our looming entitlement crisis.

To be sure, I’ve cherry-picked these examples. If there are some ideas here that conservatives will find scintillating, there are many more we’ll invariably find anathema. In one section Saez and Zucman openly make “the case for confiscatory top income tax rates.” (The idea is that if the highest earners faced, say, the 90 percent marginal rates they faced 70 years ago, corporations wouldn’t pay their top brass so much to begin with, which would compress the income distribution and stop the wealthy from accumulating so much power.) They also bizarrely see health-insurance premiums as a “poll tax,” a term they seem to associate more with Margaret Thatcher than with the Jim Crow South, presumably because both of them originally came from France. A “social state worthy of the twenty-first century” would entail free health insurance, free tuition at public colleges, and free child care, in their view. Ew.

But if you want to know where Elizabeth Warren’s battiest ideas come from — and to encounter some genuinely fresh and provocative thinking along the way — The Triumph of Injustice is an invaluable source.

This article appears as “How to Soak the Rich” in the December 9, 2019, print edition of National Review.

In This Issue



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