“I don’t think that taxation approaching confiscatory is remotely feasible and, if it was tried, would have catastrophic economic consequences,” the former economic advisor to Barack Obama said on “Closing Bell.”
Summers has cast doubt on Warren’s flagship wealth-tax proposal before, but his criticism Tuesday targeted her wide-ranging tax proposals.
“Essentially, what Sen. Warren’s plans would do, as I read them, is they go through every option that has been selected as the possible strategy for raising progressivity and tries to do them all at once,” Summers said.
By doing so, Summers said, “you’re collecting, essentially, about as much taxes as the total after-tax [adjusted gross income] of all the millionaires.”
The Wall Street Journal recently reported that tax rates for “very top-tier investors” could potentially exceed 100%, pointing to Warren’s proposals to raise Social Security contributions to 14.8% for individual wages above $250,000, her wealth tax on the assets of those whose net worth exceeds $50 million, and a plan to tax capital gains the same as other income even if investors don’t sell their assets.
Warren, D-Mass., also wants to move the top income-tax rate back to 39.6% from its current 37%.
“Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend or interest,” the Journal’s Richard Rubin, a tax policy reporter, wrote.
“If all of Ms. Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.”
Warren’s campaign, which did not immediately respond to a request for comment on Summer’s remarks, has unveiled her slate of tax proposals that would fund her plans around single-payer health insurance, expanded Social Security payments and others.
Warren has made “big, structural change” a rallying cry for her presidential bid.
Democratic 2020 U.S. presidential candidate and U.S. Senator Elizabeth Warren (D-MA) speaks to supporters in Memphis, Tennessee, U.S. March 17, 2019.
REUTERS/Karen Pulfer Focht
Warren, who is second in the Real Clear Politics average of national polls, was a law professor at Harvard from 1995 until her election to the U.S. Senate in 2012.
Summers was president of Harvard University from 2001 to 2006 and is currently a professor there.
Summers agrees with the premise that taxes in the U.S. need reform, but he argues the place to start is restoring funding to the Internal Revenue Service.
Summers recently co-authored a paper with Natasha Sarin, a University of Pennsylvania professor with appointments in the law school and at the Wharton School, in which the academics argue that tax avoidance by the top 1% could reach $5 trillion over the next decade unless the IRS improves its enforcement.
In the paper, they point to a declining IRS budget as the reason the agency has reduced its enforcement, particularly on the wealthy. In 2011, the IRS audited 12% of millionaires. It’s now 3%.
“I think the place we should start is by collecting the taxes that are owed under current law but not collected,” Summers told CNBC, arguing that “important reforms” are also needed around capital gains taxes, corporate taxes involving foreign income and “the continuing scandal of carried interest.”
“So there’s a lot that we can do starting with compliance, and I think that is where the debate should have its initial focus,” he said.