Elizabeth Warren’s and Bernie Sanders’ ‘Wealth Tax’ Would Be Terrible for Low-Income Workers

With Democrats now in control of the House, Senate, and White House, many of the most significant policy battles of the next two years will be determined by intraparty fights within the Democratic Party’s various factions.

Although not a moderate in any meaningful sense, President Joe Biden has always positioned himself strategically at the center of his party. Nevertheless, his defeat of the party’s left wing in the last presidential primary won’t be the end of a populist insurgence. Sadly, one fight will be between those, such as Treasury Secretary Janet Yellen, who want to raise taxes significantly, and those who, like Sen. Bernie Sanders (I–Vt.), want to raise taxes even more significantly.

Sen. Elizabeth Warren (D–Mass.) would prefer the latter and has reintroduced her proposal for destructive wealth taxation. Her tax would impose a 2 percent annual levy on wealth over $50 million, going up to 3 percent for wealth over $1 billion. This purely class-warfare scheme is advertised as a way to close the U.S. wealth gap.

My Mercatus Center colleague Jack Salmon and I recently published a paper that looks at the economic literature on this issue to evaluate the arguments of wealth tax proponents. We found that they generally exaggerate wealth inequality in the United States, overestimate the potential revenue a wealth tax would raise, and minimize the negative impact of such a levy.

In a study done for the Center for Freedom and Prosperity, Rice University economists John Diamond and George Zodrow examined the expected impact of Warren’s previou