Warren’s Wealth Tax Enriches Foreign Billionaires

Guess who’d get a bargain when wealthy Americans have to unload their assets

By Scott A. Hodge.

"Sen. Elizabeth Warren thinks millionaires and billionaires are too rich and has introduced legislation to tax away some of their wealth. Her Ultra-Millionaire Tax Act of 2021 would levy a 2% annual tax on net wealth above $50 million and an additional 1% above $1 billion. But the biggest beneficiaries would be foreign billionaires.

According to estimates conducted for Ms. Warren by University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, only about 100,000 families, or “less than 1 out of 1,000,” would pay the tax, which they estimate would raise “around $3 trillion over the ten-year budget window 2023-2032, of which $0.4 trillion would come from the billionaire 1% surtax.”

Yet Tax Foundation economists discovered a surprising consequence when we ran the proposal through our general equilibrium tax model last year. The model showed that despite being a massive tax, raising nearly $300 billion a year, the tax had only a modest impact on gross domestic product. How can that be?

The model predicted that wealthy U.S. citizens would sell their assets at fire-sale prices to pay the tax. Because the U.S. is an open economy, many of these assets would be bought by foreign investors at the discounted prices. Thus, while a wealth tax wouldn’t shrink the U.S. economy much, it would change who owns U.S. assets. What Jeff Bezos, Warren Buffett and Mark Zuckerberg sell, Jack Ma, Carlos Slim and the sultan of Brunei might buy—and they’d be exempt from the U.S. wealth tax.

To be sure, American millionaires and billionaires would try to find ways to avoid the tax. Many European countries abandoned their wealth taxes because their rich citizens moved to countries that didn’t levy such taxes. Since 1996, the number of European nations with a wealth tax has dwindled to four from 14.

The Warren bill would attempt to discourage wealthy American from renouncing their citizenship by imposing a 40% exit tax. While some rich families could decide they can live comfortably abroad with the remaining 60% of a $100 billion fortune, others may stay home and simply liquidate some of their assets to pay the tax. But if foreign investors snap up those assets at fire-sale prices, it still puts those assets out of reach of the U.S. wealth tax. Either way the tax has defeated its purpose.

It is theoretically possible that Ms. Warren’s wealth tax could reduce inequality in America on a statistical basis. But there must be a better way of achieving that goal than by redistributing wealth from American billionaires to foreign ones.

Mr. Hodge is president of the Tax Foundation."