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Democrats Worried Over Wealth Tax Design Other Plans to Tax the Rich

Laura Davison

(Bloomberg) -- Moderate Democrats in Congress are crafting viable alternatives to Elizabeth Warren’s wealth tax, amid increasing concerns that her soak-the-rich strategy won’t pass even if the party captures both chambers of Congress in 2020.

With growing confidence that they could win the White House and Senate in 2020 and maintain their House majority in 2020, Democrats are devising ideas that could raise trillions of dollars from the wealthy without the technical and constitutional challenges of Warren’s wealth tax, which Bernie Sanders, her rival on the party’s left flank, has also embraced.

Warren, who had already proposed a series of tax increases on the top 1%, last week doubled down on wealth taxes for billionaires -- literally. She increased the wealth tax rate for those worth at least $1 billion to 6% from 3% in her plan to finance her massive government-run health care program. She would also levy a 2% tax on the fortunes of those worth between $50 million and $1 billion.

Lawmakers who want the rich to pay higher taxes say they are concerned that Warren’s ideas -- while popular with voters -- are unrealistic, could face legal challenges and harm their ability to move the rest of a progressive agenda.

“There are certain concerns about whether the wealth tax is constitutional,” Representative Don Beyer, a Virginia Democrat, said Thursday. “There are a lot of complexities. It is easy to gain and difficult to determine” the value of wealth. The Constitution prohibits the federal government from taxing property, so a court challenge is likely.

Democrats are hoping they can solidify bills that would increase taxes on the wealthy before the election, giving them options in case Warren or Sanders is elected and sends a wealth-tax to Capitol Hill for their consideration.

Beyer, along with Senator Chris Van Hollen of Maryland, on Thursday introduced a 10% surtax on wages and capital gains income topping $2 million. They’re touting the idea as a simple revenue raiser that would be difficult for the wealthy to avoid.

Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, is also finalizing a plan to tax some investments annually, rather than when they’re sold. That would apply to taxpayers who earned at least $1 million or have assets worth $10 million. Wyden’s plan could be difficult to administer, but is less likely to run afoul of the Constitution.

Warren also proposes a version of Wyden’s plan on top of the wealth tax, so the rich would pay taxes on the appreciation of their assets -- including stocks, bonds and real estate -- even if they haven’t sold the property or received any cash income. That means some of the richest Americans could face millions in taxes even without any cash income.

That’s starting to worry some billionaires. Microsoft. Corp. founder Bill Gates said Wednesday he has paid more than $10 billion in taxes and would happily double his bill to $20 billion.

“When you say I should pay $100 billion, OK, then I’m starting to do a little bit of math about what I have left over,” he said at a New York Times Dealbook event. Warren responded to Gates on Twitter, saying she like to explain to him how the tax works and “promises” he wouldn’t pay $100 billion.

The congressional Democrats’ plans don’t raise anywhere near the $3.75 trillion over a decade that Warren estimates her wealth tax would bring to the Treasury.

Democrats could combine several of their ideas to match that total. For example, they could couple the surtax -- estimated to raise $635 billion -- with Wyden’s proposal -- estimated to raise $2 trillion -- with other ideas popular among Democrats.

Several bills to tax financial trades of stocks, bonds and derivatives have been introduced in the House and Senate, which could yield $777 billion over a decade.

Raising the top individual income tax rate to 39.6%, the rate before the 2017 Republican tax cut, generates another $111 billion. All told, that’s about $3.5 trillion in new tax revenue from wealthy taxpayers, without the implementation problems or court challenges that worry them about Warren’s approach.

Taxing wealth is a new approach to address inequality and raise revenue because the super wealthy don’t earn their income through paychecks, but from investments.

Warren Buffett, for example, is worth $87.5 billion, according to the Bloomberg Billionaires Index. But his 2015 tax returns show he only earned $11.6 million in income and paid about $1.8 million in federal income tax.

Patriotic Millionaires, a group that advocates for higher taxes on the wealthy, hosted an event on Wednesday to discuss a more progressive tax system.

Chuck Collins, a member of the Patriotic Millionaires and an heir to the Oscar Mayer fortune, said he supports an income surtax plan and called it a “plutocracy prevention program.”

“You’ve heard the discussion of the wealth tax — the wealth tax is a critical part, but it’s going to require a whole new regime,” Collins said. “This is a tax proposal that’s laser focused.”

Van Hollen says the proposals Democrats are working on aren’t meant to preclude a wealth tax -- but they’re ideas that have a greater chance of passing Congress more quickly.

“We don’t see these proposals in conflict with one another,” he added. The surtax idea “from a political and policy perspective is ready to go now.”

--With assistance from Sophie Alexander.

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Wendy Benjaminson, John Harney

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