Warren, Sanders unveil 3% wealth tax on billionaires

The National Taxpayers Union Executive Vice President, Brandon Arnold, joined Yahoo Finance Live to break down Warren and Sanders' tax plan that would tax billionaires 3%.

Video Transcript

SEANA SMITH: Let's talk about a tax proposal that's getting a lot of buzz today. We heard from Senator Elizabeth Warren proposing a wealth tax on what she's calling ultra millionaires. Now, this would be a 2% tax on wealth over $50 million, a 3% tax on wealth over $1 billion.

We want to talk about this with Brandon Arnold, executive vice president at the National Taxpayers Union. And Brandon, I guess, first let's just start off with, what do you think? what's your view on this? And what are the implications of the plan that we heard from Senator Warren?

BRANDON ARNOLD: Well, I think this plan is going to be an administrative nightmare. A number of European countries, 12 European countries, have tried this over the years, and 75% of them have repealed their tax subsequently, France being the latest one in 2017.

Why? Because they just couldn't get the money out of the billionaires like they expected to. It's very, very difficult to administer, because you're not just assessing how much money is in somebody's bank account. You have to assess the wealth of all of their assets. That includes stocks and bonds. That includes cars. That includes paintings and stamp collections and things like that. It's an administrative headache. It just doesn't end up being worth the administrative cost that is dedicated to assessing this tax, which is why so many European countries have walked away from it.

ADAM SHAPIRO: [AUDIO OUT]

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SEANA SMITH: Adam, I think you're muted.

ADAM SHAPIRO: I am muted. You make a very good argument about how difficult this is. And yet each of us and our municipalities make those assessments every day. When we tell the insurance company this Studebaker poster is worth $1,000-- it's not-- we're putting an assessed value on it when New York City assesses property taxes. So it can be done. But wouldn't it just be simpler-- why don't we just tax income and raise taxes on income, or would you be opposed to that?

BRANDON ARNOLD: I'm not supportive of that, but that's a much cleaner approach to trying to level the playing field or trying to get more money out of wealthy people. This is a very, very difficult process. Even Elizabeth Warren recognizes it. If you look at her bill, that actually includes an authorization for $100 billion for the IRS.

And $100 billion-- that's a good chunk of change. That's a near doubling of the IRS budget. And Janet Yellen, who oversees the IRS now as Secretary of the Treasury, has even said, this is going to be a huge headache for us. So thanks but no thanks, I think she was saying, even to a huge increase in one of her agency's budgets.

So yeah, there is some analogs here in terms of assessing other types of assets. Homes, certainly, is something that we think about when we do property taxes. But here, we're talking about a whole another ball game. Like I said, you're talking about stamp collections, coin collections, ornamental rugs, that may or may not even be located in this country These properties could exist in other countries halfway around the world. That's why we'd have to put IRS agents on planes, fly them all over the entire planet, in order to assess these different products.

It's a very, very difficult process. And again, it just hasn't been worth it administratively in 75% of the European countries that have tried it. India tried it. They got rid of theirs a few years ago. It's just not a great idea.

SEANA SMITH: Well, and Brandon, going off of what you were saying just about some of the other options out there, I guess taking it a step further, is there anything that's been proposed, or anything from your view, that you think is a better way to level the playing field that you've been talking about, a more fair way to go about taxing the wealthy?

BRANDON ARNOLD: I'm not a huge fan of leveling the playing field through taxation, to be honest with you. But if I'm just putting on a neutral hat here, I think higher investment taxes, higher personal income taxes. I think our corporate rate is a bad idea, because that tends to negatively affect economic growth.

But I think these are more plausible options out there. Not saying, again, I support them, but these are more plausible options for closing our deficit problem, for reducing the amount of inequality in this country. The wealth tax, I think, is just a lousy option there.

ADAM SHAPIRO: So as we look at where all of this is headed, I think-- we live in New York City, high taxes. New York state, high taxes. The exodus we've watched during the pandemic to places like Florida-- it's not just because of the pandemic. It's the tax structure in Florida. Can Florida continue, though, to provide the services it does to its citizens without a tax increase? I realize it's not a federal issue now. It's a state issue. But can it?

BRANDON ARNOLD: I don't know about the specifics of Florida's finances, but they've been able to operate a pretty clean ship down there. And it's interesting, because they don't have an income tax, a state income tax, at all. But because they have a fairly high sales tax, and they generate so much revenue from people coming down to Florida to visit the beaches, to visit Disneyland and so forth, they're kind of an outlier in that regard.

So Florida is sitting pretty right now. Other states, I think, are feeling the crunch of their high tax burden. Certainly we talk about New York, a lot of the Northeast. And certain parts of the Midwest are seeing people relocate, not just to Florida, but Texas, Arizona, other lower-tax states. I think you are probably going to see a response from some of those states in the upper Midwest, some tax reform options, and some ways of making it more hospitable for people so you don't have these people retiring or even, preretirement, relocating to lower-tax jurisdictions.

SEANA SMITH: Brandon, you're also making the argument, going back to Senator Warren's proposal that she put forward, that it's going to actually bring in far less than what she is estimating. What do you think is a more accurate estimate?

BRANDON ARNOLD: Well, Larry Summers, a former Obama economic advisor said that they were off by a huge order of magnitude. He thinks that it'll be about an 1/8 of the collections. I would say it's a little bit higher than that.

One good analog that we have is the estate tax. Sometimes called the death tax, the estate tax-- when you die, you pass along your estate to your inheritors. The IRS needs to assess how much all of your stuff is worth and slap a tax on that.

And usually what we see is, they do a very good job. People that are subject to this tax tend to be wealthier, of course. They tend to sink a lot of money before they die into estate planning through tax attorneys, accountants and so forth. So they are able to evade a good chunk of this tax. And I think the same would happen with the wealth tax, were we ever to put one in place.

And there's a number of loopholes that people can take advantage of with transferring property to relatives, to spouses, putting money into trusts. People get very creative. They spend a lot of money on tax attorneys that are very creative and very good at hiding assets. So it would be substantially less.

And that brings up a critical problem there, is that Elizabeth Warren doesn't want to just apply this money to debt reduction, which I think would be a reasonable application of these resources, but she wants to expand government programs. So if you're talking about expanding government programs and building out universal health care and financing it through a mechanism that's going to have a declining tax base, you're just creating a structural problem that's going to persist for decades.

SEANA SMITH: All right. Brandon Arnold, great to have you on this show, the National Taxpayers Union executive vice president.