Elizabeth Warren's Tax Plan: Rates for Some Could Exceed 100%
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Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. How is it possible that someone could be taxed at a rate above 100 percent? That would happen under the tax plan put forth by Democratic presidential candidate Elizabeth Warren. We'll ask tax reporter Richard Rubin to run the numbers. First, some money and market news you should know. American consumers are entering the holiday shopping season willing to spend, but cautious. The Commerce Department says that purchases at restaurants, stores, and online rose three-tenths of a percent in October over the previous month.
What headline claim about Elizabeth Warren's tax plan could make rates exceed 100%?
Economists say that isn't a particularly strong number, but it shows that consumers are unlikely to struggle heading into the end of the year. Spending on big-ticket items in October was mixed. Vehicle sales were up half a percent. but furniture and home furnishing sales dropped nearly 1%, the biggest monthly decrease since December of 2018. Airlines are feeling some lift from a strange new accounting rule. Typically, airlines lease gates and ticket counters at airports, and they have to list those costs as liabilities on their balance sheet. That can sometimes put airline bond ratings at risk. Well, now under new accounting rules, airlines don't have to list airport lease liabilities. And that makes their balance sheets look better than they would otherwise.
And in many cases, carriers are enjoying extra leeway to rack up debt without risking a downgrade to their bond rating. The Wall Street Journal has calculated that for Delta, the accounting rule allowed it to buy a 20% stake in Chilean airline Latam without its debt profile rising to a level where its rating could be downgraded.
Democratic presidential candidate Elizabeth Warren has put forward a tax proposal to pay for her Medicare for All health care expansion, as well as new education, housing and other programs. And Warren says that plan leans squarely on the wealthy.
Which current money and market trends set the context before the Warren interview?
In fact, the Wall Street Journal reports that under her plan, the federal tax rates on some multimillionaires and billionaires could rise to above 100 percent. How is that possible? Let's bring in Wall Street Journal tax reporter Richard Rubin for some answers. So Richard, have we ever seen federal tax rates above 100% before?
Not quite like this. And it's really the combination of two things that she's doing, which is really raising income taxes somewhat within the current system that we know, and then layering on top of it this new wealth tax that would apply every year. And so... The way you get to 100% is you think about the amount of income or gain in wealth that you would have and what one's tax bill would be. And the tax bill is larger than what your gain might be in a bunch of different circumstances for very wealthy people.
Now, if tax rates actually did wind up exceeding 100%, would taxpayers... in that bracket actually wind up paying at that rate? They could.
I mean, look, there'll be all sorts of attempts at tax avoidance. But if they did, they certainly would pay that. And what would happen is, and this is not an unintended consequence of the plan, it's a feature of the plan, which is that their fortunes and their wealth would shrink unless they had really large investment returns. So if you have sort of an ordinary 2% to 4% to 6%, return on your investment every year and you're a billionaire under this proposal, you will have more taxes than you're gaining and therefore your wealth, your fortune will shrink every year.
The level of taxation in Warren's plan, it might sound radical to some, but it would actually narrow the gap between the U.S. and other industrialized nations, right?
Yeah. The U.S. is a low tax country. We're an even more low tax country than we were before President Trump took office because of the 2017 tax cuts. And this would sort of push the U.S. in more of a direction toward places like Canada and France and Germany. that are similar in terms of their developed status, but just have larger social programs, larger welfare states.
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