Why Democrats' new plan to tax the wealthy still isn't the wealth tax the public overwhelmingly wants it to be

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Sens. Elizabeth Warren and Bernie Sanders. Jose Luis Magana/AP Images

  • House Democrats’ plan to tax the rich isn’t quite the wealth tax progressives have long championed.

  • The 3% surcharge proposed Monday affects income and investment gains, not net worth.

  • A wealth tax is “the simple way” to level the playing field and pay for infrastructure, Sen. Bernie Sanders said.

  • See more stories on Insider’s business page.

House Democrats are targeting the wealthy to pay for their massive infrastructure package. Americans itching to tax the rich shouldn’t get too excited.

On Monday, House Democrats unveiled a plan that would raise $2.9 trillion in revenue for their massive social spending bill, largely by raising taxes on the wealthiest Americans and corporations.

They plan to accomplish this by imposing a 3% additional tax on individuals with incomes over $5 million, a corporate tax hike to 26.5% and a capital gains tax increase, which covers assets from profits of stocks and bonds, to 25%.

But this plan doesn’t square with the wealth tax proposal progressives and much of the American public want.

“The wealth tax is not something that a bunch of politicians sit around and think, ‘Great idea,’ Senator Elizabeth Warren told reporters on Tuesday. “It’s something that the American people say we need for basic fairness.”

The big difference lies in how Democrats plan to tax income, instead of net worth

While the 3% surcharge (an additional tax on top of a current bracket) may appear to be the wealth tax that Massachusetts Sen. Elizabeth Warren has championed, there are key differences that suggest it may not go as far as some Democrats want in ensuring the wealthy pay their fair share.

Here’s why: Democrats propose only taxing income and investment gains. This allows the wealthy to park cash in other assets like stocks and bonds- which is part of a household’s net worth that Warren has proposed to tax.

“It’s like adding another bracket that’s 3 percentage points higher than the top rate that it’s proposed that they’d pay,” Frank Clemente, executive director at the left-leaning advocacy group Americans for Tax Fairness, told Insider of the Democrats’ plan.

Should House Democrats’ framework win approval, the surcharge would lift the capital-gains tax rate to 28% and boost the top income tax rate to 42.6% for Americans earning more than $5 million.

Warren’s ultramillionaire tax, on the other hand, would place a 2% tax on household net worth between $50 million and $1 billion, and a 3% tax on household net worth over $1 billion. This is “the simple way” to have billionaires pay more, Vermont Sen. Bernie Sanders told reporters on Tuesday. It’s also policy that lawmakers were drafting years before the Biden administration pushed for a multitrillion-dollar infrastructure package.

According to an analysis that economists Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley sent to Warren, would raise at least $3 trillion in revenue over ten years.

The wealth tax is popular – but not with all Democrats

Despite House Democrats’ tax proposals being more modest than what President Joe Biden has been calling for – he wanted a higher corporate tax and capital gains increase – the 3% surcharge might have a better chance gaining approval from more moderate party members who have been hesitant to jump on board with higher taxes on the wealthy.

For one, hiking tax rates for the richest Americans is a popular idea. A poll conducted by Insider last year found that 54% of Americans support Warren’s wealth tax proposal, with only 19% disapproving.

Notably, her wealth tax polled better than President Donald Trump’s Tax Cuts and Jobs Act, which, according to a Gallup poll, had just 39% support from respondents.

“You know what the most popular aspect is? The demand that the wealthiest people … pay their fair share of taxes,” Sanders told reporters on Tuesday, referring to a wealth tax. “But not all of my colleagues agree.”

Moderate Democrats, like West Virginia Sen. Joe Manchin, are unlikely to favor a wealth tax to the degree Warren proposed. On a Sunday TV appearance he seemed to favor raising between just $1 trillion and $1.5 trillion in revenue from tax increases.

Still, Warren and other progressives remain adamant a wealth tax is the best way to ensure the rich are held accountable, and average Americans don’t suffer.

“They’re off taking joyrides in space while the American people can’t buy childcare, can’t get back to work, and have roads and bridges that are falling apart,” Warren said. “The billionaires say ‘that’s your problem’ and not theirs. That’s fundamentally wrong.”

Read the original article on Business Insider

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