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Elizabeth Warren Wealth Tax Would Shrink Economy, Study Finds

December 12, 2019

U.S. Senator Elizabeth Warren’s proposed 2 percent wealth tax on very-high-net-worth people would shrink the U.S. economy, a new study found.

According to CNBC, “Warren’s wealth tax would also impose a 2% tax on net worth between $50 million and $1 billion and scale upward by wealth brackets until the final 6% rate.” However, analysis from the nonpartisan Penn Wharton Budget Model released Thursday contradicts Warren’s claims of how the tax would affect the country.

The research found that Warren’s proposed wealth tax would raise between $2.3 trillion and $2.7 trillion from fiscal year 2021 to fiscal year 2030 if enacted. That is more than $1 trillion less than the $3.75 trillion Warren claims it would raise.

The analysis also concluded that Warren’s tax would negatively affect the United States economy. By 2050, the research claims, Warren’s tax would reduce the country’s economic growth by 0.9 percent and reduce its Gross Domestic Product.

“Rather than reduce their consumption, they’re gonna pay that tax out of savings. And because they’re reducing savings, it shrinks the economy and GDP goes down,” said Richard Prisinzano, director of policy analysis at the Penn Wharton Budget Model, according to Business Insider.

Prisinzano also told Business Insider that wages would drop between 0.8 percent to 2.3 percent under Warren’s plan.

The research found if the money from the wealth tax is spent on programs meant to improve worker productivity, then the Gross Domestic Product rate would be cut by 1.1 percent. If it is not spent on programs that boost worker productivity, then the Gross Domestic Product would be cut by 2.1 percent, according to the study.

“An investment in early childhood education might lead to additional labor-market dynamics that boost the economy,” the study concluded. It also states, “a considerable amount of wealth inequality in the United States has historically been driven by entrepreneurship, a factor that has received very little attention in tax models and analysis.”

A spokesman for Warren trashed the study, saying that other experts have predicted that her proposals “will produce significant economic growth,” according to CNBC.

“This is an analysis of a different and worse plan than Elizabeth’s, using unsupportable assumptions about how the economy works, and its conclusions are meaningless,” the spokesman said, according to CNBC.

On Thursday, December 12, Warren took aim at wealthy critics:

 

Under President Donald Trump, the United States’s Gross Domestic Product grew 2.1 percent during the third quarter of 2019, according to Reuters.

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