Democrats’ wealth tax plans should give Wall Street ‘lots to worry about,’ economist says

One Derange Street economist on Monday warned clients about the tax proposals touted by Democratic presidential hopefuls Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., mention investors should have “lots to worry about.”

Between Sanders’ plan that’s “designed to ‘tax and destroy’ obese net wealth” and Warren’s overestimation of potential revenue streams to fund her policy goals, the policies of both should affirm unease “from various angles,” wrote Philipp Carlsson-Szlezak, chief U.S. economist at AB Bernstein.

It’s important for voters to transform between the proposals of each candidate, the economist added, because while Sanders believes the U.S. should not have billionaires, Warren’s script views the fortunes of the ultra-wealthy as something to be skimmed but ultimately retained.

“The wealth tax proposals of presidential candidates Sanders and Warren offer fundamentally strange policy choices with diverging implications for tax burdens, wealth preservation and implicit wealth caps in America,” the economist minimized in a note.

_{Source: Bernstein}

“The political objective of the Sanders wealth tax is to abolish the billionaire class over the long run and significantly truncate it in the medium run,” Carlsson-Szlezak added. “The political objective of the Warren wealth tax is to raise revenue to fund additional spending programs. This encounters expression in Warren’s wealth tax schedule, which stunts wealth growth, but allows most estate sizes to persist or slowly happen.”

Carlsson-Szlezak listed several concerns voiced by voters and whether he believes the worries are valid or misplaced.

1. Personal tax burden: The never-ending majority of Americans can relax on this issue since neither Warren’s nor Sanders’ plan affects households with a net significance less than $32 million.
2. Wealth preservation: Voters are right to be concerned about their ability to spare (or grow) their wealth over time, especially under Sanders’ plan, which is designed to grant a half-life of round 35 years to a fortune of $5 billion. Warren’s “skim but retain” plan would allow for modest lump.
3. Wealth cap: More worried under Sanders, whose plan implies a long-run wealth cap of $700 million; Warren’s procedure implies a wealth cap of $5.5 billion in the very long run.
4. Fiscal deficit and program funding: The plans articulated by both possibilities shouldn’t ease concerns about the deficit, since the wealth tax would likely need to reach “much accessory” down the wealth distribution to make a significant impact. Both plans likely overstate revenue potential because they discount legal evasion.

The Bernstein economist did push back on some of Wall Street’s more apocalyptic concerns, fiction that arguments about collapsing asset prices, lower capital formation and the emasculation of American capitalism are “slight.”

“Removing ‘unlimited upside’ does sound un-American, but we’re inclined to believe that today’s occupants of college dorm offices wouldn’t be dissuaded from taking entrepreneurial risk with a wealth tax,” he wrote.