Reviews: Elizabeth Warren, moderate? – Market surveillance

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Many Americans who watched the Democratic Party’s first debate on Wednesday night probably got their first good glimpse of the scary presidential candidate on Wall Street. But looking at what Elizabeth Warren actually says – if not, maybe, the way she says it in class – maybe “radical” isn’t the right word.

This may sound crazy, since Warren is certainly proposing a sharp break with the post-1980 Republican orthodoxy of cutting taxes to promote investment, rather than spending money to stimulate consumption and develop human capital. But his plans leave giant fortunes – and the businesses that generate them – surprisingly intact.

Take Warren’s signature proposal, the wealth tax of 3% on fortunes over $ 1 billion and 2% on fortunes between $ 50 million and $ 1 billion.

According to economists at the University of California-Berkeley, this would raise about $ 2.75 billion in its first 10 years, all from taxpayers who the Massachusetts senator said took too much advantage of a generation. tax cuts that cut top federal tax rates by nearly half and corporate tax rates by 40%, accompanying rising inequalities in before and after tax income.

Let’s think for a moment how inexpensive this is, in terms that will make sense to people with more prosaically table budgets than, say, media titan and $ 54 billion man Mike Bloomberg. .

At these rates, Bloomberg’s annual rating is approximately $ 1.6 billion. For the man – say, rapper Jay-Z – who struggles to get by on $ 900 million (according to Forbes) – 2% is what an average homeowner in a low-tax state pays in property taxes.

If you think of the billionaire’s tax as just property taxes with more zeros, it sounds less intimidating and makes more sense.

For Microsoft MSFT,
+1.28%
founder Bill Gates is little more than dividends on his Microsoft stocks. Technology companies like Broadcom AVGO,
+ 1.96%
, IBM IBM,
+ 1.25%
, Lenovo 992,
+ 2.00%
and Nokia NOK,
+ 3.15%
, or non-technology companies like Altria MO,
+ 0.44%
and Navient NAVI,
-0.85%
, all pay more than enough in dividends to cover tax. The same is true of most oil and gas or real estate investment trusts. Even the average return of the S&P 500 SPX index,
+ 0.95%
fund is 2%.

Think this way what 3% means for the average billionaire, of whom the United States only has 607, according to Forbes.

The Bloomberg-based company estimated annual revenue of $ 10 billion, mostly from the sale of data terminals to merchants. When I was working there, we were informally told that the company had profit margins of around 30-35% – because Bloomberg LP is not public, we didn’t know the exact numbers.

So for Bloomberg, the wealth tax would be around $ 1.6 billion and his income is probably just over $ 3 billion (from the company alone; it’s now diversified). Basically that’s half of his pre-tax profit each year. Once you have that kind of wealth, it self-sustains enough that the government can tax it without hampering innovation too much.

Or, if you have $ 1 billion and you don’t earn 3% on your money multiple times, you are wrong. Basically you are Donald Trump.

What Warren would do with the $ 2.75 trillion that tax increases (assuming the challenges of valuing the assets of the rich can be overcome) marks a significantly different – but not entirely – view of who this prosperity is generated and by whom.

The money would support the government’s efforts to make it easier for workers to work and qualify for better jobs, thereby increasing their standard of living. Aside from perhaps his support for Medicare for All – a position shared by only one of the other nine Democrats on stage Wednesday night – they are not radical.

Now read:Medicare for all is a point of contention in the first Democratic debate

Warren’s plans to subsidize child care centers and universal preschool would spend $ 1.7 trillion over 10 years. Making state colleges tuition-free and offering means-tested student loan forgiveness would cost $ 1.25 trillion. The total cost of Warren’s plans (excluding his Medicare for All support) is about $ 3.265 billion, conservative writer Alex Muresianu calculated in Reason magazine.

Muresianu thinks this proves Warren’s math doesn’t work – but it doesn’t necessarily.

The difference is $ 50 billion a year on a $ 4.7 trillion budget – a fraction of what President Donald Trump added to the deficit through a tax cut focused on business and top earners, plus a sharp increase in spending, mainly for defense. Finding the missing $ 50 billion by reducing or repealing Trump’s deficit factors is not difficult.

With politics being the art of the possible, it’s also perfectly plausible that Warren will only get a scaled-down version of what she wants, even through a Democratic Congress, making the impact on the deficit minimal. If Republicans hold the Senate next year, she would be lucky to still have that. It would also provide the missing money.

If the last few years have proven anything, it’s that the economy has enough room to absorb some fiscal deficits without causing inflation. President Warren won’t be in a rush to cut deficits much anytime soon.

The question is whether we want to spend these deficits on building human capital or making share buybacks cheaper, the main effect of the 2017 tax cut. what elections are for.

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