Wealth Tax: Did Bernie Sanders Just One-Up Elizabeth Warren?

The 2020 presidential campaign is in full gear, and on the Democratic side of the ticket, there are still many candidates fighting it out in their hope to become the party's nominee. Issues surrounding inequality in income and wealth played an important role in the 2018 midterm elections, and for some, they're serving as a litmus test against which to judge candidates.

Some see a wealth tax as a way to solve problems of economic inequality. Sen. Elizabeth Warren, D-Mass., released a proposal for a wealth tax early this year, and it generated considerable debate at the time. Now, that issue has come to the forefront again, as Independent Sen. Bernie Sanders of Vermont joined in with a wealth tax proposal of his own. The two ideas share a lot in common, but the obvious difference is the extent to which the Sanders proposal goes even further than the Warren proposal to raise potential tax revenue.

Upping the ante

The Warren wealth tax proposal was relatively simple. Americans whose net worth is above $50 million would pay an annual tax of 2% on their assets above that level. For those with assets worth $1 billion or more, a higher tax rate of 3% would apply to the portion above the $1 billion mark, representing what the proposal calls a "billionaire surtax" of a single percentage point.

Image source: Getty Images.

In explaining the proposal, Warren pointed to several indicators of wealth concentration and inequality. Saying that the top 130,000 families have more wealth than the poorest 117 million families in the U.S., Warren noted how the distribution of wealth has skewed more favorably toward the rich end of the spectrum over the past three decades. In her eyes, the tax would help remedy the situation, and at the same time provide an estimated $2.75 trillion in tax revenue from 75,000 households over 10 years to use for other purposes.

The Sanders proposal includes similar statistics about wealth and income inequality, the most noteworthy being his assertion that the three wealthiest people in the U.S. have more wealth than the bottom half of the entire population of the country.

Sanders chose to make his plan more complicated but also harsher on the ultra-wealthy. The proposal has eight wealth tax brackets, going from 1% to 8% based on various wealth thresholds as seen below.

Data source: berniesanders.com.

These would work like income tax brackets. So if you're married and had a net worth of $100 million, then you'd pay a 1% tax on the amount from $32 million to $50 million, and 2% on the amount from $50 million to $100 million, or a total of $1.18 million. That compares to a $1 million tax under the Warren plan.

Dragging a bigger net

The bigger taxes that the Sanders proposal imposes on higher net worth individuals leads to a big boost in tax collected. Sanders estimates that the measure would raise $4.35 trillion in 10 years -- 58% more than the Warren proposal estimate.

Yet an equally important distinction between the two proposals is the much lower threshold at which the Sanders proposal starts to impose a tax. According to Sanders, the threshold would mean that his tax would apply to 180,000 households, or well over double the number who would pay the Warren tax.

Waiting for a winner

As you'd expect, the Sanders proposal has stirred up debate once again about various parts of the wealth tax, including disputes about constitutionality and how the shift in financial incentives might affect entrepreneurial spirit and innovation, as well as economic growth. Those debates will continue to swirl over the course of the campaign.

Warren and Sanders are fighting to capture the support of progressive Democrats and Democratic-leaning independents who believe that a wealth tax is a critical part of alleviating wealth and income inequality. Sanders may have sought to one-up Warren with the larger tax rate, but both share the same vision for what end result they'd like to see from a wealth tax.