They're Panicked

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Dear John,

On Thursday, the New York Times reported on a study showing that Elizabeth Warren’s proposed wealth tax would reduce economic growth by nearly 0.2 percent a year, over the course of a decade.

Under the headline “Warren Wealth Tax Could Slow the Economy, Early Analysis Finds," the Times trumpeted the analysis, from the Wharton School of the University of Pennsylvania, as “the first attempt by an independent budget group to forecast the economic effects” of a centerpiece of the Warren campaigns.

It sounded like a game-changer. The super rich obviously don’t like a wealth tax, but if it also slows the economy, it could harm everyone.

But wait. In order to arrive at their conclusion, the authors of the study make two bizarre leaps of economic logic. ([link removed]) They assume, first, that wealthy Americans would save and invest less in order to avoid accumulating wealth that would be subject to the tax, and that this drop in investment would retard economic growth.

Baloney. If we’ve learned anything over the last 40 years it’s that the savings and investments of wealthy Americans do not necessarily trickle down in ways that grow the economy or benefit most Americans.

The investments of the wealthy are parked all over the world in everything from exotic tax shelters to real estate and works of art. Rather than generate social benefits, they are more likely to keep legions of investment bankers, money managers, wealth advisers and tax lawyers busily employed, gaming the system.
The study also assumes the revenue raised by a wealth tax will go toward reducing the federal debt. It totally disregards what the wealth tax would finance, such as Warren’s proposals for universal childcare, increased education funding, student loan forgiveness, green manufacturing and infrastructure.

How can an analysis of the wealth tax focus only on its trickle-down effects and not consider these crucial bottom-up consequences? Just as peculiarly, why would the New York Times prominently report this one-sided study?

The answers to both questions, I fear, have less to do with economics than with where power is located in the American system.

The denizens of corporate board rooms, C-suites and Wall Street do not regard Bernie Sanders as a threat because they do not believe he has a chance of being nominated. But they are panicked by Elizabeth Warren.

More insidious attacks on Warren's tax plan are now emerging from sources that do not bear the direct imprimatur of the wealthy, including some presumably liberal enclaves such as a thinktank at the University of Pennsylvania and the New York Times, which chose to highlight its questionable study.

This is no orchestrated conspiracy. It is more a matter of affiliation and class, revealing once again that biggest divide in America isn’t between Republicans and Democrats, conservatives and liberals or right and left. It’s between the establishment and the anti-establishment, the oligarchy and the rest.

Warren has stirred up a hornet’s nest. Beware. Bipartisan stingers are out.
Thanks for reading,
Robert Reich

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