Obamacare got all sorts of well-funded opposition. Did the opponents all hate the idea that more people would get health care? That was hardly the main objection. What they didn’t like to talk about out loud was the financing, a hike of 3% in the income tax over $250k. Tax the rich and undo of those nice cuts they’d gotten under Reagan and Bush? How dare they!
Warren’s Medicare for All plan has some interesting financing methods. Since it is expensive, it requires an increase in taxes. But it’s a progressive increase, undoing some of the bennies the ultra-rich got from previous Republican tax cuts. And more interestingly, it restructures some taxes in ways that seem targeted right at the financial sector, and at the rentiers who have taken far too much out of the economy without actually producing anything. It’s radical, but in a way pro-capitalist, because it encourages capital to be spent productively, rather than on financial tricks.
So let’s look at some specifics. My favorite is the “small tax on financial transactions — one-tenth of one percent on the sale of bonds, stocks, or derivatives.” The anticipated value is $800B in 10 years, which is a small part of the total. So it’s not really just about raising the money.
If you or I had invested some of our money in some stock, sat on it for a few years or even just months, and then sold it or traded it, 0.1% at the time of sale isn’t a big deal. But this kills the flash-trading business. They buy and sell shares in microseconds, hoping to be just a tiny bit faster than the next guy, and make a tiny bit on most trades. The telecom industry has built special high-speed lines to support these — microwave from Chicago to New York is faster than fiber optics, and data centers actually run extra curled-up fiber in order to equalize the distance, and the speed-of-light delay, to different customers’ racks. It’s utterly insane, just gambling, but it dominates the capital markets. The Mercer fortune that funded DJT came from this. This tiny transaction tax is total killer when stock is sold hundreds of times a day.
Another $100B comes from a fee on the biggest banks, based upon the riskiness of their investments. This is about changing behavior too.
Another change is to get rid of accelerated depreciation. That was supposed to encourage capital investment, but Warren says that it’s not working, so taxable depreciation should be aligned with actual declines in value. This is just ending a corporate tax break.
She proposes taxing multinationals who currently shelter profits overseas. I’m not sure how this can work in practice and it strikes me as a negotiating point more than as a true plan. But it puts them “on notice”. This is supposed to raise $1.65T.
The 6% wealth tax on those with >$1B of assets is closer to Bernie’s plan. It’s aggressive, and in practice is a higher rate than what a safe investment would earn. So fortunes will shrink under that rate or they will have to be invested with some risk. This will shake a lot of money loose for her opponents because that tiny group doesn’t want to pay $3T in these new taxes. But it sends a message that inherited fortunes and huge concentrations of wealth aren’t the right way forward.
She also proposes a radical, and likely unrealistic, change to the capital gains tax. For many years, any asset sold after being held longer than a year was a long-term capital gain, only half taxable. Now the tax rate is 0 to 20%, with some complexity. Warren proposes that capital gains income be treated as regular income for the top 1% of taxpayers. Not the .01%. It’s not clear if this applies to homes too or just financial instruments. But that’s not the hard part.
What is most radical, though, is the proposal to “mark to market” capital gains. Instead of paying tax on what you sell, the value of your holdings is assessed annually. If it goes up, you pay tax; if it goes down, you deduct the loss. Since you’ll owe taxes on income you have not realized, if the holding goes up in value, you may be forced to sell some to pay the taxes. That may discourage long-term investment. And in a recession, the deductions may seriously dent federal revenues, as well as state revenues that are calculated as a percentage of federal tax. I really can’t see this going anywhere. Perhaps it’s thrown into the mix in order to be negotiated out.
Trump’s tax cuts for the rich were radical. Warren largely undoes this but couples it to pay for health care. It’s an interesting move, and clearly a strategic one.