Steven Senne/AP Photo
Democratic presidential candidate Senator Elizabeth Warren greets audience members at a campaign event in Exeter, New Hampshire, November 11, 2019.
The New York Times piece today on the projection by the Penn Wharton Budget Model that Warren’s proposed tax would reduce growth manages a rare trifecta. It discredits both the model and the Times for playing it straight, and demonstrates the need for a very different brand of economic policy and analysis.
The model projects that by raising taxes on the very wealthiest, Warren’s tax would cut growth by two-tenths of 1 percent. But a model is only as good as its assumptions.
Among several idiotic assumptions, the model assumes no beneficial effect from getting a whole generation out from under disabling student debt, or from moving to a more efficient system of health care, or from infrastructure investment—these and other investments are the reason for hiking taxes on the very rich.
The model also assumes absurdly that the tax receipts would go to reduce the national debt, which is a conceit in the minds of the orthodox economists who created the model, but is not part of Warren’s plan.
The model also assumes that very rich people are a key source of productive investment, so reducing their wealth would harm investment and growth. But in recent years, the investments of the very rich have been more about manipulating and rearranging assets. Increased public outlay or relief of student debt would be far more enhancing of productivity and hence growth.
The Times plays the report straight, as if the Penn Wharton model is a font of unimpeachable and objective analysis. But of course, the biases are built in.
Not until paragraphs 17 and 18 does the Times bother to quote two economists who have a different view. It quotes Gabriel Zucman:
“If the government collects $3 trillion in wealth tax revenue, and spends $3 trillion on public infrastructure, it’s unclear that there should be a reduction” in the amount of overall investment in the economy.
And then it cites Mark Zandi:
Another economist who has evaluated Ms. Warren’s plans at her request, Mark Zandi of Moody’s, wrote on Wednesday that his analyses suggested that her spending on “child care, housing and green manufacturing would spur economic growth and produce more tax revenue.”
Even Diane Lim, a Penn Wharton economist who works on their budget model, conceded on Twitter that the preliminary estimate would be better called a “trial simulation,” and that if the revenue from the wealth tax went into stimulative spending rather than deficit reduction, “the net negative effect of the wealth tax on GDP would be smaller.”
But for most of the piece, the reader gets the sense that a reputable model has undone Warren’s tax. Shame on the Times, shame on Wharton, and shame on the economic profession’s myopic orthodoxy.
