Transcript: Democrats’ Ambitious, Controversial New Tax Proposals

Former Warren and Biden aide Bharat Ramamurti praises new proposals to raise taxes on the wealthy, but is more skeptical of tax cut plans being rolled out by likely 2028 candidates.

This is a lightly edited transcript of the April 1 edition of Right Now With Perry Bacon. You can watch the video here or by following this show on YouTube or Substack.

Perry Bacon: And there’s all this tax news on the Democratic side—big tax plans, federal, state, wealth taxes, tax cuts. So I want to talk to somebody who really knows about tax policy. I have a great guest today, Bharat Ramamurti. He was the NEC deputy director in the Biden administration. He was an adviser on Senator Warren’s campaign. Great guy, expert on a lot of issues, so welcome.

Bharat Ramamurti: Thank you for having me.

Bacon: So I want to start with Washington State this week. The governor signed a 9.9% tax on income over $1 million a year. Washington had no income tax before, but you’re seeing a lot of these taxes on the wealthy happening at the state level. New York is considering one. Massachusetts passed one—a 4% tax a couple years ago—and that has ended up funding a lot of important stuff there.

So I think the question here is, even some sort of conservative Democrats will say these tax increases will cause the wealthy to move out of your state and you’ll end up with a net reduction in income. So talk about why these kinds of tax increases are good.

Ramamurti: Yeah. Look, there’s a pretty robust body of research about whether wealthy people respond to tax increases like this by moving out of state. And the empirical literature suggests that it’s pretty infrequent—or at least that it’s infrequent enough such that the new revenue you get by imposing higher taxes on that group of people more than offsets any loss of revenue from those people leaving the state. And so you mentioned the Massachusetts one.

There’s good empirical research about what happened following the imposition of that sort of millionaire’s tax in Massachusetts. There was relatively little evidence of out-migration—basically people moving out of the state—and as you noted, the new revenue that was brought in helped fund a lot of valuable programs for lower-income and middle-income people. I view that as a net win. Obviously the jury is still out about what will happen in Washington once this is imposed, but again, based on the Massachusetts experience, I think it’s unlikely that you’ll see a massive outflow of people.

Now I want to be transparent. I think if you impose a large enough tax, then I think it’s fair to say you’ll see more of a response to that, especially if you do it at the state level, right? Where if you don’t like your new higher taxes in Massachusetts, you can move to New Hampshire, Vermont, Connecticut. It’s easier to move across state lines than it is to leave the United States, right? When you’re talking about a federal tax. Same thing with Washington State.

But the bottom line is—and I think this is consistent with most people’s intuition—if you live in a place, you have roots in that place, your kids go to school there, you have your business there, the idea of picking up and moving and completely overhauling your entire life because you’re paying marginally higher taxes doesn’t make a lot of sense. And I think, again, that’s in the data.

Bacon: Okay, so second issue. We’re seeing these wealth tax proposals. I think the big one we’re talking about is California has a ballot initiative—they haven’t gotten it on the ballot yet, but they’re trying to get it qualified—where it’ll be a 5% one-time tax on income over a billion dollars. Senator Warren has reintroduced her wealth tax, similar to the one you worked on in the campaign. Bernie Sanders has a wealth tax that he’s talking about now. I think the usual critiques of these are: one, that they’re unworkable, too complicated to assess the richest people’s wealth in trusts and so on. And the second is that these have not worked in European countries. So talk about those two objections.

Bharat Ramamurti: Yeah. I think they’re relatively easy to address. Number one, the vast majority of wealth that people have is in the form of easily valued goods, right? A lot of it is in publicly traded stock, right? Where there’s a market price for that. A lot of what’s not in the form of stock is in the form of property, where again, the state already values your property—your residences—on an annual basis. People like to talk about these edge cases: what about, you buy a Picasso, how do you value that? You have a classic car collection, how do you value that?

First of all, that stuff tends to be a very small portion of the overall wealth. Second of all, at both the state and federal level, there’s already a process—because we have an estate tax, right?—when somebody dies, you have to value their estate. There are already people at the state and federal level whose job it is to value these types of assets. And so when we’re talking about a wealth tax that applies to a very small sliver of people—you’re literally talking about hundreds of people in California, you’re talking about thousands of people if you’re talking about billionaires in the United States—it’s really not that onerous to have the resources and the capacity at the government to value all of their assets on an annual basis.

In terms of Europe, there are some really important distinctions between wealth taxes in Europe and wealth taxes in the United States as they’ve been proposed. Number one, in Europe taxes are applied based on residency. So if you are a resident of France and they impose a new wealth tax, all you have to do to avoid the wealth tax is move to Belgium or Switzerland or Luxembourg. And we talked about this before—at the state level with some of these state taxes, people aren’t really responding by moving. But if you’re talking about a wealth tax that could potentially take a relatively big bite out of your net worth, maybe it’s worth it to move across the lines.

But in the United States, taxes are imposed based on citizenship. And we know that because there are U.S. citizens who live in Singapore or wherever who are paying U.S. taxes because they’re U.S. citizens. And so the only way to avoid a wealth tax imposed at the federal level by the United States government would be to renounce your U.S. citizenship, right? And so the Warren proposal and the Sanders proposal have what are called exit taxes. So if you do want to renounce your U.S. citizenship, you say: okay, the cost of that is a one-time very large wealth tax to renounce your citizenship. So you capture the revenue that you would’ve been collecting on an annual basis. And it’s much easier to do because it’s based on citizenship.

The other thing is that the European wealth taxes had a lot of exceptions to them, right? So in France, for example, they said your residences don’t count towards your net worth, or your retirement fund doesn’t count towards your net worth. And so what happens when you create exceptions? Obviously rich people are going to move all of their money around into the excepted categories, right? They say: okay, we’re going to buy a lot of properties now, or we’re going to shift all of our money into these retirement funds to protect it. And as a result, the tax base started to shrink because the money migrated into these excepted assets. Both the Warren and Sanders proposals and the California proposal don’t have these exceptions, right? And so you don’t have this easy way of evading the wealth tax.

I’ve been arguing about this for years now. As you said, I worked on the original Warren wealth tax back in 2019, 2018. By not having these exceptions, by taxing based on citizenship, and by pairing it with an exit tax, you really do avoid a lot of the normal critiques about why wealth taxes are ineffective.

Bacon: You’ve seen—I think the founders of Google and a few other very wealthy people have left California. Does the California wealth tax have a particular problem where people are going to try to escape in a way that other things we’ve talked about have not?

Ramamurti: Look, doing it at the state level presents additional complications, and I think I’ve tried to be clear about that, because it’s different than the federal level—again, they apply it based on residency in California. Now, the way they tried to solve it in California is that they did it retroactively. So this proposal hasn’t even gone on the ballot yet. But if it’s on the ballot this November and it’s approved, it would apply the one-time wealth tax to anybody living in California as of the end of last year.

So some of these people who are moving—it’s not clear to me whether they moved before the deadline, right? So in other words, if you moved in January, it doesn’t matter, you’re still going to be captured by this wealth tax. Doing it retroactively—and there are probably some other ways that you can design the wealth tax so that at the state level you’re addressing this concern about people moving—but I think from my perspective, optimally, you would do something at the federal level and avoid all of these concerns about moving across state lines.

Bacon: Now we’re going to talk about federal taxes. Senator Booker—as opposed to a wealth tax—would basically create a 41 or 43% tax bracket. Senator Van Hollen wants to raise taxes by 12% on income over $5 million. So those are more traditional Democratic tax ideas. You think those are fine and normal? I think the critique of them is they might discourage investment—I think that’s a less strong critique. Talk about those proposals.

Ramamurti: So you’ve got a host of these ideas at the federal level to raise more taxes from the wealthy. And I think it’s an important contextual point to just note that between the George W. Bush tax cuts in the 2000s, Trump one tax cuts in 2017, and then the most recent tax cuts that they passed last year, the wealthy have gotten a huge number of tax breaks in the last 25 years. And so even just resetting things to where they were in 2000, before this bevy of Republican........

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