Elizabeth Warren's Proposals

Elizabeth Warren has risen to be in a virtual dead heat with Bernie Sanders and Pete Buttigieg for second place behind Joe Biden in the Democratic race for the 2020 nomination and commentators attribute that to her claim “I have a plan for that” in every area of public policy. That is her defining personae: she is a policy wonk. So let’s test that out by examining some of her policy proposals and see if they bear the weight of analysis or are more like the policy proposals of Paul Ryan, which made no sense if you looked into them. Well, Warren’s proposals do bear up under some scrutiny, but only if you also adopt her general view of things, which is to soak the rich for the sake of doing that, which is an ideological rather than a policy matter.

Consider, first of all, her idea of a wealth tax, which would be that the very rich pay a tax on their accumulated wealth rather than their incomes alone. This seems to be a good way to get at that enormous stockpile of wealth that the very rich have accumulated so as to fund any number of worthwhile programs, such as student debt relief, or universal pre-K education, and it would be a tax that very few would have to pay, her idea starting out with a tax of one or two percent on those worth 500 million dollars and going up from there. It wouldn’t really hurt the very rich all that much, not so much that they would renounce their citizenship to avoid it, and it would be no more subject to loopholes than any other tax, and it would create much more revenue than, for example, considerably raising the income tax or making capital gains income subject to the same level of taxation as income.

One objection to a wealth tax is that it is unconstitutional in that the Constitution says that the tax levied in each state shall be proportionate to the number of people in that state, and the 1895 decision by the Supreme Court in Pollock v. Farmer’s Loan that held an income tax to be unconstitutional because it would mean that some states would pay more than what had previously been regarded as their fair share. It required a Constitutional Amendment, the Sixteenth, passed in 1913, to make an income tax legal. Now, some scholars now claim that the 1895 decision had been badly decided and that there is therefore nothing illegal about a wealth tax, but clearly the Congress and three quarters of the states had decided, when they passed the 16th Amendment, that such a serious step as the amendment of the Constitution was required for an income tax, and so it makes sense to say that a wealth tax would also require a constitutional amendment because it is neither an income tax nor is it proportionate to the population of a state.

So why are Warren and her supporters so fervent about the need for a wealth tax? John Cassidy, the New Yorker’s economics writer, suggests that they are following Thomas Jefferson in thinking that the superwealthy are a threat to American democracy, and so this is a way of cutting them down and so bringing more equality to the nation. But that doesn’t make sense because even her wealth tax will not cripple them and tax measures that are confiscatory can be challenged on those grounds in court. You can use taxes to redistribute wealth or raise revenue or to right some wrongs by, for example, giving tax breaks to the elderly or the blind, but you can’t use tax policy to break people. Moreover, the very rich are a threat to the country not because they have so much money but because the way they make their money has an impact on the society. Mark Zetterberg is not a bad man because he is so rich; rather, he is problematic because he can’t decide how to control the monster he created. Is Facebook a publication and so Zetterberg should take on the responsibilities of a publisher and so decide what will run in his newspaper? Or is he just the guy who runs the printing press and so has no responsibility for what goes out other than the protection of free speech and the extent to which that is regulated by barring outrageous or racist speech on his airwaves? Or is it that he is the proprietor of what should be a public utility in that the internet and its offspring are as vital to the ongoing society as gas and electric and so should be regulated by the government in the same way that the FCC supposedly regulates broadcast networks? Whatever the answer to that very difficult policy question, it has nothing to do with taxing Zetterberg. You have to delve into the issue, not just blame it on the rich, which is often what Warren and her supporters seem to be doing.

Here is another policy proposal of Warren’s that also does not seem to get down to the fundamental issues. A lot of the money from the wealth tax would be used to retire student debt and to pay for free tuition for those going to state two year and four year colleges. To this would be added raises in Pell grants to defer some of the non-tuition expenses of going to college, such as food and books. This seems like a good idea because everyone agrees that a better life awaits those who have a college degree and that student debt weighs people down long after they have left school. This plan also does not help the rich who go to private colleges and caps at fifty thousand dollars the amount of debt that would be forgiven and has a sliding scale so that people who make more money would be forgiven less of their student loans. Overall, the plan helps not only those who have unmanageable debt as a result of student loans; it also helps the health of the overall economy, something that might be threatened if there were a great increase in the rate of those who stopped making payments on their debt. What would happen to the $1.2 trillion in current student debt, where 7 million of the 49 million recipients of these loans are in arrears?

The problem here is not thinking through the next steps, the consequences of making state institutions tuition free. Let us say a great many students not now in college decide to make the venture. First off, the states would have to build a great many new campuses or, at the least, hire a great many new faculty and staff. That would cost big bucks to institutions which are already in financial difficulties because state legislatures have not been up to the task of properly funding their educational institutions. The Ivy League and other elite colleges and universities might get by by continuing to charge their exorbitant tuitions because even if they have to dig deeper into their applicant pool, they still have more applicants by far than they can admit, those students all meeting their admission requirements. State schools, on the other hand, cannot assume that anyone can get into one level or other of the state system will be college ready. That certainly was not the case when the City University of New York went to open enrollment in the Seventies and the pressure would now be on to lower admission standards so as to let more of those who could now afford to go to college to get in. Certainly we don’t want a financial barrier to people going to college but we also don’t want college watered down to being a high school experience. To deal with that problem, it is necessary to deal with education all the way down to the pre-K level so that all children can develop the intellectual skills that might make them college ready. And doing that might cost more than even a wealth tax would provide: the establishment of quality education from the ground up, which is something that no one now knows how to do except by providing fifty thousand dollars or so per student per year, which is double what even expensive public school systems, like those in New York City, do.

So Elizabeth Warren’s proposal on student debt and free tuition is good for a select number of people: those on a college course anyway who don’t need an Ivy League education and don’t plan on going into fields like law and banking where student debt is not a burden. I would like to see some figures on her target population and the real costs of including them in college. Meantime, I can only hope that parents will free their children of overwhelming debt by moving them to the state university option rather than to the private college and university model, the prestige of a fancy degree not worth the price. But that would require a cultural change that lags at least a little bit, perhaps a generation or two, behind the economic change that makes a new course reasonable.

Elizabeth Warren thinks like an economist rather than a sociologist, which is not at all a bad thing, but it short circuits her thinking. She has a solution to the bad black maternal mortality rates in this country. She says that because all the studies show that maternal mortality among black women is higher than it is for white women at all levels of education and income, then it must be that the cause of the higher rates is prejudice, doctors just not listening to the complaints of black women. This is risky reasoning because it uses prejudice as the residual category that explains what other factors do not when I would want to look more closely at whether there is prejudice actually exhibited in maternity wards. I don’t know. An observational study of numerous maternity wards would answer that question because people under pressure will not hide their prejudices, thinking that they have none. Warren offers what is only the easy thing to say about the issue. Warren then plunges on to offer an economic solution: reimburse hospitals for successful deliveries and fine them for poor outcomes. That is possible but difficult to administer because that means some hospitals will be reluctant to serve women with difficult pregnancies unless that is taken into account in reimbursement schemes, which is possible but cumbersome to administer, though hospitals did cope with a range of reimbursement categories when they were first required to file for reimbursement in the Seventies and the Eighties. I would prefer looking more carefully into emphasizing early visits to obstetricians and the general quality of maternal health prior to pregnancy as quicker routes to reducing black mortality rates.

In general, Elizabeth Warren is not a charlatan, as was Paul Ryan, but her policy proposals are not as well thought out as they need to be. But, then again, FDR made no significant policy proposals during his 1932 campaign. Warren is a very smart woman and I suspect that she can tighten up her proposals, given that she has tied into a number of very able policy analysts. But it is easier to be bold in policy than it is to craft something that will consider some unanticipated consequences that also have to be taken into account. We will see how things roll out when she gets questioned at the debate on Wednesday.