Elizabeth Warren's Economic Advisors Are Wrong In Three Ways

Credit: Gage Skidmore / CC-BY-SA 2.0/ Flickr

Andrew Wagner

Elizabeth Warren's economic advisors make three huge errors in the assumption that U.S. tax system is flat.

Economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley are advising Elizabeth Warren's presidential campaign and are wrong in their assertion that the middle class and poor pay as great a share of their income in taxes as the rich, according to The Wall Street Journal.

The first and biggest mistake of the two economists is that they focus on gross taxes instead of net taxes. Transfer payments such as Social Security are ignored as they are disproportionately paid to the poor. This mistake allows individuals tax rates to be inflated without their end net tax payment being considered.

The second mistake of Saez and Zucman is measuring progressivity on a one-year rather than a remaining-lifetime basis. The fiscal system's double taxation is ignored where income earned, taxed and saved this year will be subject to future taxation on interest, dividends, and capital gains. This mistake severely understates taxes for the rich and benefits paid to the poor.

The third mistake is the failure to adjust for age. Elderly citizens appear as tax cheats because they have paid most of their share of taxes throughout their life. This problem negatively effects tax progressivity comparisons over time, due to the changing demographics.

Fiscal progressivity seems to be ignored by Economists Emmanuel Saez and Gabriel Zucman, and needs to be considered when discussing wealth inequality and taxation in the United States.

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Economics, Finance and Investing