Two of the most powerful economic voices in America disagree on a tax for the uber-rich

Democratic Senator Elizabeth Warren faces an uphill battle persuading Washington to back her tax on ultra-millionaires — starting with convincing her own party’s Treasury Secretary.

Janet Yellen, whom Warren praised last year as an “outstanding choice” to lead the Treasury Department, fears a wealth tax would be too messy to implement.

“Then Janet and I need to have a conversation about implementation,” Warren told CNN Business on Monday after introducing her Ultra-Millionaire Tax Act.

The bill would seek to raise $3 trillion to rebuild the economy and fight inequality by imposing a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion. Billionaires would face a 3% tax.

“We designed this wealth tax by building on the experiences of other countries that put together a wealth tax and weren’t always successful,” Warren said in the interview. “We saw where the mistakes were and made sure we tightened it up.”

$100 billion for the IRS to fight tax cheats

Critics argue that taxing wealth would be challenging, if not unconstitutional. In particular, there are concerns about how to value assets and prevent the wealthy from hiding cash overseas

Yellen, the former Federal Reserve chief, said last week at a DealBook conference that she isn’t planning a wealth tax like Warren’s because it’s “something that has very difficult implementation problems.”

“People say, ‘Well, rich people cheat so we shouldn’t even try to use a wealth tax,'” Warren said. “But if rich people cheat, that doesn’t mean we should just give up and let them pay taxes at lower rates than everyone else. That means we need to hire more enforcement and make them follow the rules.”

Warren’s wealth tax comes with teeth.

The legislation has a built-in audit rate of 30%, meaning every year nearly a third of all families would be audited. And the bill calls for boosting the budget of the IRS by $100 billion to build up the agency’s audit firepower and modernize IT systems.

The Warren plan also proposes a 40% “exit rate” on the net worth above $50 million of any US citizen who renounces their citizenship to avoid paying the tax.

“Once you’ve got the wealth tax in place, it’s not very hard to monitor year by year. If last year you owned real estate, this year you either better own that same real estate or have a lot of cash that you took in a sale,” Warren said.

Fairness in the tax system

Asked whether President Joe Biden has any appetite for a wealth tax, White House Press Secretary Jen Psaki said during Monday’s press briefing that Biden “strongly believes that the ultra-wealthy and corporations need to finally start paying their fair share.”

“He’s laid out a lot of ideas and when we get to that point in our agenda, he’ll look forward to working with [Warren] and others in Congress,” Psaki said.

In other words, the White House didn’t rule it out.

Last year, the bottom 99% of households paid about 7.2% of their total wealth in taxes, according to Warren. The top one-tenth of 1%, however, paid just 3.2% of their wealth in taxes.

Warren said there is bipartisan support among voters for a wealth tax, including a majority of independents and Republicans.

“They understand how unfair the current system is,” she said.

The $15 minimum wage fight

Warren is also throwing her weight behind an effort to overrule the Senate’s parliamentarian by keeping the $15 minimum wage hike in the Covid relief package. Such a move hasn’t been employed since 1975 and could cause support to crater among moderate Democrats like Senator Joe Manchin.

“I would be glad to see us pass minimum wage through reconciliation,” Warren said, referring to the budget process that requires only a simple majority to pass. “And I will fight for that.”

Asked about Manchin and other moderates opposing popular measures like the $15 minimum wage, Warren focused on where Democrats agree.

“Democrats want to see us increase the minimum wage,” she said. “We need to talk more about exactly what the level is and how to do it. But we want the minimum wage to go up.”