By Richard Rubin 

WASHINGTON -- Elizabeth Warren's wealth tax would raise $2.7 trillion over a decade, $1.1 trillion short of her presidential campaign's estimates, according to a new analysis from the Penn-Wharton Budget Model.

The difference stems in part from disagreement over the pervasiveness of tax avoidance. Still, the new study projects that the wealth tax would raise more money than critics such as former Treasury Secretary Larry Summers have argued, and the analysis suggests it could be a significant new revenue source targeted at very few people.

"This is not nickels and dimes, even in our estimate," said Kent Smetters, who runs the model at the University of Pennsylvania. "It's nothing to sneeze at."

The wealth tax, one of the most hotly debated campaign proposals of the year, has become a populist rallying cry against inequality as well as a funding source for Ms. Warren's child care, education and Medicare-for-all plans.

The Democratic presidential candidate has proposed a 2% annual "ultra-millionaire tax" on net worth over $50 million and 6% on fortunes of more than $1 billion. Her campaign has estimated the measure would raise $3.8 trillion over a decade.

Several European countries have abandoned wealth taxes, in part because citizens have moved assets abroad. American supporters of the idea say it is easier to fight tax avoidance in the U.S., which taxes its citizens regardless of where they live.

The Penn-Wharton estimate doesn't incorporate the beefed-up tax enforcement that Ms. Warren contemplates.

"You need a big investment in enforcement apparatus, which has been rather depleted -- and Warren has got that in her plan," said Simon Johnson, an economist at the Massachusetts Institute of Technology's Sloan School of Management and an informal campaign adviser.

The Penn-Wharton estimate says that a wealth tax would reduce economic growth in the long run by discouraging investment and thus raise less revenue when accounting for that effect. While such an assumption is typical of the government models that would be used to analyze a wealth-tax bill in Congress, it doesn't necessarily comport with recent economic experience where capital has been widely available, interest rates have stayed low and budget deficits have risen, Mr. Johnson said.

"It feels like to me like they're modeling the world of 1992, 1994," he said.

The Penn-Wharton analysis looks at what would happen if the tax were paired with spending programs, though it doesn't model exactly what Ms. Warren is proposing. Mr. Johnson says that spending on child care and education would boost labor-force participation and economic growth.

"This is an analysis of a different and worse plan than Elizabeth's, using unsupportable assumptions about how the economy works, and its conclusions are meaningless," said Saloni Sharma, a campaign spokeswoman.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

December 12, 2019 00:15 ET (05:15 GMT)