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Taxing Wealth, Part I October 1, 2019

Posted by geoff in News.
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A couple of articles about wealth today: the first was from the NYT, discussing Warren’s and Sander’s notions of wealth taxes and curbing the fortunes of the ultra-rich; the second described the results of a Cato poll which looked at the motivations of the wealth-taxers. First let’s look at the plans from the Democratic candidates (descriptions of the plans are from the NYT article):

Elizabeth Warren Bernie Sanders
“Ms. Warren…would impose a 2 percent tax on net worth above $50 million, and a 3 percent tax on net worth above $1 billion.” “Mr. Sanders’…tax would start out at 1 percent on net worth from $32 million to $50 million, and it would top out at 8 percent on net worth over $10 billion.”

These plans seem naive, damaging, and dangerous. Here’s why:

  • Naive:
    • Wealth Taxes Aren’t Constitutional: …at least the way Warren and Sanders are envisioning them.  The Constitution requires that wealth taxes be apportioned per the states’ populations, so that poor and rich states with similar populations would be required to pay the same tax. That’s not workable, so an amendment would be required.
    • The Rich Ain’t Gonna Pay: The ultra-rich always have financial resources and options that allow them to avoid the impact of taxes, such as hiring the law-writers to find loopholes or moving their assets overseas. They can lobby lawmakers to create loopholes or soften the taxation terms. Bottom line: Warren and Sanders will never see the revenues they’re expecting.
  • Damaging:
    • Wealth Taxes Inhibit Investment: …just as capital gains taxes do (which Dems are also interested in increasing). I think most people are familiar with the concept of the return on investment (ROI), which is basically how much money you can expect to get back on your investment. ROI projections are calculated carefully (in most business plans they’re wildly optimistic, but still…) to convince investors that they have a good chance of making money on a venture. Risk and taxes mean that a higher ROI projection is required to convince an investor to pony up. And discouraging investment hurts innovation and economic growth.
    • Impact on Charities: Every dollar taken from the wealthy is a dollar less of their discretionary spending. Charities will be the first entities impacted.
    • Wealth Taxes Have a Questionable Morality: All the wealth accumulated by the ultra-rich has been, or will be, taxed already. Their income and capital gains were taxed, and the appreciation on their real estate will be taxed. Appreciation on items is also taxed. Saying that you’re going to add taxes simply because somebody owns something (unlike real estate property taxes, which are to support public services) makes me queasy.
  • Dangerous:
    • The Slippery Slope: It’s well-known (and griped about) that: “The original income tax was 1% for the bottom bracket, which was comprised of income up to $20,000, and 7% for the top bracket which was comprised of income over $500,000.” Sounds kind of like Bernie’s plan, doesn’t it? And like Warren’s? Do we really think that the average joe is going to be immune from wealth taxes 20 years from now? The 1% tax for the bottom bracket was doubled 3 years later, and 4 years after that it was 5%. I can’t imagine that our modern government will be any less avaricious.
    • Control: The income tax evolved from a simple money-collection mechanism into a tool to encourage/discourage social and economic behaviors. This, despite the fact that the government and its advisors have shown no particular competence in defining good and bad behaviors. Giving them more knobs to turn seems like a bad idea, given that they can’t properly use the current ones.

I’ll talk about the second article in a following post. This one kind of got out of hand.

Comments»

1. Taxing Wealth, Part III | Innocent Bystanders - October 1, 2019

[…] Before I get to that Cato poll, I remembered that I forgot to address one of Bernie’s points from the NYT article (discussed in Taxing Wealth, Part I): […]

2. Mindy Whitestone - October 1, 2019

Sorry , this is hard to follow. Long long day may be why. Try later.

3. geoff - October 1, 2019

Man! And I color-coded it and everything!


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