Who would do the most good with the money, billionaires like Bill Gates or Elizabeth Warren?
The Issues of 2020: Wealth and Other Taxes
By: George Noga – February 16, 2020
In this election year, we periodically will analyze the presidential race; we also will address many of the issues. This first issue-oriented post deals with the proposed wealth tax. Future posts will address, inter alia, UBI (universal basic income), MMT (modern monetary theory), income inequality, gun violence and socialism. Although the wealth tax gets much of the attention, Democratic Party candidates have proposed a veritable smorgasbord of new and increased taxes; following is a compilation.
## New annual wealth tax of up to 6% on all assets
## Raising top marginal income tax rate to 69.2% (75% increase)
## Increasing corporate tax rate to 35% from 21% (67% increase)
## Expand Medicare tax .9% plus a host of new Medicare taxes
## Raising the estate tax to 77% from 40% (93% increase)
## New carbon tax on fuel, energy and utilities
## Hiking the payroll tax by 2.4 points (15% increase)
## Taxing capital gains as ordinary income (up to 175% increase)
## Removing all caps from the payroll tax (15% increase)
## Taxing unrealized capital gains each year
## Imposing a VAT (value added tax) on the entire US economy
## Surtax of 7% on corporate income exceeding taxable income
## New exit tax of 40% of assets for giving up citizenship
## Surtax of 10% on all income above $1 million
## Applying the 14.8% payroll tax to investment income
## Raising the top dividend/cap gain tax to 52% (160% increase)
## New tax of up to .5% on financial transactions
## Repeal existing business expensing and 20% pass through
I never before have seen a comprehensive list of all proposed new and increased taxes; that’s why I invested the time to compile this list for our readers. Democrats want to raise (most by 50% to 100%) virtually every existing tax, plus add huge new ones like a wealth tax, value added tax, carbon tax, financial transactions tax and exit tax. The cumulative effect of these taxes would instantly wreck any economy.
Wealth Taxes: Failed – Unconstitutional – Immoral
Where to begin? Twelve affluent European countries once imposed wealth taxes; today only three remain. Most abandoned taxing wealth because of myriad problems that resulted in vastly lower tax collections than anticipated. Problems included: (1) measuring wealth; (2) changes in taxpayer behavior; (3) high cost of collecting the tax; (4) taxpayer flight; 70,000 millionaires left France before it repealed its wealth tax; (5) a brain drain; and (6) distortion of savings and investment decisions.
A wealth tax is almost certainly unconstitutional. The Constitution (Article I, Section 9, Clause 4) severely restricts the ability of the federal government to lay taxes and bans “direct taxes“; it required a constitutional amendment in 1913 before an income tax became legal. Courts likely would construe a wealth tax as a direct tax.
A US wealth tax would encounter the same six problems Europe experienced and would collect only a tiny fraction of the amount projected. In addition, there would be serious new problems including: (1) raising the cost of capital; (2) discouraging capital investment and job creation; (3) raising interest rates; (4) harming stocks, 401(k)s and pensions; and (5) shifting money from the private to the public sector.
Consider one example. A Silicon Valley entrepreneur, whose business is valued at $6 billion, would pay a wealth tax of $320 million (6% on excess over $1 billion and 2% on first billion). He would need to sell $1.1 billion (nearly 20% of his company) in order to pay $630 million in capital gains tax and $150 million in California tax to have $320 million left over to pay the wealth tax. And when he dies, there is a 77% estate tax. Poof, in five years it is gone! If he invested an additional $1,000 and earned 6% ($60), he would pay $35 in federal tax, $8 in California tax and $60 in wealth tax. He would pay total taxes of $103 on $60 of income – a tax rate of 172%.
The strongest argument against a wealth tax is a moral one. It penalizes work, thrift, risk taking, and investment – behaviors that should be lauded and encouraged. A wealth tax represents quadruple taxation; government taxing the same funds (1) when originally earned; (2) as business taxes, dividends or capital gains; (3) as a wealth tax; and (4) as an estate tax. Wealth taxes not only are a failure – they are immoral!