It’s only the start of 2019, and the Democratic candidates for president are already throwing out great entertainment, if you overlook the scary policy proposals. It is a contest in outdoing the last person’s absurd proposals.
The new and young star of the left, Alexandria Ocasio-Cortez, is helping to contribute to the fun. She sets the scale far to the left, and the presidential candidates feel the need to follow. There is the Green New Deal, which is already serving to embarrass those endorsing it. There are also many proposals for tax hikes on the rich. If one person says to tax the rich at 70%, then someone feels the need to up the ante to 80% or 90%. I’m waiting for someone to go over 100% at this point.
Elizabeth Warren tried to change things up a bit. Since she didn’t want to go for a 110% income tax, she turned to another tax. She proposed a wealth tax. Her proposal is to impose a tax on wealth of 2% per year for amounts over $50 million, and 3% for amounts over $1 billion.
This means that if Jeff Bezos were worth $100 billion at the time of counting up the assets, then he would owe in the neighborhood of $3 billion.
This would be one of the worst forms of taxation from a libertarian standpoint. It is always debatable what forms of taxation are worse than others, but I see a tax on property as perhaps the most egregious. It is actually similar in a sense to inflation, which acts as a tax. Inflation hits your money, while a wealth tax hits everything you own.
In other words, you could just do nothing, and you would keep owing money. You could refrain from earning income, driving, or buying anything, and you would still owe the tax if you meet the threshold. You could even be living in a tent on the side of the road, but you would owe the tax if you meet the threshold.
I understand that multi-millionaires and billionaires aren’t in this situation, but it is to prove a point. It is one of the most immoral forms of taxation. Libertarians often say that taxation is theft. This kind of tax is theft to the degree that you can only avoid it by not possessing enough money and things.
Some might say that millionaires and billionaires did not obtain their wealth in a moral manner. If it is coming from the left, it is mostly nonsense. They do not understand (or don’t want to understand) that wealth is created and that the money they possess did not come at the expense of others (unless through government means).
There is something to be said for the fact that some rich people obtained some of their wealth through government means. But this isn’t an argument to tax wealth. It is an argument to cut off government regulations and subsidies that benefit the rich (or anyone else). Mostly, it is a mixed bag though. You could argue that Jeff Bezos and Bill Gates have received some government favors and subsidies, but there is also no doubt that they have created great wealth too. In a free market, wealth is an indication of having served society.
Again, the answer isn’t a wealth tax. The answer is to remove government favoritism, which simply means removing government power.
The Economics of a Wealth Tax
Aside from the immorality of the proposed tax, it is highly problematical from an economics standpoint. In fact, I believe it would be such a disaster that it would be problematical from a political standpoint.
Let’s say that Jeff Bezos has to come up with $3 billion per year. I hate to break it to Elizabeth Warren, but he probably doesn’t have a checking or savings account with his bank where he can just write a check. Most of his net worth is tied up in assets. In his case, a good portion is in Amazon shares.
Therefore, to come up with the money to pay the tax, Bezos would likely have to sell a significant portion of his shares. The same would go for most of the other billionaires in the country. So you would have these ultra-rich people selling massive quantities of stock shares. Next thing you know, they would have the SEC accusing them of rigging the markets or insider trading, even though they are just trying to come up with money to pay “their fair share”.
If there were any serious legislation of a wealth tax that was threatening to pass, I believe that stocks would completely tank. It wouldn’t happen after the legislation is passed. It would happen in anticipation of it. This is why I believe that Warren’s proposal is mostly rhetoric. It would be political suicide to implement something so foolish. The middle class has 401k plans that would be impacted.
On top of all of this, how would she propose to enforce it? What about all of the collectibles in the Bezos household? Would you have to get a government appraiser walking through to price the current value of the fine art on the walls and the antique furniture? This would be a bookkeeper’s worst nightmare. It would also turn us further into a police state with the government trying to monitor it.
The Other Wealth Tax Once Proposed
This gets very little mention, although I have seen a few outlets that have covered it. Neither Donald Trump nor Elizabeth Warren probably wants it brought up. Donald Trump once proposed a wealth tax too.
Trump was considering a run for the presidency back in 1999. He briefly did run in 2000. In late 1999, he proposed a one-time wealth tax of 14.25% in order to pay off the national debt. Unfortunately, I don’t think a 100% wealth tax on the rich would pay off the national debt today.
I was a young adult at the time. I was not a full libertarian at that point, but I still recognized the idiocy of his proposal. I have never forgotten it either. I figured someone who was such an economic idiot was not fit to serve as president. Maybe he just thought everyone else was an economic idiot, but that is still bad, as I would rather someone who would tell the truth.
Trump’s proposal was a lot bigger than Warren’s, although it would have been a one-time tax as he proposed. Still, if some rich person got hit with a 14.25% tax one time, how could he be sure it wouldn’t happen again?
If Elizabeth Warren were to pull off a miracle and win the Democratic nomination in 2020, then it would be great fun watching the debates. I wonder if Trump would keep referring to her as Senator Pocahontas.
If such a scenario were to play out, I sure hope that someone asks the question about the wealth tax and that Trump once proposed such a thing. I think that he would repudiate his former words, but you know how Trump’s ego is. It would be hard for him to admit he was wrong 20 years ago for proposing such a thing.
Trump is still an economic idiot with his tariffs and out-of-control spending. But at least he hasn’t mentioned a wealth tax in a very long time.
Again, I don’t think it is a serious threat politically. There could be other taxes or tax hikes coming in the future, but I don’t think a straight out wealth tax will be one of them.