A wealth tax is a dumb idea
Washington Examiner
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They think they are being clever. But they aren’t.
This week, Democrats in states across America — Washington, California, and New York in particular — are proposing wealth taxes modeled after the federal wealth tax originally proposed by Sen. Elizabeth Warren (D-MA). These taxes are nothing like the taxes you are used to.
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Instead of taxing a stream of income — the sensible, rational way to raise money for government, from available income streams — they focus on wealthy people and attempt to take a portion off the top of their overall net worth each year. They do not care whether or not any of that wealth is liquid — they just want to take away some of what rich people have.
Such taxes, if rich people are dumb enough to stay in such states and pay them, could force a lot of asset sales that otherwise wouldn’t happen. After all, if you are only rich on paper (say, you own valuable land but little cash), you might have to sell a bunch of assets to pay such a tax.
But of course, most rich people (and note that roughly 80% of millionaires did not inherit anything) did not get rich by being stupid. When presented with a threat to their wealth, they react.
Wealth taxes don’t work. We know this because they have been tried in at least a dozen European countries. In most cases, they have been repealed. The reason? Such taxes have proven to distort rich people’s investment decisions and drive rich people to other countries without raising much money. They are also extremely difficult and expensive to administer. It takes a lot of time and effort to provide a valuation on the fortunes of people who own lots of stuff. And certain assets and investments can be volatile or especially hard to appraise.
France provides the most obvious example of a wealth tax gone wrong. Its wealth tax drove 42,000 millionaires to move to other countries. Ultimately, this destructive experiment in taxation chewed up so much of the country’s tax base that it had to be repealed.
And just think: If it’s that easy for French millionaires to move to entirely new countries to avoid an unnecessary expense like an annual wealth tax, how much easier will it be for affluent Americans just to move from one state to another? Unlike those French, the many multimillionaires in California, Washington, and New York won’t even need passports or naturalization papers to relocate themselves to Nevada or Utah. What’s more, the states that will never enact wealth taxes are often much nicer places to live than the ones that are considering them now. It’s less than a five-hour drive from the homeless tent city of Seattle to beautiful, clean Coeur d’Alene, Idaho, where everyone is armed and state-funded agencies won’t even try to trans your children behind your back.
For a multimillionaire or a billionaire, an annual wealth tax means that the sight-unseen purchase of a home in another state (Florida and Texas are popular choices) might pay for itself within a month or two.
But the impracticality of wealth taxes isn’t even the strongest argument against them. The strongest argument is that the burden of proof that such a tax is needed or useful in any way is entirely on those who would impose it. And there is no rational basis for the Left’s panicky and resentful feelings toward the affluent, which comprise the entire rationale for such taxes.
No, the rich are not gobbling up all of America’s wealth. With the possible exception of Democratic politicians who miraculously become millionaires in office, the rich become rich by providing people with goods and services they want. You, dear reader, personally chose to help make someone ultrarich when you purchased that iPhone, that electric vehicle, or that popular chicken sandwich. You and all other consumers do this every day.
Meanwhile, as the number of millionaires and billionaires grows with the economy over the long run, the living standards of poorer and middle-income people continue to rise. In fact, when you include welfare and other transfer programs, the supposed statistical evidence for income inequality almost vanishes. And so does poverty.
Thank goodness free markets are making this happen all over the globe.
In the end, the Elizabeth Warrens of the world need to learn that envy and resentment are no basis for making tax policy. Warren has to let up with the resentment, grab herself a beer, and calm down.
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