WEALTH TAX, RIGHT OR WRONG FOR AMERICA
What is a wealth tax? Today, wealthy Americans pay taxes on things like superyachts and fine art when they purchase them, but not after. A wealth tax would make them pay taxes on their assets every year. Elizabeth Warren would apply an annual asset tax of 2% on households worth more than $50 million and 6% of worth greater than $1 billion.
There are some significant downsides to the wealth tax that the progressive/socialist candidates fail to mention while campaigning.
First: Rich folks do not put their excess cash under a mattress; they invest it and pay taxes on the interest and dividends. The wealth tax takes money out of the hands of those who invest and provide the continuous flow of capital which, of course, is the fuel for capitalism.
Second: The wealth tax would apply to an estimated 75,000 households. There are already 73,500 full time IRS employees. How many more thousands of employees would they need to expertly administer the wealth tax? Big government getting bigger.
Third: Wealthy people have very competent tax lawyers who know how to apply tax avoidance measures. The only way to prevent this is to rewrite the tax code and eliminate the loopholes, which is unlikely to happen. Additionally, the wealthy can move assets to trusts and family foundations or shift property among generations; and they will do so.
Fourth: The wealth tax is a proven failed system. In 1990, a dozen nations in the Organization for Economic Cooperation and Development imposed wealth taxes. By last year, it was down to three. France was the latest casualty.
Fifth: A significant amount of wealth held by the rich is in hard-to-value assets, such as art. Will the valuation be accomplished in 75,000 households by thousands of contract experts or by IRS amateurs? How will the taxpayers appeal contested valuations? Thousands of households could end up in litigation for months or years.
Sixth, a scenario: A 40-year-old entrepreneur is worth $500 million dollars and therefore required to pay a wealth tax. His 2% wealth tax due is $10 million. Because he consistently invests excess cash and after paying state and federal income taxes, he is short of cash to pay the wealth tax. Not to worry, Ms. Warren says, “l have a plan.” Rather than force the taxpayer to sell resources and pay cash, he can tender a portion of his non-liquid assists to the government. Now he has a new business partner who may well be some nameless, faceless, possibly incompetent bureaucrat in Washington. Extend this over the next 20 or 30 years, 2% every year, and what does he have remaining? Then he dies and his estate pays a 40% death tax on the remaining assets. This is a nightmare scenario that would play out across the country.
Seventh: Because of the downside reasons 1-6 above, rich people figure out how to move their wealth abroad. It isthe principle reason other countries dropped the wealth tax.
Eighth: Ms. Warren has developed the wealth tax issue in response to questions about how she proposes to pay for Medicare for All. And she sells this new tax revenue stream as if it is all that will be needed. Wrong, really wrong. Warren’s estimates, which some liberal economists consider too optimistic, that the wealth tax on personal fortunes exceeding $50 million would raise $3.75 trillion over the next decade, ($375 billion per year). That $375 billion would provide about 13% of what is required for one year of Medicare for All. Will the middle class pick up the remaining 87%?
As if the above numbers are not misleading enough, Warren also claims Medicare for All will actually save money because of economies of scale for a government-run program. There is zero data to support such an outrageous claim but there are numerous examples of the incompetence of government whenever it is charged with running a large operation. Cases in point:
In FY18 FEDEX reported a net profit of $2.97 billion and UPS had $4.79 billion while the US Postal Service had a net loss of $3.9 billion. This is the norm and happens every year.
Government-run Amtrak has reported operating losses every year since its inception in 1971, averaging $900 million per year with 93% of its routes unprofitable. The per-ticket taxpayer subsidy over the past 5 years has been $51 per Amtrak ticket sold.
The best relevant comparison of how Medicare for All will succeed is to look at the current Veterans Administration which has been a disaster for decades. It is a bureaucratic, bloated, money pit that has left sick veterans to die while waiting for care. Medicare for all would attempt to service 18 times the number of those who rely on the VA. Lots of luck saving money. Check out the disastrous government-run medicine in the UK and Canada.
Wake up America, it’s time to look at the whole Medicare for All story. And while you are at it, look at Ms. Warren’s list of 56 other new programs that will require more funding, more government control, more bureaucracy and more regulation.
Marv Covault