On September 24, Democratic presidential candidate Bernie Sanders sent the following tweet:
Billionaires should not exist. https://t.co/hgR6CeFvLa
— Bernie Sanders (@BernieSanders) September 24, 2019
I always look in askance at any politician who thinks someone has too much money. But usually, candidates who talk about “the rich” do so as a means to make voters fearful or envious.
Sanders, on the other hand, genuinely hates the rich — especially the super rich. To that end, he appears totally ready to make good on his promise to rid the world of billionaires.
Sanders’ wealth tax ranges from a 1 percent yearly tax on net wealth above $32 million held by a married couple ($16 million for a single person) to an 8 percent tax on a married couple’s wealth that exceeds $10 billion ($5 billion for a single person).
This would supposedly raise $4.5 trillion over 10 years, which would then be spent on Sanders’ $2.5 trillion housing proposal, universal childcare, and a portion of his $32 trillion Medicare For All plan.
At bottom, Sanders’s animus against the wealthy is based on the suspicion that they somehow acquired their wealth by taking it from other people unfairly and probably illegally. This distrust grows out of Sanders’s economic ignorance of capitalism and the entire risk/reward culture that drives successful people to excel.
Jeff Bezos founded Amazon.com in 1993 and ran it out of his garage. He’s now worth more than $100 billion. He didn’t steal it from anyone, or kill anyone for it, or earn his wealth “off the backs of the American worker.” Indeed, those same workers — and hundreds of millions of other people — willingly gave Bezos’ company the money to purchase products from the convenience of the home computer.
Jeff Bezos came up with one of the biggest, the best, the most spectacularly brilliant ideas in the history of business. That’s why he’s worth more than $100 billion. The same could be said for most other billionaires who, either through inspiration or perspiration (or a lot of both), created wealth where none existed before.
We all wish we had a tiny fraction of Jeff Bezos’ wealth. But will confiscating that wealth from Bezos really help the poor and the middle class?
“The uber wealthy tend to have very hard-to-value assets. They own more than publicly-traded stock, such as real estate holdings, trusts, and business ownership interests,” wrote Nicole Kaeding and Kyle Pomerleau for the Tax Foundation in January, when evaluating Warren’s wealth tax proposal. “It is difficult to value these assets on an ongoing basis. Imagine a large privately-held company—its value could change almost daily. How would the tax handle these fluctuations?”
It should be obvious to anyone who has had any experience with the U.S. tax system that you don’t get rich by investing in things that the IRS is eager to tax. You get rich by shielding as much of your net worth as possible in tax havens.
Politically expedient or economically necessary carve-outs and loopholes will also reduce the revenue one can expect a wealth tax to generate, says Chris Edwards, a tax policy scholar with the Cato Institute.
“If they were passed into law there would be all kinds of exemptions and exceptions like farmland. Rich people would move their wealth to those exempted areas and the government wouldn’t raise that much money,” he says.
So, it’s not as simple as sending the IRS trucks to the doors of rich people and emptying their houses of wealth. This much was discovered by Europeans who have already tried to tax the “super rich” and found that, lo and behold, they were never able to raise as much as the politicians promised.
This, adds Edwards, is exactly what happened in the 12 European countries that adopted wealth taxes. Revenue was disappointing, raking in on average about .2 percent of GDP. In the U.S. context that would work out to be a little under $40 billion a year, or about 10 percent of what Sanders is claiming his wealth tax will generate.
All but three of the European countries that adopted a wealth tax have since repealed it, citing low revenues, high administration costs, burdensome effects on entrepreneurship, and capital flight.
But Bernie’s message still resonates with doltish millenals who never took an economics course in their lives, or if they did, had their heads filled with Marxist dogma by equally doltish professors.
The Las Vegans Review-Journal warns of some of the dire consequences of Sanders’ fantasy:
“A wealth tax would have unknown effects on economic growth,” The Wall Street Journal reported. “The founders of successful companies would have a harder time holding on to controlling stakes as they grow.”
Meanwhile, Tyler Cowen of the Mercatus Center at George Mason University notes that a wealth tax would almost certainly lower “investments in human capital and the creation of new businesses.” That, in turn, means fewer jobs, lower wages and economic stagnation, hardly a recipe for uplifting lower-income Americans.
Bernie Sanders is plunging in the the latest polls because, as that tweet above clearly shows, he has been unable to soften the blow of his harsh message with honeyed words and sweet music. Elizabeth Warren, on the other hand, has couched her confiscatory rhetoric in more agreeable terms. It’s true in Mary Poppins’ world and politics that a spoonful of sugar helps the medicine go down.
Or in this case, it makes the hemlock less disagreeable.