Why the Wealth Tax Will Only Bring in a Fraction of What Supporters Are Claiming
The rich have always been with us. And no nation on earth celebrates wealth as much as the United States.
It's true there is much envy and, lately, hatred of the rich. Most of that is based on ignorance of how wealth in the U.S. is acquired. The socialists teach us (or, in the case of Warren and Sanders, broadly hint) that the rich acquire their wealth by "stealing" from the poor and middle class. Getting rich "off the backs of the working man" has been a Democratic Party theme since the 1960s.
The ignorant see wealth as a zero-sum equation, where wealth is like a pie and the rich have too big of a slice. Instead of seeing wealth creation as an act of faith, hope, luck, and hard work, resulting in more for all, they see wealth as a finite resource, greedily assimilated by the rich and hoarded to prevent anyone from sharing in it.
Over the decades, various tax schemes have been proposed to confiscate wealth from the wealthy, none of which have ever come to pass. But if a Democrat is elected president in 2020, that will change. The reason given is straightforward: some people have too much and the wealth must be confiscated for the good of all.
They promise the confiscated wealth will make America a paradise on earth — free medical care, free college, not to mention saving the earth from total destruction. Trillions upon trillions of dollars will fall into the hands of the poor and middle class (after passing through the hands of Congress and the bureaucrats) and we'll all live happily ever after.
There's only one problem: the amount of cash that the socialists expect to confiscate isn't anywhere near what they are promising.
But wealth is a mercurial thing, and more difficult to measure than straight income. Critics contend that a wealth tax would be crippled by avoidance schemes the rich would cook up. As an idea, a wealth tax may fire people up. But would it actually work?
Aside from the idiocy of trying to calculate wealth, there's a problem trying to collect it. It seems that rich people actually like being rich and aren't in favor of losing their wealth to a bunch of scruffy revolutionaries to be "distributed." So, they seek to hide their wealth in various perfectly legal shelters.
One of the arguments worth engaging with comes from Larry Summers, who's worked in previous Democratic administrations, and his co-author, Natasha Sarin, who point to the already-existing estate tax, which itself is a form of wealth tax. And revenue for the estate tax chronically comes it at much lower levels than you'd expect if you just ran the raw numbers on the tax rate and the amount of wealth it could hit. Summers and Sarin argue this is due to numerous evasion strategies: "questionable appraisals; valuation discounts for illiquidity and lack of control; establishment of trusts that enable division of assets among family members with substantial founder control; planning devices that give some income to charity while keeping the remainder for the donor and her beneficiaries; tax-advantaged lending schemes" to cite a few examples.
Oh dear. What's a socialist to do? Obviously, the answer is to "close loopholes" in the tax system. Easier said than done, that's for sure. Every "loophole" that benefits the super-rich also benefits others -- perhaps in a different interpretation of a rule, but operating on the tax system is like operating on the heart. You have to know what you're doing so you don't kill the patient.
Congress doesn't know what it's doing. And the likelihood that other tax dodges will be created by their tinkering with the tax system means that the rich will continue to hold on to their wealth.
Besides. all those glorious promises from Elizabeth Warren and Bernie Sanders are going to collide with reality.
As a crude intellectual exercise, they use the results of the estate tax to estimate Warren's wealth tax would only bring in one-eighth to three-eighths of the roughly $200 billion in annual revenue she calculates. They don't do this so much to claim their numbers are right, as to point out the enormous variances evasion can cause. (This same problem would also apply to Sanders' proposal, which is even more aggressive.)
You don't get rich in America by paying all the taxes you should owe. You get rich by paying as little tax as possible allowed by the law.
We all know that the rich could part with a few more bucks than most of them pay, so the concept isn't necessarily unacceptable. What is unacceptable and alien to the United States is confiscation. And, as we've seen in France and other European countries that have instituted a "wealth tax" only to rescind it later, tax increases never, ever, ever bring in as much revenue as predicted.
Sanders and Warren are selling the American people a bill of goods. Because eventually, in order to pay for their socialist schemes, they're going to have to start taxing those who most of us would consider a lot less than "rich."
And that means you, and me, and anyone who they feel has more than their "fair share."