The Problem with Elizabeth Warren’s Wealth Tax

02/09/2019           

“America will never be a socialist country,” President Donald Trump proclaimed in this week’s State of the Union Speech. Regardless of how much truth we see in this statement, there is little question who these words were directed at. As the Democratic Party has shifted continuously to the left over the last years, it has welcomed politicians to its club who dub themselves as flat-out socialists. Today’s stars of the Democrats are not the Clinton’s and Pelosi’s anymore, but Bernie Sanders, Alexandria Ocasio-Cortez, and Kamala Harris.

All of them have their own grand, ready-made solutions to all of America’s problems. The newest is the idea of a wealth tax, which Elizabeth Warren presented and heavily promoted in recent days. The general idea of her plan is that the value of the wealth of the extremely-rich (or, in her sense, the “too-rich”) should be taxed, for households with over 50 million dollars by two percent, for those with over one billion dollars by three percent. In total, 75,000 households, a proud figure, would be affected, and it is this wealth tax that Warren sees as one of her centerpieces in, as she says, levelling the playing field.

A wealth tax is not a new idea, though it certainly has come out of fashion recently – in 1992 twelve OECD countries had one, now there are only four.

One of the central issues of a wealth tax is that it is difficult to actually implement and enforce. As Nicole Kaeding and Kyle Pomerleau from the Tax Foundation write, “the uber wealthy tend to have very hard-to-value assets,” such as ownership in real estate holdings, trusts, and most importantly, businesses.

Calculating the overall value of the wealth of a household would cost an immense amount of time and effort. Jeffrey Levine notes that wealthy households own “one of a kind works of art, ‘priceless’ jewelry, expensive cars … the list goes on and on. And now imagine the need to have all these assets valued each and every single year. It would be a total disaster show.” What effect such a measurement would have on a tax code which already comes in at 2.4 million words can already be presumed. The only ones profiting from such additional complications would be appraisers and lawyers, who will have the privilege to find out what the value of one’s wealth even is approximately.

Considering that wealth is not homogenous in kind, it would also lead to some households being hit much harder than others. It is one thing to sacrifice the least bad items of your investment portfolio or use inherited money to pay the tax. It is tougher to obtain the same amount of money if you are a business owner, who needs profitable returns year in, year out. In contrast to higher income tax rates, a wealth tax would also have a much more significant effect on one’s tax burden, since an annual tax on wealth would affect ones entire wealth every year, rather than “just” the newly accumulated income.

Of course, Elizabeth Warren not only wants to implement a wealth tax for being on the search for new funding of her costly projects, but also because “the rich” don’t pay their “fair share.” Disregarding the questionable assumption that letting those who are successful pay a much bigger share than the others would be fair, “the rich” already pay much more than the rest of the population anyway. Even Warren is admitting that when shesays that the top 0.1 percent pay 3.2 percent of total taxes, which is more than six times the share as the bottom 50 percent. The top 1 percent, meanwhile, pays a greater share of income taxes than the bottom 90 percent combined.

All of this is not to say that Elizabeth Warren is wrong when she says that “Washington is broken.” She is right when she says, like in a recent Bloomberg interview , that the system is stacked against the Average Joe, that “right now it works if you are a billionaire” or a “giant multinational corporation” or someone who is “wealthy” and “well-connected.” That the system is broken is one of the main reasons why someone like Donald Trump could ever become President (or even have a chance).

But the reason for this is not that government isn’t doing enough so far. It is instead that the government is doing too much, regardless of whether we talk of regulations and laws that are influenced by politically well-connected corporations and lobbyists, of a political elite that is wholly disconnected from their voting population, and certainly also of a financial system from which, every day, some profit from, while normal people further down the ladder lose out.

Not only that Washington is broken, however – it is broke as well at the tune of 22 trillion dollars. Warren’s wealth tax would raise 2.75 trillion dollars over the next ten years which she intends to not use on paying off debt, but on more spending on child care, lowering the student loan debt, and the “ Green New Deal .” Indeed, no confiscation from “the rich” of any kind could finance any programs for long. As Antony Davies noted , confiscating, for instance, the entire wealth of the 550 billionaires in the US, which would raise 2.5 trillion dollars, would be just enough to run the federal government for less than eight months. Washington’s problem is not revenue then, but spending.

So while Elizabeth Warren may be correct that the system is broken, she is quite wrong in how and why it is broken, and how to fix it. Instead of intervening even more in people’s affairs as she proposes, fixing the system would mean taking the state out of the system and, when not feasible, at least decentralize it away from Washington to state and local governments.

“Capitalism without rules is theft,” Warren says. But instead of financing “the Swamp” even more, real capitalism (i.e., a free market system based on private property rights and voluntary exchange) might just be the way to fix the system.

 

Kai Weiss is the Research and Outreach Coordinator at the Austrian Economics Center and a board member of the Hayek Institute. Follow him on Twitter.

 

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    The problem with Warren’s wealth tax is that it’s a tax.

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      Exactly. Do the ordinary people who support this nonsense really believe Liz is going to divide up the loot among them? Do they not understand that much of it will be handed to the likes of Lockheed Martin and Humana? But wait: I get to vote. Yay democracy!

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    Billionaires don’t bury their wealth in the back yard. Wealth is invested where it creates jobs, produces goods and services. Those investments do far more to fight poverty and lift people up than any get even Tax the democrats foist on them. Billionaires don’t get rich on bad investments and they have good reason to see that the money is properly used. No one can say any such thing about Americas Welfare system, and politicians don’t care if it works or if its corrupt as long as they get the credit for (Helping the poor).

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    The wealth tax is more about satiating resentment than it is even about funding social programs, but according to the figures in the article, to confiscate the wealth of all the billionaires in the US would provide only a one-time payment of less than $775 per citizen. We are not funding any social program for $775 per person. That is $.80 a month for a person who lives to age 80. Plus, we could never convert that wealth to that same amount of cash.

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      A few months ago, I ran some numbers – confiscating the wealth of the top 20% would finance the government(s) of the USA for almost… almost! two years.

      As noted in the article, the problem is not income, it’s spending.

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      Isn’t one of the points about Marx’s manifesto that the rich have their stuff confiscated so that they, in essence, don’t get murdered by the mob?

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    “It is clear that the wealth tax levies a heavy penalty on accumulated wealth and that therefore the effect of the tax will be to slash accumulated capital. No quicker route could be found to promote capital consumption and general impoverishment than to penalize the accumulation of capital. Only our heritage of accumulated capital differentiates our civilization and living standards from those of primitive man, and a tax on wealth would speedily work to eliminate this difference.”

    ~Rothbard, MES w/ PM, p. 1191.

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    “Capitalism without rules is theft”.

    Leave no logical fallacy unused is her motto it seems.

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    The $50 million and $1 billion thresholds make even the quite-well-off think they’ll never be touched by this, so yeah, go ahead and stick it to the ultra-rich. But isn’t that exactly the way the income tax was sold long ago? Nothing to see here, average citizen, so move along.

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    “Calculating the overall value of the wealth of a household would cost an immense amount of time and effort.”

    No, it would actually be impossible. The REAL value of these assets is subjective and incalculable, and the NOMINAL dollar-value is subject to constant and drastic fluctuation under our absurd regime of purposeful asset-price inflation (that necessarily invites periodic “corrections” in asset prices as its corollary).

    What Warren wants to do is akin to addressing rampant counterfeiting by way of charging those counterfeiters a fee for the continued privilege of printing money. Want to charge me a billion dollars extra? Okay, hang on a minute while I go down to the cellar to run that off for you.

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    Loudmouth leeches like Warren depend on an endless supply of stupid people coming out of the government schools to keep their scam going. People whose heads are filled with fantasies of rich people frolicking in swimming pools filled with $100 bills. They have no clue that our standard of living would not be possible without the capital that the wealthy provide.
    It is the poor who don’t pay their fair share – in terms of saving, investment and risk-taking. Instead of “Capitalism without rules is theft,” it ought to be “Consumption without investment is the end of life as we know it.”

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      I recently heard an interview with an aging rock star who estimated that he, his band and his various other business interests have generated nearly $1B in tax revenue in addition to the wealth created for hundred of employees and partners over the previous fifty years or so. Yet at least tens of millions of US citizens would look him square in the eye and tell him that he has not contributed his fair share.

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        I think it bothers me less that the cult of envy doesn’t think the rich pay enough in taxes than it does that they are so clueless about the role played by the rich as far as capital is concerned, and how their wealth benefits others. They might concede that the rich do pay some taxes and create some jobs, but aside from that, their view of wealth is cartoonish. They imagine fat guys with hot wives hoarding big bags of cash and only getting some out when they need another yacht or something to light a cigar with. If a poor person comes begging, they yell, “No! My money!” and slam the door in his face.
        If someone has a job but doesn’t make enough to owe income tax, he still “contributes” through payroll tax and sales tax, so there is some validity to his claim that he is paying his share to the government. But if he is saving nothing, investing nothing, and taking no risk, he is not paying his fair share in the formation of capital, which of course is what creates prosperity for the masses. He has never experienced the high of starting a business and making his first sale, or the terror of losing his biggest customer the day before payroll is due. His tiny, state-manipulated brain can’t think beyond zero-sum, which is exactly how Warren, Sanders and AOC want it.

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          You are correct. It is not feasible for many reasons, but I almost think it should be requirement that any person running for state office or higher should have legitimate experience as an entrepreneur so that they learn that these assets do not just spring up out of the ground.

          On the other hand, the progressive sh!thole state I live in just elected a multi-billionaire democrat as governor and he is poised to sign a bill within his first 30 days to nearly double the minimum wage over the next six years. So real world experience did not help him much.

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    Just what we need, more resources being funneled away from the productive economy into the pillage economy.
    I’m so tired of public schools, it is the fact that young people are herded in these camps and not given any education that keeps this sheeeite rolling.

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    “Capitalism without rules is theft,” Warren says. This woman is just as dizzy as AOC. She lies about being an native American just to reap the benefits of affirmative action which I would call being a thief. She is a typical socialist that things she has a better plan than the other socialists. It is going to end bad for her and AOC and if it doesn’t for them than this country was great while it lasted.

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    Wealth confiscation is certainly among the next things that the statists will push for.

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    “She is right when she says, like in a recent Bloomberg interview, that the system is stacked against the Average Joe, that ‘right now it works if you are a billionaire’ or a ‘giant multinational corporation’ or someone who is ‘wealthy’ and ‘well-connected.’”

    Which is why its so insane that social democrats concede this (that many of them benefit from the system), yet their solution remains more government.

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    Wealth taxes push the wealth owners to in many cases abandon their property which then is there for the taking by govt parasites like Warren and her goons. The whole point of a wealth tax is for her to be able to pay her paramilitary forces of democracy. Look at Venezuela and see how politicians paid their political gangs with expropriated loot.

    Pocahontas is nothing but a banana republic thug.

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    All taxes are wealth taxes because they would be unpayable without wealth.
    If we want capitalism, we’ll have to destroy the government regulation that has always collapsed it.

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    There already are wealth taxes in the US — they are called “property taxes” levied by local governments. Elizabeth Warren is just catching up the federal government with the local school board and a myriad of local government taxing authorities which levy a wealth tax on property owners whether they use these local services or not.

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      Property taxes aren’t exactly wealth taxes. For example, I have very little wealth, but I pay property taxes even though I rent because my landlord passes those taxes on to me.

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        It’s just a matter of tax incidence. Your landlord passes his wealth tax (paid in the form of property taxes) on to you to pay as his renter. It’s still a tax on wealth, it’s just not your wealth even though you end up paying it. Some argue that property taxes are a more “efficient” tax for government revenues because they are harder to avoid than income taxes. But, that’s only true in a limited sense since property owners can and do reduce their property tax liability by not improving or upgrading their property. Or, wealthy individuals simply flee to lower tax jurisdictions.

        Warren’s wealth tax would likely just drive wealth and investment off shore.

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        Property is wealth. Therefore any tax on that property is a form of wealth tax.

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    “We need a wealth tax”, says the cultural appropriator… and when we are reduced to the state of a primitive tribe… “we need to blame the rich”, will say the $200k/credit tenured Professor.

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    “for households with over 50 million dollars by two percent, for those with over one billion dollars by three percent.”

    Interesting that she didn’t start with her own net worth of S8M.

    The wealth tax should also tax salaries above $200k/college credit.

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    “America will never be a socialist country,”…

    Too late… America is a socialist continent and the US is already a socialist country.

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      Is Denmark socialist?

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        It is more Socialist than some countries and less Socialist than most countries.
        How does one measure the level of Socialism?
        One measure might be the proportion of the economy that is controlled by that government in spending and regulations. Since Denmark’s government spends 53% of their economy, it is a no-brainer to consider them mostly Socialist.

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        No it isn’t Phil. It is a capitalistic country with a welfare problem. This country is the same. As Mises says you can’t combine socialism and capitalism. There is no such thing as a mixed economy.

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          The US is far away from being a capitalistic country. US government spends 38% of the economy ($19 Trillion GDP) and regulates the hell out of most of the economy. It is estimated that regulations cost the economy $1.9 Trillion dollars last year. Considering that the government spending (a form of control) was 38% of the economy at over $7 Trillion, that would mean that US Government control of the total economy (Socialism) is very close to half of GDP.

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        I don’t know. Is it?

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    It is NOT difficult to Enforce a WEALTH tax. FDR did it, we had it up until Reagan Cut the Taxes on the wealthy and Bush did not put it back where it belonged. All backed by Wall Street, The Investment Banks, Mises U.,Goldman Sachs, JP Morgan, The Big biotechs, Arthur Laffer, Mr. Friedman, and of course Volcker and the Jewish Federation of Banking in the USA “the FED” all disagreed with a large tax on the rich, how amazed should the Poor working class be at this amazing revelation ?
    Mises University is the Basic Foundation school that is here to represent the rich and POUND into the Ground poor working class.
    What has not worked since 1985 ? This : Milton Friedman stated, “Reaganomics had four simple principles: Lower marginal tax rates, less regulation, restrained government spending, noninflationary monetary policy. Though Reagan did not achieve all of his goals, he made good progress.”

    Around every corner is a pundit to tell you why it does work, or trickle down will work, or, a cut tax for the rich will stimulate the economy. Of course, a one time temporary tax cut in the 80s stimulated the economy after 50 years of heavy tax on the rich AND WORKING class. It took money from the govt. put it in the peoples pockets and they spent it. Since this time we have gone down hill. Mises is part of that fall. They pay people to BACK their angle, to back the rich, to keep the money flowing up and to take from the working class.
    The only problem we have now is, HOW long will it take the WBLPSA, etc, to catch on ? Either a revolution, or death, murder, assassinations, whatever it will be, how far will the Peter Schiff’s, the Carl Icahn’s, and the Bill Ackman’s of the world be willing to push to squeeze every last penny out of every 401k, pension plan, medicare, medicaid, Social Security, etc. They want it all and the working class are just in the way. When it comes to money and Greed, some will do anything to have it all. They have no compassion for another human. In their eye’s, money and power are the end game, if every other human on the planet is Broke, so be it, not their problem.
    The FED right now is destroying our Country, 122T in underfunded liabilities. Yet people will still vote in career politicians like Clinton, or a Putz like Trump.

    see more

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