Article by Christian Britschgi in "reason":
On Tuesday, Sen. Bernie Sanders (I–Vt.)
rolled out his plan
for a wealth tax on families whose net worth exceeds $32 million. The
purpose of the tax is two-fold: raise revenue for the senator's
high-spending domestic agenda, and eliminate supposedly unjust
concentrations of private wealth.
That would include anyone worth more than $1 billion, according to Sanders, who tweeted out
The New York Times coverage of his proposal with the caption "billionaires should not exist."
Verified account @BernieSanders
Bernie Sanders Retweeted NYT Politics
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.
His plan is similar to a wealth tax proposed by Sen. Elizabeth Warren (D–Mass.) earlier this year, which would
tax fortunes that exceed $50 million.
Despite
the ambitious aims of Sanders' wealth tax proposal, there are good
reasons to doubt that it will bring in nearly as much revenue as he is
projecting, let alone that it will abolish billionaires.
For
starters, the difficulty in valuing the wealth held by the rich on a
year-to-year basis would make a wealth tax hard and expensive to
administer compared to other forms of taxation.
"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?"
The current estate tax, a one-time wealth tax
on inheritance, is already a headache for the Internal Revenue Service
to administer, Kaeding and Pomerleau point out. The administration of a
yearly wealth tax would be even more difficult.
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.
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.
Sanders has a few ideas on how to make
administration easier and prevent the rich from evading his wealth tax,
including a "national wealth registry," a 100 percent audit rate for
billionaires, and a 40-60 percent tax on wealthy emigrants.
Fewer exemptions, however, means a wealth tax will have harsher economic effects, says Edwards.
"The
left-wingers have this idea that most wealth is gold bars underneath
the mattresses of rich people," Edwards observes. "Most wealth is
actually active business assets. It's the value of the assets that are
actively producing and employing people in production."
Taxing
these business assets would, in turn, mean less capital investment,
argues Edwards, and therefore fewer jobs or lower wages for the workers
who would have otherwise been made more productive by that capital
investment.
The innumerate problems with a wealth tax, coupled
with the fact that much easier means exist for the government to shake
down the wealthy, suggests that Sanders' proposal is less about policy
and more about signaling.
That is something
Reason's Peter Suderman
argued
in a recent video, observing that "the wealth tax is best understood,
not as a revenue raiser, but as a symbolic declaration of opposition to
the existence of outsized wealth, regardless of how it was obtained."
https://reason.com/2019/09/24/bernie-sanders-thinks-every-billionaire-is-a-policy-failure/
