Wednesday, November 27, 2019

Taxing Wealth is not a Solution: Just Another Problem


Senator Elizabeth Warren, Democrat presidential contender, has found what she considers to be a pot of gold to fund her "Medicare for All" and other assorted largess. Warren is proposing $20.5 trillion in new federal spending under the "Medicare for All" proposal -- an amount greater than the size of the total federal debt accumulated over the last 80 years.
 
The Senator plans to introduce a wealth tax on the ultra-rich to pay for this program expansion. Since Warren promises to levy this tax on 1% of the population, this plan has resonated among the 99% who would pay nothing, at least in the beginning.  
 
Playwright George Bernard Shaw once said: "The Government that robs Peter to pay Paul can always count on the support of Paul."
 
There are a multitude of reasons that 9 of 12 European nations that adopted a wealth tax have since dropped it. Here are four: 
  • First, is the high cost of administration. How can administrators accurately measure wealth and collect the tax without incurring excessive costs?
  • Second, since initially introducing the tax at 3% of all wealth over $50 million, Warren has raised the rate to 6%. Just as the top federal income tax rate was raised from 7% in 1915 to 92% in 1953, it is likely that the rate and base would be expanded. Would the tax be expanded to eventually swipe the innards of the piggy banks for ambitious, successful teenage newspaper carriers?
  • Third, U.S. wealth, for example, corporate investment, would be moved out of the U.S. to lower tax nations.
  • Fourth, certain forms of wealth are virtually impossible to value. For example, Leonardo's Mona Lisa sold for $450 million in 2017. Will the buyer have to cough up $27 million annually to fund Senator Warren's Medicare for All? Furthermore, after paying $450 million for the painting, will the buyer have enough to pay this annual tax?
As one of the super rich, Bill Gates, who is giving away his fortune, advised Warren, "I implore you to connect the dots."  
 
Economic jealousy is no basis for a sound functioning tax system that aids, not depletes, economic growth.
Ernie Goss

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