Democrats suggest a Wealth Tax, which is a short-sighted money grab that could lead to the nationalization of businesses.
October 21, 2019
By: Bobby Casey, Managing Director GWP
Politicians like Bernie Sanders, Elizabeth Warren, and Alexandria Ocasio-Cortez like to hearken back to the Eisenhower era of 91% marginal tax rates. How wonderful that was!
It wasn’t. In fact the government didn’t see any higher percentage of GDP then than they do today, and the highest effective tax rate was in the low 40% range.
This whole 91% tax rate obsession liberals have is the economic equivalent of turning right on red to keep the car moving: you’re driving in a circle but at least you can show everyone that you’re moving.
It’s a show at best, but at worst it’s social engineering. The show is that when the deficits and/or debts grow, they can blame tax breaks for the rich rather than own up to their ridiculous drunken spending habits.
The social engineering purpose of high marginal tax rates was to compel wealthy people to reinvest in the economy “or else”.
This is how employer-provided benefits entered onto the scene. No one wanted to be in higher tax brackets, so companies reduced their tax burden by offering benefits, and kept the tax burden low on employees by offering non-monetary compensation.
There’s also the choice to expand and improve the company by opening new locations and buying newer and better equipment. But whatever you do: don’t hoard the money past a certain point, or the government takes it.
These were income tax rates. NOT wealth rates. Wealth and income are not the same thing. Income is part of one’s wealth… in the same way all squares are rectangles. But all wealth is not income… as all rectangles are not squares.
A distinction with a very clear difference, and one the liberals do NOT understand.
Politicians like Bernie Sanders and Elizabeth Warren are looking to do: a WEALTH Tax. They are conflating it with income because most people don’t know the difference.
Property taxes are a tax on wealth. Every year people have their real estate assessed and pay a percentage on some arbitrary county valuation. They’re paying taxes on the same non-liquid assets year over year, just for having it.
Half the states in the US require property taxes on your vehicle annually. This means people have to net enough income to cover the tax obligations on their non-liquid assets. This also means they never really own their car or real estate.
Now imagine if this happened with all non-liquid assets: stocks, bonds, boat, jewelry, art and paintings, antique or stamp collection, or savings on which they already paid income taxes.
Every year, they come for a piece of Jeff Bezos’ shares, and he has to liquidate that amount to pay. Do they keep taxing him down to the point where he no longer has the number of shares they think he “should” have?
Does the federal government come in and start assessing all assets, determine individual net worth, and tax that accordingly?
The mere thought of a wealth tax and the direction that could easily take should have people worried. Everyone regardless of wealth or income should not be okay with this.
First, there is the practical reason for why these people are all millionaires and billionaires. For better or worse, they provided something the masses wanted. The same people who complain of Mark Zuckerberg’s wealth are using his platforms to push their candidacy.
It might be fashionable to hate the rich, but it’s Walmart that made more goods and services affordable for more people and employs those who would otherwise not be able to get a job.
It’s Amazon that opened the entrepreneurial opportunities to countless people around the world.
Gripe all you want about Google, but Waze has saved people of all walks of life from catching a ticket.
And both Google and Facebook have entire advertising industries built around them.
They served numerous people by either making something more affordable, or giving them a means to make money.
Whether you have a side hustle or a full-time career around these large conglomerates, there is a ripple affect. They lose some, but you might lose a lot more.
If people are going to be punished for becoming successful, will there be any point in creating enterprises like these in the future? Will there be the next “Apple” or the next “Microsoft” in the US?
Second, politicians have this knack for looking at everything in a vacuum. Their assumption is, if policy X were instituted, everyone would continue to do exactly what they are doing in the volumes in which they are doing them.
That has NEVER happened. Every time an economic policy like taxes or wage hikes are instituted, people shift gears in the months leading up to that finalization date and long afterward.
Remember Trump’s tariffs? American exporters were rushing to get goods to China before the implementation date. Now people are getting laid off, and farmers are committing suicide.
Look at California and Illinois with their capital flight from all the onerous taxes and regulations.
Minimum wage laws, same thing. Businesses start cutting workers and their hours. People with fewer hours no longer qualify for health insurance through work.
Same thing happened with Obamacare. It wasn’t business as usual. The risk pool and premiums went through the roof when the preexisting conditions exception was lifted. All in, the needle was moved from 16% of Americans being uninsured, to 11%. The people who were told they could keep their insurance, couldn’t. The people who had insurance couldn’t afford it anymore.
What happens to stock prices when everyone knows you’re going to tax their valuation? They go down. When appraising the net worth of someone, you are looking at what their stocks are worth that day IF they were to try to sell. It’s a theoretical number because no one is cashing in their chips like that.
But to sell en masse over a tax policy will immediately devalue those stocks. Will they drop in value faster than the government can tax them?
Jeff Bezos who holds a lot of stocks in start-ups, the initial value of those stocks were zero. They appreciated because he invested in them.
What happens when people like him no longer invest because they know they will be punished for any success?
It’s not JUST Jeff Bezos. It’s Bill Gates. It’s Oprah Winfrey. It’s Mark Zuckerberg. Possibly Sundar Pichai of Google, Tim Cook of Apple, and Warren Buffet of Berkshire Hathaway. I think Bernie has his sights on about 400 people in particular.
These 400 or so people rush to sell their stocks at once to get below some tax threshold. Who would buy them?
That’s an interesting question.
Does a President Elizabeth Warren invite foreign investors in to buy up American corporate stock? No. Not Liz. LIZ wants to nationalize large enterprises, remember? That means, the government expropriates the stocks. The US government is a veritable trillionaire.
As Mark Hornshaw puts it:
“If you dislike productive billionaires, you ought to be 1,000 times more suspect of confiscatory trillionaires.”
Nationalization of businesses is where a Wealth Tax takes the US. If Warren or Sanders take office, there’s no doubt there will be a new exodus of American wealth and corporations leaving for just about anywhere else.
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