The media praises Elizabeth Warren as the 2020 candidate with “a plan for everything." Many of her supporters are drawn to her because she is clear about what issues are important to her and what she will do to improve or solve the problems she sees.
One of the core issues of her campaign is “Rebuilding the Middle Class,” and her plan to do this is fairly simple: Tax the very richest Americans on their assets and then redistribute the money to the rest of America. While this might work on paper and appeal to many who are angered by the fact that some people have more money than them, this idea is not new, and when it was tried in the past it failed to achieve its goals.
The Ultra Millionaire Tax
The purpose of the “Ultra Millionaire Tax” is to curb the growing concentration of wealth in America. According to Emmanuel Saez and Gabriel Zucman, the two left-leaning University of California-Berkley economists who wrote Warren’s policy proposal, the top one percent richest Americans own the same amount of asset wealth that the bottom 95 percent has. This figure, which is sourced by them, is proof in their eyes that America is in an inequality crisis.To help stop this “crisis,” anyone with over $50 million in assets will be taxed annually for two percent of that value, and anyone with over $1 billion in assets will be taxed at three percent. This will be implemented by expanding the IRS bureaucracy, having these tax collectors appraise the value of the property (her website doesn’t address that there could be a conflict of interest), and having a mandatory annual audit rate to make sure everyone pays—and if you dare try to renounce your citizenship because of this tax, then the IRS will seize 40 percent of what you own as an exit tax.
America prides itself on being the “land of the free.” While our country hasn’t always lived up to that ideal, we have worked closer to it as we have moved forward. The “Ultra Millionaires Tax” is a step backward from that ideal. It is a first step in eroding property rights, and the exit tax is a declaration that you are not free—you belong to the state. As it is proposed now, this plan is most likely unconstitutional should the Supreme Court ever need to decide.
Likewise, the mandatory audit rates will create an unnecessary burden and expense to honest taxpayers, along with a lot of stress. But the goal of this proposal is to whip up populist anger against a tiny minority of the country that will translate into votes for Warren. Statements directly from her website, like "The 400 richest Americans currently own more wealth than all Black households and a quarter of Latino households combined," are crafted to appeal to Black and Latino Americans as victims suffering under a tiny elite that has been oppressing them.
One should also look at the policy’s primary purpose to understand its key flaw. It’s not here to lift people out of poverty, it’s here to combat inequality. Today, the vast majority of American households have electricity, plumbing, TV, food, air conditioning, and cars. Americans enjoy one of the highest standards of living in the world. Today’s middle class enjoys things that yesterday’s ultra-rich could only dream of. There wouldn’t be an equality crisis if people were unaware that others were living in bigger houses than them. A more accurate term should be “jealousy crisis.”
Probably the biggest practical issue of the Ultra Millionaire’s Tax would be how an individual’s assets will be appraised. It is very easy for unrealized values to be inflated by a government bureaucrat whose livelihood comes from the number of tax dollars he could rake in. Likewise, the mandatory audit rates will pressure those doing the audits to find issues that might not really exist in order to justify their job performance.
The economists who wrote this plan estimate that 75,000 households will pay the tax, and that will generate $2.75 trillion over ten years. Warren proposes that this money can fund programs like universal childcare, student loan debt relief, down payments on the Green New Deal, and Medicare for All.But performing a little research shows that the money from this tax would not fully fund her economy that works for everyone. The only thing this plan can fund is less than three years of current federal spending when it’s combined with every other existing tax.
The general idea that the federal government would be effective at wealth redistribution by taking it from the rich, who don’t “need” all that wealth, and then giving it to the poor already has a shoddy track record. Six of the ten richest counties per capita are in Washington, DC, suburbs. It appears that most tax dollars that reach the capital never leave it because the government spends it on large staffs with salaries that average $110,000 a year plus generous benefits.
Wealth Taxes Have a Lackluster Performance History
Senator Warren’s Ultra Millionaire Tax might be a new and radical idea for a major US presidential contender to propose, but other countries have tried wealth taxes before, and the majority of those that did later repealed them. In 1990, 12 member countries of the Organization for Economic Cooperation and Development had imposed some form of a wealth tax on their citizens. By 2017, that number declined to only four member countries, a 66 percent decrease. If this was such a “great” policy idea, then why didn’t the trend move in the other direction?
In France, where wealth taxes still exist, millionaires have been leaving the country by the tens of thousands. And along with this exit of citizens is an exit of tax revenues. Before, these people paid income taxes, but the wealth tax was seen as too much for them. They left, and now the French government no longer collects any revenue from those people.
This is why Warren’s plan imposes an exit penalty on anyone who wants to renounce their citizenship. She understands how people will react to this policy, and she wants to restrict their freedom to make the already difficult choice to leave the country they call home.
The left-leaning economists proposing this policy expect to raise $2.75 trillion dollars over 10 years. Conservative economists believe this plan and other extreme tax-the-rich plans will actually cause the government to take in less money in the future than it would under current tax rates. Even if this policy did have any positive net effect on tax revenue, the pitch that it could fund a lot of wonderful new spending promises is at best naive and at worst deliberately dishonest. The federal government cannot even fund its current spending and is $22.5 trillion in debt.
This policy proposal should be a red flag for anyone who believes in personal responsibility, free markets, hard work, and private property. It should be a red flag for anyone who believes in the Constitution, freedom, and the idea that “those who don’t know history are destined to repeat it.” If Warren becomes the next president, America will most likely see its wealthiest citizens flee the country—along with their capital and moveable assets—before this policy has a chance to go into effect.
I’m far from being a millionaire, which makes me further than being an ultra-millionaire. I’m well aware that there will be people who will skim over what I’ve written and then deride me as a tool protecting the rich when I should be picking up a pitchfork and demanding my share because it would be “in my best interest.” Warren’s campaign has carefully crafted this policy proposal to appeal to the emotional outrage with divide-and-conquer techniques. Only a tiny percent of Americans would have to pay this tax in its current form, and her supporters believe that these people need to “give back” after “taking” so much from American workers. So why should I, a plebian, dare not just go with the program?
Aside from all of the issues I mentioned before with this wealth tax, I absolutely believe that the qualifications for those who will pay it will become looser and will affect more and more Americans and eventually the entire middle class. The argument from President Taft in 1909 that an income tax would only apply to corporations and only be a modest two percent was the pitch that sold the 16th Amendment to the American people. Look at how that pitch has played out in reality.
Daniel Kowalski is an American businessman with interests in the USA and developing markets of Africa.