The newest tax scheme to become a darling of the Democrats is the wealth tax.
It is currently used in several European nations such as Spain and France. France, which currently only taxes real estate assets of over €800,000, has decided to have a national real estate tax in essence. Spain charges a tax on worldwide assets over €700,000. This is not the billionaires’ tax that Senators Warren and Sanders have claimed it is.
Austria, Denmark, Finland, Germany, Iceland, Luxembourg, and Sweden have eliminated their wealth taxes as too complicated to enforce for the tax revenue received. While a wealth tax might sound good, the Warren bill would collect it on all assets. It would be easy to do so on publicly traded stocks and real estate, but there would be years of wrangling between the government’s appraisers and the asset owners over the value of something like artwork.
They are calling it a billionaire’s tax, but we all know how today’s billionaire will become tomorrow’s upper middle-class taxpayer. Just look at the alternate minimum tax that was devised for the wealthy and has ended up socking many that are not. A wealth tax to capture the Bezos billions will probably not work any better than the other schemes. It will just add another layer of complexity to an already complex system.
It is true that under current law, someone like Elon Musk (who is not paid a salary but receives stock) would pay no tax until he sold the stock and then as a capital gain instead of ordinary income. But the easy way to fix that would be to tax stock options as income when the company gives them to an individual and at the same rate that ordinary income is taxed which is what he would pay on a salary.
Another billionaire tax avoidance measure is that they borrow against the value of their assets and pay low interest of a couple of percent. This saves them selling assets to maintain their lifestyle and paying higher tax rates. Their wealth continues to accumulate because they never dispose of any assets. Again, the government just needs to tweak the code so that the loan proceeds are taxed as income and the interest would not be deductible as a business expense.
The United States tax code is currently so complex that many of the well-off are allowed to shelter their income through a variety of exemptions, deductions, and avoidance strategies. If we would begin taxing all income at the same rate regardless of how it is earned and remove all deductions and exemptions, the need to come up with a wealth tax or any other arcane proposal would not be needed.
I am not in favor of the U.S. instituting a VAT, but it would raise so much more revenue than any proposed wealth tax. Unfortunately, it hurts the people who can least afford it by taxing everything that is bought. Exceptions can be made, but once again we then make the VAT complicated to administer and enforce.
I would much rather see us continue to eliminate the complexity of the income tax, tax all income at the same rate, and tax from the first dollar of income received regardless of the source of the money.
The Sanders/Warren wealth tax may sound like a good deal, but it is not. The Sanders/Warren wealth tax may make some Americans feel as if they are sticking it to the billionaires, but it will not raise enough revenue to pay for the intended programs. That will only be accomplished once the deductions and exemptions that billionaires and many people who are not in that category use to shelter income are eliminated.
As you can see in the bill now moving through congress, the SALT deduction is back up to perhaps $80,000. That is not making our tax system fairer. The American people should be demanding less of that and looking at capturing all taxable income. Such a change would not only allow for the social safety net that most Americans want but also allow tax rates to be reduced.
A wealth tax started out as a good idea and was widely instituted in Europe. As we have seen, however, the very idea of what constitutes wealth is now a mere €700,000 ($802,000) in Spain and real estate valued at €800,000 ($917,000) in France. That is not exactly billionaire status.
Family farmers and ranchers may be land rich, but dollar poor…do we want even more corporate farmers? We should simplify our tax system and not make it more complicated. A wealth tax is just a bad idea.