Senator and former presidential candidate Bernie Sanders has another bright socialist idea: A 60% wealth tax on billionaires to pay for nationalized health care for a year. Such nuttiness would be easy to ignore were it not for the fact he’s now the driving intellectual force behind Joe Biden’s basement-based presidential campaign.
As any economist worth his salt will tell you, a wealth tax is perhaps the most pernicious tax, since it punishes people retroactively for their hard work, thrift and smart investments.
Not only does it dissuade people from accumulating wealth, but it also dramatically reduces the amount of capital in our economy. Everyone will be poorer, with lower incomes for all and fewer jobs as the inevitable result.
We already had this debate, if you recall, last year. Both Sanders and his socialist pal Sen. Elizabeth Warren both brought it up. It was one of the many reasons why voters rejected both Sanders and Warren, favoring instead the mentally challenged Biden.
Yet, the wealth tax keeps getting burped up like a bad meal. Maybe with COVID-19 lockdowns and the public’s very real economic worries, the Sanders-led left (and, by extension, Biden) thinks it can take advantage and finally get a wealth tax passed. Or maybe it’s just political theatrics.
To sweeten the deal, Sanders says the wealth tax will last for only a year, and the money would go to Medicare to pay Americans’ health care bills.
“The legislation I am introducing today will tax the obscene wealth gains billionaires have made during this extraordinary crisis to guarantee health care as a right to all for an entire year,” Sanders said in releasing his plan.
Americans would be foolish to fall for the madness.
Let’s start with the most basic argument: experience. European countries have tested wealth taxes, and were sorely disappointed with the results. They found the taxes added far less in revenue than their economic models anticipated, and actually slowed economic growth.
No surprise, really. People who were hit hardest by wealth taxes simply pulled up stakes and moved elsewhere.
“The French try to tax wealth per se, and that is a big reason why so many French people have ended up in London,” wrote George Mason University economist and blogger Tyler Cowen in 2017. “People hate this, feeling they’ve already ‘given at the office.’ “
In 1996, some 14 countries of the 37-nation Organization for Economic Cooperation and Development taxed wealth; this year, just four do, OECD data show. Wealth taxes are mostly not worth it, as nation after nation has determined.
According to the OECD’s own research, wealth taxes of any kind damage risk-taking and entrepreneurship, reduce innovation and hurt long-term economic growth. The very opposite of a healthy economy.
“With so many countries having adopted and then abandoned a wealth tax, perhaps the U.S. should avoid adopting one in the first place,” the nonpartisan Tax Foundation warned in a 2019 research report.
Would a President Biden, whose platform was co-written by Sanders, let a wealth tax lapse after one year, as promised?
No. People forget that in 2015, President Barack Obama proposed a “one-off” wealth tax on corporations’ cash holdings overseas to raise $282 billion for infrastructure spending.
But it didn’t take long for that proposed “one-off” tax to morph into a dream of permanently higher taxes on the rich. “(T)here’s an emerging Democratic consensus over what’s next — children and family policy,” Vox writer Matt Yglesias wrote back then.
Expect the same thing this time.
Moreover, Biden’s team has already proposed a massive tax hike on successful Americans, with some $4 trillion in new levies planned for the next decade.
Today, with 640 billionaires in the U.S. sitting on roughly $3.4 trillion, a 60% tax on their wealth earned this year would be huge, given that it would be imposed on all gains from March 18 — about when the stock market crash ended.
As CNBC noted in March, “while Wall Street may view Biden as more moderate than self-declared democratic socialist Sen. Bernie Sanders, investors would still face dramatic tax increases under his proposals, including higher rates on both ordinary income and capital gains. Corporations would also be subject to a significant rise in taxes at home and overseas.”
Add to that an onerous and patently unfair wealth tax on billionaires, and it’s clear that Sanders-inspired Bidenomics will lead to stagnation and economic misery.
Of course, billionaires are everyone’s favorite targets for taxes because, well, they have lots of money. Even some conservatives applaud going after them. And to be sure, billionaires will be just fine after the tax. They won’t be skipping meals or emptying loose change from piggy banks to make ends meet.
But even some economists on the left warn of the nasty effects of taxing the mega-rich, especially on job-creating investment.
“A wealth tax increases the incentive to consume instead of save and invest,” said economist Larry Summers, President Bill Clinton’s treasury secretary and head of Obama’s National Economic Council.
Contrary to popular myth, billionaires don’t sit in a room all day counting their piles of gold coins and lighting cigars with $100 bills, like latter-day Scrooge McDucks.
No, billionaires put their money to work, building new companies, creating fresh products and hiring thousands upon thousands of well-paid people. This is why America has the biggest and wealthiest economy on Earth. And why millions of foreigners seek to move here each year.
Slash the wealth of our most capable entrepreneurs and business builders, as we noted above, and you will have fewer jobs, fewer businesses, and lower wages.
This is yet another area in which the gap between the two sides of the political spectrum is enormous, and likely unbridgeable. It is a fact that if you tax something, you get less of it. Want to choke prosperity in America? Fewer jobs? Less opportunity? Just tax wealth, the main source of investment and economic growth.
In case you haven’t heard, the most powerful acronym in all of economics is TANSTAAFL. It stands for “There Ain’t No Such Thing As A Free Lunch.” We ignore it at our own peril, especially when it comes to a wealth tax.
— Written by the I&I Editorial Board