Even her fellow Democrats are challenging Elizabeth Warren on how she will pay for her big spending proposals. Her answer to that relies very heavily on her proposed wealth tax. She clearly thinks it will be a goldmine. There have already been some good comments on why such a tax will be very destructive but I just want to set out the kernel arguments about why such a tax will raise little if anything.
For a start, great wealth is not usually held in the form of bank deposits. It is almost all in the form of real estate, shares and other tangible assets -- so liquidating even a small part of that would depress asset prices generally. And that will depress spending and investments across the board. It will affect the wealth of large sections of the population, leading to very negative feeling among job creators. Unemployment would shoot up and income tax receipts would be reduced.
And the second effect would be large scale emigration among the wealthy. Some nearby Caribbean islands are pleasant places to live in the sun and many have very low tax rates. To escape the tentacles of Uncle Sam, the emigrants would also have to renounce their American citizenship but many retirees do that already. And You only have to bring a few million with you to be granted residence in Australia or New Zealand and you can definitely drink the water there. And there is never any need to press 1 for English. A lot of rich people have well-appointed bolt-holes in NZ already.
And when the rich move out, they take their income taxes with them -- as well as escaping a wealth tax. And the rich pay a big proportion of income tax so, once again, tax revenue would FALL.
Even if she can't tax the departed rich Warren might have the bright idea of taxing any assets left behind in the USA. But that would lead to a mass liquidation of assets, with the proceeds of that going to purchase assets elsewhere.
High taxing Leftist governments have encountered that problem before and their response is to make the currency not convertible -- so you can't use greenbacks to buy (say) New Zealand dollars. But that drives away all foreign investments, which are a major source of jobs in America. So Warren's "clever" proposal would lead to lower revenues and higher unemployment.
She seems a smart sort of woman so she probably knows all that. As a Leftist, the thoughtof destroying American prosperity probably turns her on
Warren would apply a 2% tax on every dollar of net worth for households worth $50 million or more, and a 3% tax on every dollar of net worth beyond $1 billion.
According to tables in a recent paper by Saez and Zucman, this would apply to around $11 trillion of holdings this year, producing revenue of at least $220 billion.
Sanders’ “extreme wealth tax” would levy a 1% tax on the first dollar of net worth above $32 million. That tax would rise in increments, to 2% on net worth between $50 million to $250 million all the way up to 8% on wealth above $10 billion.
Sanders’ campaign estimated the plan, which would tax just the top 0.1% of U.S. households, would raise an estimated $4.35 trillion over the next decade.
Saez and Zucman say their research points to the wealth tax as an effective way to equalize the amount of tax paid by people with massive fortunes like investor Warren Buffett and Amazon founder Jeff Bezos with the middle-class, and then seed the proceeds through the economy.
Had the Warren proposal been in place since 1982, the share of wealth held by the top 400 would still have risen - but only to 2%. A higher tax rate of 10% on holdings above $1 billion, meanwhile, would have kept that group’s share of national wealth stable.
In more individual terms, the 3% rate on holdings above a billion would mean Bezos would be worth just $86 billion this year, versus $160 billion. At the bottom of the top 15, casino mogul Sheldon Adelson would have $18 billion, versus $35 billion.
A dozen European nations used to have wealth taxes but most have done away with them. France, one of the last, abolished its wealth tax in late 2017, after thousands of millionaires relocated to neighboring, lower-tax countries.
Saez and Zucman argue that Europe’s history with wealth taxes is not relevant to the United States because those countries set their wealth tax bar too low, and because it is easier to relocate within the continent for favorable tax laws.
The U.S. tax system, on the other hand, essentially taxes all citizens, no matter where they live.