Feed Me More
There is one certainty coming out of these Democratic debates: The 2020 candidates have a lot of ideas that will change the fabric of the nation and make the country’s dire financial situation even worse. But one proposal that is nearly universally accepted by the party is a wealth confiscation tax, a major policy measure endorsed by Sen. Bernie Sanders (I-VT) and Sen. Elizabeth Warren (D-MA). The former recommends a penalty ranging from 1% to 25% on wealth greater than $32 million and the latter wants a 2% to 3% levy on every dollar of net worth exceeding $50 million or every buck over $1 billion.
But will it work? Well, if other nations have dropped the mechanism, then the answer is probably no.
In 1990, a dozen Organisation for Economic Co-Operation and Development (OECD) members introduced a wealth tax. After 29 years, only four still have it: Belgium, Switzerland, Spain, and Norway. There are many reasons why the rest of the countries ditched the tax and so few countries have entertained the idea at all.
First, it is hard for governments to administer a wealth fine, mainly because the rich have a lot of investments that go beyond stock ownership. The rich maintain real estate holdings, business ownership interests, trusts, and the list goes on, which makes it hard for bureaucrats to calculate an accurate value.
Second, wealthy folks can either flee the country or ship their capital overseas. You have to give credit to Sen. Sanders for thinking this through though. He is calling for a national wealth registry, a 40% exit tax, and routine IRS audits. These are unlikely to happen under a Sanders administration, but installing such a tax is feasible. That said, many millionaires and billionaires have the resources to expatriate and search for tax havens – and you cannot blame them.
Third, anytime jurisdictions introduced a wealth tax, there was an immense decline in investment and jobs. So, sure, the left may want to punish the affluent, but they are also hurting low- and middle-income earners.
Fourth, OECD states saw their revenues from high net worth individuals fall as the years went by. So, it might not have even been worth it to track, monitor, and litigate with rich people.
Overall, a wealth charge can affect innovation, prevent risk-taking, restrict entrepreneurship, and impact long-term economic growth. It might make progressives feel good to soak the rich, but it is a policy that generates unintended consequences.
Clipping Coupons on Wall Street
Do you know the real enemy of the United States? Those evil coupon clippers in the stock market, at least according to former Vice President Joe Biden, who may or may not have been trying to be humorous when he delivered this line. The comment was followed by Biden vowing to eliminate the capital gains tax (yay!) before correcting himself and promising to double it (boo!). He also slammed an estimated $1.6 trillion in tax loopholes – capitalism breathes through loopholes, as the great Ludwig von Mises wrote.
Ultimately, Biden believes that it is time to reward work, not wealth. But, to quote Sen. Kamala Harris’ (D-CA) go-to line when she does not want to commit to something, let’s have a conversation.
When the former vice president says we should reward work not wealth, does this imply that making money on the stock market is not work? It is common today for people to say that putting money in the stock market is another form of gambling. This is nonsense. Buying shares in a company you think is going to do well is a lot different than tossing dice or putting $1,000 on red – one contains skill and the other is just luck.
Before you buy 500 shares of Animotion Incorporated, you should perform several tasks first:
- Read the latest corporate quarterly reports.
- Check some key metrics (52-week high/low, P/E ratio, dividend yield, etc.).
- Determine Wall Street’s various price targets.
- Peruse company news, industry trends, and market forecasts.
- Find out internal trading (are executives buying stock or unloading shares?).
You do not get rich in the market by just picking random tickers. There is more to buy low and sell high.
A Little More
The Democrats repeatedly accused the rich of not paying their fair share during the latest fight night. It was the same old song and dance: If they paid only a little more than we can get all this free stuff. Then, in several years, a little more. Then, a couple of years later, a little more. This whiny plea really tickles the progressive bone of left-leaning voters.
But how much more could they possibly pay to satisfy the appetites of the left? The term fair share is pretty arbitrary, and they already pay most of the nation’s taxes.
As Liberty Nation reported in April 2018, the top 50% pay 97% of income taxes and the bottom 50% pay next to nothing. If you wish to go deeper, then the IRS data show that two-thirds of taxes are paid for by the top 10%, and the top 1% pay close to 40% of the nation’s taxes. And, following the Republican tax cuts, the Tax Policy Center found that the top 20% paid roughly 87% of income taxes for 2018, up from 84% in the previous year.
How much more “fair share” can it be?
Rather than being greedy and demanding more of somebody else’s money, it is about time that we start being grateful for the affluent. Not only are they the ones creating jobs and investing in products and services of tomorrow, but they are also picking up most of the tab. As we get drunk on government outlays, the rich pay the bills.
A Fool’s Paradise
Look, let’s be clear, at the end of the day, the fact of the matter is this … Sorry, too much Democratic debates.
What has been left out in these debates is an important question: What if these candidates’ projections don’t work out? What if they introduce all these multi-trillion-dollar programs, like free tuition, free child care, and free health care, but the revenues are not enough to pay for them? What if, for example, Warren’s wealth tax falls short of 23%? How will she make up the difference?
It might send a thrill down your leg to think you can have all this free stuff without any consequences. This is a reminder of a superb passage from Fyodor Dostoevsky’s The Idiot: “It is better to be unhappy and know the worst than to be happy in a fool’s paradise.”