If Senator Elizabeth Warren’s (D-MA) slogan is “I’ve got a plan for that,” Senator Bernie Sanders’ (I-VT) 2020 motto must be “I’ve got a tax for that.” The socialist senator has an extravagant plan to spend trillions of dollars over several years, fulfilling his democratic socialist utopia in which the government grants wishes like a genie. Free health care? You got it. Free child care? Here you go. A guaranteed federal job? That is what the Green New Deal is for!
One might think there is a perpetual money machine in the White House Rose Garden that can magically pay for state services – but the Soviet Union, Venezuela, and Cuba did not run out of money right away. It took years of mismanagement, abuse of the public purse, and a reckless abandonment of basic economic principles before insolvency became the word of the day.
The socialist senator has been coy about the price-tag of his lofty campaign promises, refusing to give even a ballpark estimate of his ambitious progressive platform. But Sanders has not been shy about how he will attempt to pay for his multi-trillion-dollar free health care, tuition-free college, and universal pre-K. Despite averring that billionaires should not exist, Sanders is looking to tax corporations, stock exchanges, and wealthy individuals. To pay for his proposals, he will need a lot more billionaires – and there lies the problem.
Sanders wants to impose a whole host of different penalties. One way he wants to punish wealth is by implementing a 40% exit levy on the net value of all assets less than $1 billion and a 60% mandatory charge on assets higher than $1 billion. This is in addition to a national wealth registry.
Sanders wants to punish the very people he needs to fleece to ensure he can pay for free stuff.
What will really happen, however, is capital flight. Entrepreneurs, affluent investors, and business moguls can evade the tax with a clever trick: shifting operations to another country. Upon arrival, these owners or executives can produce goods, offer services, or erect companies. Since they are not launching the entity in the U.S., they would not need to pay the tax.
It may not even need to be business-related. Entrepreneurship has been alive and well in the United States, thanks to the digital age and historically low interest rates. If Sanders is targeting companies, the unintended (or perhaps even intended) consequence is that a lot of entrepreneurs would decide to not pursue any ventures and have their success penalized by double-digit tax rates. Additionally, investors could slow new U.S. investments or withdraw funds from these instruments. Leftists may not think it is important, but stock trading is imperative to the success of a company because it raises money to expand operations, facilitate research and development, or keep its doors open.
As Mark Angelides, Managing Editor of Liberty Nation, noted: “It’s the death knell of America-based ingenuity.” Indeed. Rather than the next great financial service being developed on Wall Street or a new energy storage system being created in Silicon Valley, another nation will host ingenuity and innovation.
Capital would not completely disappear under a Sanders administration, but it would slow down.
Global financial markets have either been mediocre or in shambles. Even before the coronavirus, Europe and Asia were burning to the ground with disappointing monetary policy, inept governments, and sluggish business growth. The U.S. has had its problems, but the Land of the Free was far superior to Beijing, Tokyo, Brussels, or Frankfurt. The rest of the world is a lost cause, and that is why the smart money has been pouring into America in recent years.
Here are two likely scenarios under President Sanders: capital flight and capital pause.
The first suggests that, should the Vermont senator be declared the victor, the stock market would plunge, and capitalists would take their money and move to Switzerland before new laws kick in. The second is that there would be a temporary hiatus in the money making its way into the United States. In both instances, investors and entrepreneurs would ask: What is the point of investing in the U.S. if the government is going to confiscate a massive portion of it?
Capital flows to the U.S. have remained steady this century even during recessions. Hedge funds, money managers, traders, and entrepreneurs see value in the U.S. How could you not when the world’s richest companies are situated in the world’s largest economy? Unfortunately, when capital becomes a four-letter word and is punished accordingly, it gradually diminishes or relocates.
My Fellow Americans
There is a funny meme of President Sanders delivering his second State of the Union address in which he informs the American people the country is out of bread. But there is potentially a different scenario. It is 2023, and President Bernie Sanders is speaking before the Congress:
“My fellow Americans. We are running out of money. Those fat cats on Wall Street are taking the money and running. But that’s okay. I think the people of this country can pay for my administration’s important policies without Goldman Sachs executives. The country voted for me to deliver on universal health care, tuition-free college, and a unicorn under every bed of every child in the richest country on the planet. And that is what I have done. Now, I ask each and every one of you to chip in a few extra bucks. I have faith that all of you will join me on this journey for a society of equity, justice, and fairness.”
Margaret Thatcher was right. Socialists really do eventually run out of other people’s money.
Read more from Andrew Moran.