All the leading Democratic presidential hopefuls are promising higher taxes on high income earners and corporations. That would include rolling back President Trump’s tax cuts on individuals and corporations, which are widely credited with boosting the economy.
Some of the Dem hopefuls, including Senators Elizabeth Warren and Bernie Sanders, are proposing a controversial “wealth tax” which would be levied not on income but on the assets these richest Americans own – and these taxes would recur every year. Let that sink in.
Currently, candidates like Warren and Sanders promise these wealth taxes would only apply to the richest Americans, those with a net worth of $50 million or more. In Warren’s case, she would tax those worth $50 million or more 2% on the value of their assets; for those worth $1 billion or more, the annual tax would rise to 3% – again, every year.
Since there are so few Americans who fall into these ultra-high worth categories, the idea of a wealth tax has considerable public approval, according to several recent polls. The idea of taxing the wealth of the ultra-rich is highly popular today, as you can see below.
While I personally believe a wealth tax is a very bad idea for the economy, that is not what I want to discuss today. Instead, what I want to bring to your attention is the fact that a wealth tax would be an unprecedented invasion of privacy! Here’s why.
First, the 16th Amendment (the income tax) required taxpayers to disclose how much income they make and pay the appropriate amount of tax on it. However, the US has never had a tax law that required wealthy Americans to disclose all of their assets, value them and pay tax on that amount.
Second, imagine how expensive it would be for wealthy Americans to itemize everything they own – from real estate, to homes, cars, yachts, furniture, jewelry, art, etc., etc. – much less determine a supportable value for each and every one of them to arrive at their net worth. This would require the help of expensive appraisers to put a price on hard-to-value assets.
Third, the IRS is in no position to enforce a wealth tax law. It’s relatively easy for the IRS to figure out how much to tax multi-millionaires and billionaires based on their income and investment portfolios. But the value of other assets, like yachts, jewelry, fine art, etc. are up for interpretation.
Fourth, multi-millionaires and billionaires would revolt at the idea of having to disclose everything they own to the government. While some billionaires like George Soros and others have advocated for a wealth tax, most wealthy Americans are very private people. Many could be motivated to move their money outside the country to avoid the tax and protect their privacy, thus hurting the economy in the process.
And finally, in addition to the privacy issues, there is the important question of how much a wealth tax would disincentivize successful Americans from growing their net worth to the levels subject to the tax every year? I believe this could be huge!
Given these serious issues, the question is why is there such broad support for a wealth tax, as illustrated in the chart above. I think the reason is that most Americans know such a tax will never affect them, and the idea of taxing the rich sounds like a good idea to many.
I would caution, however, that there is no assurance that the wealth tax threshold ($50 million and up) will not be lowered substantially over time. I would also venture that it is not beyond the possibility that Democrats might decide a wealth tax would be good for everyone – given the widespread concern over wealth inequality.
Bernie Sanders recently said, “I don’t think that billionaires should exist” in this country, and we should tax at least half of their wealth away. With socialism on the rise in the US, there is no reason not to at least ponder the likelihood of a wealth tax being applied to everyone at some point in time.
I raise these issues not because I believe a wealth tax, as espoused by Senator Warren and others, is going to be adopted anytime soon, but because I am concerned about how much public support is being voiced for it.
I don’t believe most of those who say they support a wealth tax have any idea what a giant invasion of privacy it would be, nor how bad it would be for the economy. I don’t understand why more people aren’t warning about this. You read it here first!
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