Wednesday 15 February 2023

MILLARD: The Dangers Of Wealth Taxes Progressives Won’t Discuss

 The tax hikers are at it again. President Joe Biden’s renewed push for a millionaire tax during the State of the Union address, coupled with the announcement that eight state legislatures seek a wealth tax, comes as no shock to those informed on the quasi-vampiric monetary desires lawmakers have displayed lately. They all involve a singular claim: American millionaires and billionaires allegedly need to pay what they owe. What they really mean is, these businessmen and women should pay what the government arbitrarily believes others owe regardless of the consequences on the economy. These ignorant claims ignore the subjectivity of wealth taxes.

Only four Organisation for Economic Co-operation and Development (OECD) members tax all wealth (Switzerland, Spain, Norway, and Colombia). This is down from the dozen OECD countries that did so in 1996. France previously taxed net wealth but cut back to real property in 2018. Belgium and Italy tax certain wealth.

U.S. wealth tax supporters admit that European wealth taxes don’t work but still swear it’s sound policy. “Taxes are bound neither to fail nor to succeed: Governments can choose to make them work or allow them to fail, and European governments made wrong choices, letting tax avoidance fester,” opined Drs. Emmanuel Saez and Gabriel Zucman in The Washington Post. “The taxes envisioned by [Sen. Elizabeth] Warren and [Sen. Bernie] Sanders — which we helped design — could be rendered largely immune to the problems that undermined wealth taxation abroad.”

Saez and Zucman think European wealth taxes fell apart because people who didn’t like them moved to other countries, much like Californians or New Yorkers leaving for Florida or Texas in search of lesser tax burdens. Their “solution” involves a 40 percent exit tax on those who renounce their U.S. citizenship and more funding for the IRS. This ignores the fact that tax credits exist for Americans living abroad even though they’re extremely complicated.

More laughably, they suggest that it’s “self-evidently absurd” to believe that “someone worth $100 million doesn’t have enough cash on hand to pay a $1 million tax.” This ignores the fungibility of net worth. Elon Musk saw his net worth shrink $182 billion last year. He and other billionaires lost a combined $1.9 trillion. He also famously stated that he relies on credit to make purchases. Net worth isn’t like Scrooge McDuck and his pool of gold coins.

There’s no guarantee that any sort of wealth tax won’t eventually impact lower socio-economic classes. The original income tax from 1913 promised to tax those who made $4,000 or more per year. Since 1940, it has been the main form of taxation for Americans.

A hypothetical federal wealth tax, whether it be property or vehicle, eventually affects everyone. Zillow estimates the average U.S. home value is $357,319, meaning a $7,000 wealth tax bill for Americans under a hypothetical 2 percent wealth tax. The average American salary is almost $56,000. Should wages remain flat but home values rise to $400,000 average, then the wealth tax bill rises to $8,000 for average Americans. The wealth tax rate stays flat, but taxpayers pay more.

This puts taxpayers in a bind on whether they just pay the tax or attempt to dispute the assessment. A 2021 University of Chicago draft study accused tax assessors of giving higher property values to poorer homeowners. National Taxpayers Union Foundation believes taxable property is over-assessed by at least 30 percent. Dispute processes can be extremely frustrating with cumbersome requirements including filing deadlines, requiring pictures of the inside of the home, and attending both formal and informal hearings. It’s no wonder that only 5 percent of homeowners in the U.S. appeal property taxes.

It’s worth noting that financial advisers disagree with this wealth tax suggestion. One Maryland tax adviser told that it stunts growth for citizens because net worth isn’t actual cash on hand. One California investment adviser believed people would leave states that enact a wealth tax instead of handing over more cash to the state government. Whether state legislatures listen to this criticism or give in to activist demands remains to be seen.

Any statewide or federal wealth tax proposal will end up hurting more than it helps. People with the means will flee those states – or the country more broadly – to avoid the burden of this regressive policy. The best way for these states to help their citizens is not only to cut taxes, but spending as well, so taxpayers can keep more of their hard-earned money.

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