by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The tax would apply to fortunes above $50 million, hitting them with a 2% annual rate; there would be a surcharge of 1% per year on wealth in excess of $1 billion. Economists advising her estimate that this tax on 75,000 families would raise $2.75 trillion in revenue over a 10-year period.
Not only would such a tax be very hard to administer, as many have pointed out. It likely won’t collect nearly as much revenue as Warren claims.
The U.S. estate tax system already finds it challenging to determine wealth once in a person’s lifetime (at the time of death). Under Warren’s proposal, the fair market value of all assets for the wealthiest 0.06% of households would have to be assessed every year. It would be difficult to determine the market value of partially held private businesses, works of art and the like every year.
This helps to explain why the number of countries in the high-income OECD that administer a wealth tax fell from 14 in 1996 to only four in 2017. (Or six, if you include the nonstandard wealth taxes in the Netherlands and Italy.) …
… And remember that the wealth tax would operate along with the existing income tax system. The combined (equivalent income) tax rate would often be well over 100%. Underlying assets would routinely shrink.
This may be the advocates’ goal. If so, it is misplaced. The tax would likely reduce national savings, resulting in less business investment in the U.S. or larger capital inflows from abroad to meet investment needs. Less investment spending would reduce productivity and wages to some extent over the longer term.