by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Editors at the Washington Examiner highlight the problems linked to a proposed tax on wealth.
They think they are being clever. But they aren’t.
This week, Democrats in states across America — Washington, California, and New York in particular — are proposing wealth taxes modeled after the federal wealth tax originally proposed by Sen. Elizabeth Warren (D-MA). These taxes are nothing like the taxes you are used to.
Instead of taxing a stream of income — the sensible, rational way to raise money for government, from available income streams — they focus on wealthy people and attempt to take a portion off the top of their overall net worth each year. They do not care whether or not any of that wealth is liquid — they just want to take away some of what rich people have.
Such taxes, if rich people are dumb enough to stay in such states and pay them, could force a lot of asset sales that otherwise wouldn’t happen. After all, if you are only rich on paper (say, you own valuable land but little cash), you might have to sell a bunch of assets to pay such a tax.
But of course, most rich people (and note that roughly 80% of millionaires did not inherit anything) did not get rich by being stupid. When presented with a threat to their wealth, they react.
Wealth taxes don’t work. We know this because they have been tried in at least a dozen European countries. In most cases, they have been repealed. The reason? Such taxes have proven to distort rich people’s investment decisions and drive rich people to other countries without raising much money. They are also extremely difficult and expensive to administer. It takes a lot of time and effort to provide a valuation on the fortunes of people who own lots of stuff. And certain assets and investments can be volatile or especially hard to appraise.