{"id":632,"date":"2019-02-07T13:47:25","date_gmt":"2019-02-07T18:47:25","guid":{"rendered":"https:\/\/www.tameri.com\/wordpress\/almostclassical\/?p=632"},"modified":"2023-11-25T22:32:42","modified_gmt":"2023-11-26T04:32:42","slug":"sen-warrens-wrong-headed-wealth-tax","status":"publish","type":"post","link":"https:\/\/www.tameri.com\/almostclassical\/2019\/02\/07\/sen-warrens-wrong-headed-wealth-tax\/","title":{"rendered":"Sen. Warren’s Wrong-Headed Wealth Tax"},"content":{"rendered":"

Sen. Elizabeth Warren\u2019s (D-Mass.) has proposed a \u201cwealth tax<\/a>\u201d on individuals with wealth valued at more than $50 million. After $1 billion in wealth, the tax would increase from 2 percent to 3 percent. The plan is popular<\/a>\u2026 and unworkable<\/a>.<\/p>\n

I\u00a0believe\u00a0government should cover its basic costs, especially in good economic times<\/strong>. This is not a unique belief, as no less than John Maynard Keynes suggested running a surplus in good times to help offset deficit spending during emergencies and downturns. So, with deficits at $1 trillion, it\u2019s time to raise some revenues and cut some spending. Both are needed.<\/p>\n

First, there is little chance a wealth tax passes Constitutional challenges. It will be in the courts for year, and there is\u00a0absolutely no chance\u00a0the Constitution would be amended for a wealth tax<\/strong>. As Jeffrey Levine pointed out on Forbes this week:<\/p>\n

There Are Serious Questions About The Constitutionality Of A Wealth Tax<\/a><\/p>\n

\u2026[It\u2019s] not really possible to talk about Senator Warren\u2019s Wealth Tax proposal without at least mentioning the potential constitutional issues it faces. In short, Article 1, Section 9 of the Constitution<\/strong> reads:<\/p>\n

\u201cNo capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.\u201d<\/p>\n

Now if you\u2019re thinking to yourself, \u201cHey, wait a minute! What about the income tax? Surely some of the higher-income states like Connecticut pay more than their proportionate amount of income taxes.\u201d You\u2019re absolutely right. They do. And that would be in direct violation of the Constitution\u2026 If it weren\u2019t for a little thing called the 16th amendment, which reads:<\/p>\n

\u201cThe Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.\u201d<\/p>\n

Note that the 16th Amendment\u2019s language expressly authorizes Congress to collect taxes based on income<\/strong> without having to make those taxes proportionate to the states. It makes no reference, however, to any sort of tax based upon an individual\u2019s wealth or property ownership.<\/p><\/blockquote>\n

You can argue all you might about how good an idea is, but unconstitutional is unconstitutional. A Pres. Warren might be able to push for a wealth tax, and even sign it into law. Then? The current Supreme Court would strike it down, and many progressive legal scholars would, too.<\/p>\n

But we have an\u00a0inheritance tax. That\u2019s a wealth tax!<\/strong><\/p>\n

No, it is not.<\/strong><\/p>\n

The wealthy person died: he or she is not being taxed. In fact, a wealthy person was already taxed. Instead, this is a transaction tax, in some ways an \u201cunearned income\u201d tax. When you inherit money, property, or other assets, it is a capital gain \u2014 which courts have held is perfectly legal to tax. Gains are taxable, even though they are often taxed at a lower rate than the top marginal tax rates.<\/p>\n

If we want to increase revenues, increase the inheritance tax. Even well-known libertarian economists support (or supported) high inheritance taxes because they are not representative of wealth of merit. Inheritances are luck. Sorry, but winning the lottery is taxable. I\u2019ll blog more on the inheritance issue and tax rates, plus you can read \u201cThe 90% Tax Rate Myth<\/a>\u201d from 2011.<\/p>\n

A\u00a0wealth tax is unworkable.<\/strong><\/p>\n

If you tax wealth, who will be assigning the wealth value? How much is a patent work? A painting? A classic car? Something as simple as a house?<\/p>\n

I\u2019m not sure about where you live, but in Western PA, a lot of families challenge their property tax assessments. Businesses do, too. Houses should be \u201ceasy\u201d to assess at market value, with real estate appraisals needed for selling, buying, and refinancing homes. Yet, appeals are common.<\/p>\n

Now, imagine someone appealing every assessment in a massive, millionaire or billion dollar portfolio.\u00a0On what day will stocks and holdings be counted for tax purposes? What about items without tangible value, but intellectual value? Values change, so there needs to be a finite window for appraisal.<\/p>\n

The inheritance tax is imperfect, with many appeals, and that tax happens once. An annual tax on wealth? That\u2019s a logistical nightmare. The IRS would need to employ or contract with an army of specialized appraisers for everything from art to song lyrics. The time and effort to enforce and collect the tax becomes a problem.<\/p>\n

Once appraised and taxed, the property is taxed again\u2026 and again\u2026 and again. If you own a painting worth $20 million, the painting might lose value because it includes a never-ending tax liability. Art only has value when people want to own it. If the wealthy decide they don\u2019t want large collections, maybe art declines in value. And are you going to tax art donated or loaned to museums? Those loans to galleries have value, too.<\/p>\n

Of the nations in the Organization for Economic Co-Operation and Development (OECD), only four have some manner of wealth tax. From the 1990s through 2017, eight other nations gave up on the wealth tax concept. Wealth taxes lead to complicated avoidance schemes and endless appeals of appraisals. There\u2019s a reason we tax income federally and property locally.<\/p>\n

When I post on marginal rates (again) and other ways to raise revenues, I will address the concept that local and state taxes can and should support more of what we expect from government. I might not like what states would do, but states have greater legal flexibility to experiment with various taxation approaches.<\/p>\n

It seems the national wealth tax is more about envy and easy marketing than raising revenues \u2014 other plans raise more money with less effort and fewer legal challenges.\u00a0Envy is not a good policy, and envy explains much of the popularity of plans to \u201csoak the rich\u201d in some way. There are better approaches to collecting more revenue to support government, but with the 2020 campaign underway expect bumper-sticker economics.<\/p>\n

We must pay for what we collectively want from local, state, and federal governments<\/strong>. Again, whatever the majority demands in terms of budget priorities \u2014 and I \u2019ll be on the losing side of most such debates \u2014 we need revenues to support those demands.<\/p>\n

The wealth tax isn\u2019t the best solution: it is likely unconstitutional and unworkable.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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