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The Hottest Tax Ideas on the Left Are Really Bold. Does It Matter That They’re Also Really Bad?
Policy wonks have a soft spot for bold ideas. Doubly so if those ideas are new or making a comeback after years in the wilderness. The New York Times columnist David Leonhardt recently heaped much praise on presidential candidate Elizabeth Warren for her “bold” and “ambitious” agenda that’s appropriate “to the scale of our challenges.”
Voters are no different. Plenty of folks on the left seem giddy about the idea of a “Green New Deal” that would put the US economy on a war footing against climate change. And it’s not just Democrats and progressives. Many on the right fondly recall how Ronald Reagan in the 1970s said Republicans should raise ”a banner of no pale pastels, but bold colors.”
But at some point, bold ideas will collide with boring reality. And the sooner bold ideas are subjected to a reality check the better. Let’s take one of Warren’s biggest and boldest ideas, a wealth tax. It’s a nearly $3 trillion plan involving a two-percent annual tax on wealth over $50 million plus an additional one percent on wealth above $1 billion. She says her plan would raise $2.75 trillion over ten years. Definitely big and bold.
Yet if I were someone initially attracted to this idea as a way of tackling wealth inequality, there would be a few things I would want to consider. For instance: Of the 15 European countries that tried a wealth tax in recent years, only four are still sticking with it. (This piece outlines some of the reasons why the wealth tax is failing internationally.)
What’s more, those seemingly tiny tax rates of two and three percent are deceptive, hiding de facto income tax rates of 67 percent and 100 percent. In a lengthy analysis in The Boston Globe, economists Natasha Sarin and Larry Summers point out that a “50-year-old who has accumulated a substantial fortune can expect to pay more than half of it in taxes before she dies.”
Does that matter if you’re not that rich, middle-aged person? More from Sarin and Summers — who prefer to tackle inequality through more traditional tax reform such as closing loopholes and capping deductions — on the wealth tax and much higher income tax rates:
There is the further point that wealth taxes are likely to be burdensome on entrepreneurial businesses in their private phase, when entrepreneurs are liquidity-constrained. Perversely, this could disincentivize transformative innovation. … Bill Clinton was right when he said that he wanted to see an economy with more millionaires, because that meant an economy with more job-creating successful businesses. Turning the tax code into a vehicle for confronting what some call “oligarchic drift” would undermine business confidence, reduce investment, degrade economic efficiency, and punish success in ways unlikely to be good for the country or even to be appealing to most Americans.
Now a skeptic might see this debate, at least the part happening on the left, as just a way to increase the chances of much higher taxes on the rich. Some Overton Window expansion. (“Sure, Summers is calling for big tax hikes, but at least it’s not that crazy Warren wealth tax!”) Maybe. But at least Sarin and Summers are discussing the potential trade-offs and unintended consequences that flow from big and bold ideas. As should all policy wonks.
Published in Economics
The rational basis for a wealth tax is that it is like a fee for service. The inheritance tax is an event-triggered transfer of wealth. We tax that now, because it fits the existing legal framework, not because it is rational. When we tax the transaction, that just leads to folks avoiding transactions. Economically, we want to encourage transactions. We want capital items to transfer to those people most able to make more wealth from it.
Chopping up capital to let the government consume it.
I don’t understand. I am proposing that we balance the budget.
I remember when California Proposition 13 passed. One of the most compelling stories was of people being forced to sell the family home, some of which were held for generations. An effective tax system is one that taxes the people who have the cash to pay. The income tax is on realized net income. That’s where the money is.
The people who own $10 M of farm real estate also would have $2 or $3 M in equipment to farm it. (a “simple” tractor can set you back more than $400k) Its quite real – smaller operators are being squeezed out of their farms by ever rising costs, and low commodity prices.
Calling these people “wealthy” and burdening them with a further unfair taxation – is just Orwellian.
I cannot believe Republicans are talking about taxing a stock of wealth over a flow of income. The only time this makes any sense is for property taxes because theoretically those taxes go to government activities that protect the value of the home.
Seizing wealth. Where does it stop?
I think what you are getting at is the fact that we are at the end of central banks inflating everything. It just doesn’t work anymore.
Just to be clear, and I don’t know a lot about this, I’ve read articles that if you’d start over the only thing you would ever tax–ever–is the unimproved value of land. But obviously that would limit the size of government severely.
You might enjoy the scenes in Mark Zakharov’s film, An Ordinary Miracle (Обыкновенное чудо), where he has some fun with the concept of artistic originality. In this case there is a famous hunter who has hunter’s block because he is worried that his critics will say that he shot a fox the same old way he did last year, and that he didn’t introduce any innovations. This is towards the end of part 1.
There are also scenes where he has fun with the concepts of free will (or alleged lack thereof) and responsibility.
I recently rewatched it and realized it’s one film that I get more out of each time I watch it.
Zakharov is an old man now, and it was sad to see the way the Putin crowd got him to conform to the regime on the subject of the Crimea takeover. It all started to play out like some of his films that dealt with political conformity, with a sad difference at the end, at least according to what I’ve read on wikipedia about how this played out.