We’ve heard all the excuses from earnest millionaires and talking heads, that we can’t touch the wealthy or they’ll take their money and run. Hogwash.
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At the state level, easy for them to own homes in more than one state and declare residency in the lowest tax state.
The same applies internationally. Residency in a low tax country or island nation may not be difficult especially for a billionare w first class tax advisors.
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I’m no tax expert, but aren’t all assets in some tangible form, that can be found and taxed, regardless of where someone lives?
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Property tax yes; income tax and investment incomes varies widely from state to state.
Then, would it require a federal tax on income and investments, and how would that be done? Curious to know how it would go.
Utah has a higher property tax on people that have vacation homes there. That is one way to solve the problem. Make the property tax so high on vacation home that they either sell or declare their residency in state.
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It happened in Venezuela. It was a favored destination for cruisers looking to work on their yachts. Puerto La Cruz, home to an oil port and oil refinery has a lot of industry. For example, it’s one of the few places in the Caribbean where you can hot dip galvanize anchors and chain. PLC developed a yacht maintenance industry. The government figured that yachts and yachties were rich so they raised the fees. The rich took their boats to Trinidad, to Chaguaramas Bay which was a US Naval Base in WWII. Losing their customers, the Venezuelan professional set up shop in Trinidad.
By the time the government rescinded the tax, Trinidad had becone a fierce competitor and Venezuela has lost the professionals.
No Hogwash! Reality!
The rich can pick up their anchor and sail elsewhere. The poor cannot.
The Captain
registered his sailboat in the Cayman Islands to get away from Venezuelan PITA bureacracy. Sailing under the protection of Her Majesty, The Queen, had its advantages.
Sailing past St. Croix we got a call from the US Coast Guard telling us they were going to board us.. “Fine. No problem.” Next they asked for our radio call sign. On receiving it they changed their tune, “We request permission to board your vessel.”
It was a training exercise for Lt. Driscoll.
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Myth 9:
If you implement wealth taxes, the rich will shift investment to avoid taxation.
Mr. Smartypants: no they won’t because Elizabeth Warren say so.
Thanks Mr. Smartypants.
I’ve got two worries with wealth tax that were not addressed here:
1) It’s inflationary
If you tax pizzas heavily, less pizzas will be made and the production capacity can be shifted to something else. We take capital from pizza production and shift it into more salad production.
But can you say “well take capital from all these buildings that are standing around in Manhattan and shift it into more salad production”? I don’t think so, it would just produce inflation.
2) It will discourage free asset markets
If you want to tax Jeff Bezos’ wealth, you look at the number of AMZN share he owns, multiply it by current price and woilla, you have the tax basis.
How do you tax John Franklin Mars? Mars inc. is not publically traded. Do you assess how much it would trade for if it was public? He will sue you to correct it downwards and will pay less than Jeff Bezos.
This means every entrepreneur will think twice before going to public stock market exchange, because it will make their tax basis higher.
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Venezuela has always had problems and has never been stable for very long. You can look at the taxes in the United States in the 1950’s. Nobody wants to leave the United States and go anywhere else.
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there are residency laws though and states are aware of this strategy
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Many countries have wealth tax, and evaluating the worth of private companies is not rocket science. More an excuse from the JC‘s playbook.
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They can not take their money and run. The money is in US Treasuries that underpin all of their financial tools.
The wealth tax does not build factories, pay salaries, or create R&D.
Corporate taxes do.
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I’m not saying it’s impossible, I’m saying private companies will be necessarily evaluated lower than publicly traded companies which will disrupt public stock markets.
How is the stock market in those countries doing?
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How is income and wealth inequality doing in the US?
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Let’s compare US(no wealth tax) to Spain (wealth tax):
In 2022, wealth inequality in Spain was significant, with the richest 1% holding nearly a quarter of the nation’s total personal wealth, while the bottom 50% held only 6.4%
IBEX 30 value 2002/01 8.463 2022/01 8.806; 4% in 20 years
Federal Reserve data indicates that as of Q4 2021, the top 1% of households in the United States held 30.9% of the country’s wealth, while the bottom 50% held 2.6%.
S&P 500 value 2002/01 1.133 2022/01 4.397; 380% in 20 years
So Spain has slightly better wealth distribution but the stock market is horrible.
And it’s not just stock market. Economy growth and income growth differences between US and Spain mean that even though income and wealth inequality increased faster in the US, the poorer got better off in the US than they did in Spain.
This may not be entirely due to wealth tax. But before I’d support wealth tax I’d want to know weather it will make the poorer worse off in the long run due to poorer overall economic performance.
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Wealth taxes provide a negative reinforcer for people to use their wealth productively, rather than accumulate, accumulate, accumulate. It seems intuitive that smart wealth taxes would boost economic activity, not stifle it. I suppose we could run the risk of the super wealthy fleeing the country. I’m betting most will stay, especially with a proposed “exit tax”. For those who choose to leave, I’m with Steve Miller - Go on, take some of your money, and run!
I didn’t see GDP comparisons in your analysis. There are several studies about the impact of wealth taxes on economies, the results are mixed. Controlling for all of the factors related to the exact nature of the wealth tax, enforcement and economic nuances seems very difficult. In my opinion, the jury is still out on whether or not they’d work in the US.
Just curious, why did you choose Spain for your example? You could have used other countries that still have one, or used past examples of countries that have repealed their wealth tax.
One caveat - the US is not like the EU when it comes to how wealth taxes would be implemented. Saying that they won’t work here because they didn’t work in such and such country overlooks key differences in proposed policies and taxation.
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I believe investment in equity to be productive. It might not be apparent when you just buy MSFT stock from another holder how that should be productive but the overall effect is that people are more likely to directly invest in productive capacities if there is a big public stock market as an end outlet for their investments.
I am not afraid of the one time event. I’m more worried about the velocity of money in productive investment. If you put a tax on successful investment but no credit for a failed investment you are increasing investment risk.
I used a European example because that’s what I know the best. There are just two options for broad wealth tax examples: Spain and Norway. The problem with Norway is that their oil sector is state own and it’s used to generate welfare. So if you look at inequality and you want to see the impact of a wealth tax you would have to adjust it for the impact of the oil money.
Well, I trust this will put everyone’s mind at ease. A study by the Yale University Budget Lab shows the budget plan working it’s way through Congress takes from the poor, and gives to the rich. Anyone surprised? Anyone?
$4.5 trillion in tax cuts that would largely benefit the wealthy, along with $1.5 trillion in spending cuts, including to benefits for the public, including the poorest.
Approximately $230 billion of those cuts would come from the Supplemental Nutrition Assistance Program — often shorted to SNAP
Another $880 billion would come from cuts to Medicaid
Steve
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Not surprised at all, as the poor and middle class have no lobbyists to represent them to our fawning legislators.
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I believe investment in equity CAN be productive. If companies leverage strong stock performance and issue more shares or take advantage of lower interest rates to reinvest in the company, that could be productive. When companies use profits for share buybacks to boost stock price, that is not productive.
There are problems with using Spain as well. That’s the challenge with trying to prove that wealth taxes won’t work, it relies on the assumption that all of the underlying economic and other tax policy factors don’t matter.
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