Listen to “Danger: Wealth Tax Ahead” on Spreaker.
Elizabeth Warren is at it again. She is using Elon Musk’s emergence as a trillionaire to push her wealth tax proposal back into the public spotlight.
Warren recently posted on X: “If Elon Musk paid my ultra-millionaire wealth tax, we could pay for childcare for all three- and four-year-olds in America.”
Sounds appealing. It isn’t.
A wealth tax is bad policy, questionable economics, and a dangerous expansion of government’s claim on private property. It would move the country one step closer to a system where Washington increasingly decides how much of your wealth you are allowed to keep.
Here’s what Warren is really saying: If government can take a portion of the wealth of a few Americans – very wealthy people – others may dislike, it can fund programs many Americans support. A hoodwink… who cares about some rich people getting the shaft compared to paying for daycare? Understand though, Warren’s tax wouldn’t stop with billionaires. Any household over a $50 million net worth is subject to annual taxing. Still easy to envy perhaps.
But if that principle is accepted, the temptation will always exist to apply it to those with lesser amounts of wealth in the (near) future. How long until a 401k millionaire who hasn’t yet retired is seeing annual wealth taxes? How many American farmers are land rich and cash poor? Mineral rights in the family? Pay up!
When has government ever consistently wanted less of your hard-earned dollars? A useful statistic: in 1913, more than 95 percent of Americans paid no federal income tax at all and the amount was relatively small.
Note: Warren’s personal fortune of $12 million would not fall victim to the tax.
Critics argue that describing wealth taxation as theft is unfair. Ordinarily, that criticism has merit. Taxes are required to provide valued services, and the Constitution clearly grants Congress the power to levy taxes. But a wealth tax is not just any tax, and constitutional details matter.
The Constitution has traditionally been understood to distinguish between direct and indirect taxes. Direct taxes are required to be apportioned among the states according to population. Indirect taxes, such as excise taxes, are not subject to the same requirement.
The 16th Amendment changed the landscape by allowing Congress to tax income from whatever source derived without apportionment. What it did not mention was wealth. The amendment specifically references income, not net worth. That matters.
Supporters of a wealth tax argue that modern Supreme Court precedent has narrowed earlier tax doctrines and that a properly designed wealth tax could survive constitutional scrutiny. Opponents argue the opposite and contend such a tax would face significant constitutional obstacles. If Congress ever enacted one, the courts would almost certainly have the final say. Until made clear, surely we can agree the measure is unjust.
Setting constitutionality aside, the economic concerns are substantial.
Unlike an income tax, which generally applies when income is earned or realized, a wealth tax would be assessed annually on the value of assets whether or not those assets produce cash flow. Business owners, farmers, investors, and entrepreneurs could face large tax bills without having sold anything or received any income from those assets.
The macro-economic effects are startling.
To pay the tax, some individuals could be forced to sell stock, ownership stakes, real estate, or other productive assets. Critics warn that such sales could reduce investment, discourage entrepreneurship, slow economic growth and open the door to more foreign investment. All legitimate points.
Valuing privately held businesses, intellectual property, artwork, and other illiquid assets would also be expensive, subjective, and likely generate years of litigation. Anyone trust the government to put a fair market value on your business? Opponents further warn that capital and high-net-worth individuals could relocate to jurisdictions with more favorable tax treatment. Warren wants to put a penalty on relocation – she doesn’t seem to care if Americans leave as long as they pay an exit fee. Talk about running someone off.
Even politicians who typically support expansive government programs are cautious when confronted with the possibility of capital flight. Just ask liberal Governor Gavin Newsom of California who is vigorously fighting a similar state tax on the next ballot. He understands that money, businesses, and investment do not always stay put when tax burdens rise dramatically.
Hopefully enough liberals in Congress share his understanding.
Europe already made this mistake and has largely corrected it. According to the OECD (Organization of Economic Cooperation and Development), the number of member nations imposing net wealth taxes fell from 12 in 1990 to just four by 2017. The organization cited recurring concerns over low revenue generation, valuation difficulties, tax avoidance, administrative complexity and the potential for capital flight. Why repeat Europe’s mistake?
Broadly, the wealth-tax debate is about more than Elon Musk or any other billionaire. It is about whether government should have the authority to impose an annual tax on accumulated wealth of any kind. About the ability to open a door the Constitution never opened. About what is fair and what is not.
Years ago, broadcast legend Paul Harvey warned about the consequences of failing to place meaningful limits on government’s taxing power. Harvey argued that Americans had effectively granted government an unprecedented power to tax income, via the 16th, without meaningful limits. Wise words worthy of reflection today.
Americans should give this proposal serious consideration, and in my estimation, waste no time letting Congress know where they stand on it. Hopefully such a collective reckoning kills it now, before it gains any further traction. A policy like this is a means of fundamentally changing America, and not for the better.
Post Script: Beware the populist right popping up in Washington and even in Charleston. How easily some in those ranks could find comfort in this idea.