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Why a Wealth Tax Wouldn’t Be a Good Idea


The president’s budget is the legislative equivalent of a vision board or mission statement: a mildly delusory wish list meant to inspire. Although the president’s budget is never technically binding—Congress still has a fragile hold on the purse strings—it is always enlightening.

President Joe Biden has long been a rusted weather vane, wobbling hesitantly in the direction of his party’s winds, in the iconic words of Editor at Large Matt Welch. The breezes have finally carried us to the shores of a genuine wealth tax debate with his new budget proposal.

Of course, Biden isn’t calling his proposal a wealth tax. It’s known as the “Billionaire Minimum Income Tax,” and it levies a minimum 20% tax on households with more than—oddly enough—$100 million in assets.

Biden’s approach is more modest and realistic than previous versions from Senators Bernie Sanders (I–Vt.) and Elizabeth Warren (D–Mass.)—as is customary for Biden.

The fact that, even with implausibly optimistic predictions of the federal government’s ability to collect, the entire mess is expected to raise only $36 billion per year on average over the next ten years is noteworthy.

Gabriel Zucman, an economist at the University of California, Berkeley, and a Warren adviser, estimated how much several billionaires would pay under the plan’s 20% tax on unrealized gains in illiquid assets, putting Jeff Bezos’ bill at $35 billion, Warren Buffett’s at $26 billion, and Jim Walton’s bill at $7 billion.

Anyone who has paid even passing attention to federal spending in recent years knows that values beginning with b instead of t are now considered rounding mistakes. This wealth tax isn’t intended to generate income. It has two distinct objectives.

The first is a straightforward political calculation. A stumbling, unpopular president tries to show that he is willing to punish a small, unpopular group of people.

According to a Reuters/Ipsos poll conducted last year, nearly two-thirds of respondents believe the wealthy should pay higher taxes: “The very rich should donate an extra share of their total income each year to support public initiatives,” 64 percent agreed strongly or somewhat.

The New Yorker termed agglomerations of riches as “unsightly,” which captures the spirit of the issue very beautifully in its attack on Sen. Joe Manchin (D–W. Va.), who continues to stand at odds with the Democratic Party’s worst impulses vaguely whispering “stop.

” If the federal government wanted less wealthy individuals, it could do a lot of things, but none would be as pleasant as just taking more from the extremely rich each year.

The second goal, which has broader implications, is to establish the premise that the United States government can tax based on wealth at all. It would be the thin end of a very big wedge if such a tax were enacted into law—and deemed constitutional by the Supreme Court, which would be no small task.

Why a Wealth Tax Wouldn't Be a Good Idea

Biden’s proposal would create the massive bureaucratic, legal, and accounting support structures, both public and private, that are required to enable the formal tracking of wealth and income.

Of course, the value of allowing people to amass vast sums of money differs from person to person. Many billionaires’ fortunes are extractive or confiscatory, in the sense that they have snatched a greater piece of an unaltered pie.

But, especially in the United States, we focus on billionaires whose fortunes are obviously linked to value creation—that is, they have taken a substantial portion of a pie that they have also made much larger.

Sanders and others appear intent on conflating the two groups, using the term oligarch to refer to people who have an excessive number of bathrooms in their homes, people who construct rockets, and people who own Major League Baseball clubs, among other things.

People do not have to be entirely self-made to be entitled to keep their money. Even if several of them own one, no billionaire is an island. In fact, only a small percentage of us have complete control over our lives.

We might inquire as to what the very wealthy do with their money as a moral question, if not a legal one, in order to determine if they should keep it. “Working hard to build helpful things & services for your fellow humans is deeply morally good,” tweeted Elon Musk, a well-known billionaire.

Many supporters of wealth taxes appear to believe that the government would put the resources that the wealthy have at their disposal to better use. Of course, most billionaires’ fortunes are related to the enormous and extraordinarily productive businesses that made them wealthy in the first place, such as the Waltons’, Musk’s, or Bezos’.

A dollar on the balance sheet of Walmart is almost definitely doing more good than a dollar in the Treasury of the United States. Walmart sells items and services that customers value and choose to buy, as well as provides employment to millions of people across the world, and provides health insurance to almost a million of its employees.

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Perhaps you don’t believe Walmart provides those services in the amount and quality you need, but neither does the United States government. Walmart also doesn’t imprison anyone, doesn’t start wars, and doesn’t owe money to future generations.

People who are extremely wealthy are also more likely to donate to charity causes. You might protest that they contribute to the opera on a whim, to institutions that are already well-funded, or to other forms of philanthropy that have limited public benefit, possibly in exchange for social prestige or invites to costly parties.

The federal government has a history of doing so; for example, some pandemic relief funds went to the Kennedy Center for the Performing Arts in Washington, D.C., and the federal government invested $148 billion in higher education in 2018.

The really rich, on the other hand, are more likely to donate their discretionary funds to charities that focus on alleviating global misery, where a dollar travels much further than it ever will by the federal government.

Given Bill Gates’ track record, it’s difficult to claim that the federal government would do more net good with $11 billion more of his money than he would himself.

Sen. Ron Wyden (D-Ore.), who has demonstrated a higher-than-average level of technology policy literacy, unfortunately, backed the plan and was immediately goaded by Musk, who polled Twitter on whether to realize some of his unrealized gains by selling 10% of his Tesla stock in response to the proposal.

“Whether or not the world’s wealthiest guy pays any taxes should not be determined by the results of a Twitter vote,” Wyden scoffed. However, presidential popularity polls, which are far from perfect, may end up determining the amount.

There are billionaires in every country on the earth with a high real median personal income. It’s at least conceivable that there’s a link between the institutions that make billionaires feasible and the ones that make broad prosperity attainable.

Sweden, in fact, has more billionaires per capita than the US. Perhaps not surprisingly, Sweden is one of the dozens of countries that have tried and failed to implement wealth taxes.

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