California progressives’ plan to impose a wealth tax on state residents died in committee last year. Right by the Bay’s Kerry Jackson and Tim Anaya wrote about why it would hurt everyday Californians far more than its rich and famous. Unfortunately, the idea didn’t end at the California state line. True to her presidential campaign promise, Sen. Elizabeth Warren recently proposed an “ultra-millionaire” wealth tax aimed at America’s — and California’s — wealthiest.
Warren’s plan would impose a 2 percent annual tax on households and trusts between $50 million and $1 billion. It would also put a 3 percent annual surtax on households and trusts over $1 billion. To connect faces to dollars, for tax year 2020, Americans for Tax Fairness estimates that Jeff Bezos would owe $5.7 billion in taxes; Elon Musk, $4.6 billion; and Bill Gates, $3.6 billion. Californians Larry Ellison and Larry Page would owe $2.6 billion and $2.3 billion respectively. All total, America’s ultra-millionaires would pay a combined $114 billion.
But would they really? Billionaire hedge fund manager Leon Cooperman lets the public in on the worst kept secret among one-percenters. The plan is “foolish” he says, because ultra-millionaires would simply find a way to hide their assets.
OECD data seems to bare that out. At the peak of its popularity in 1996, twelve nations imposed a wealth tax. Today, it’s down to five. Daniel Bunn of the Tax Foundation, using the OECD’s data, found that among the five countries that still impose a wealth tax, net wealth tax revenues made up on average just 1.2 percent of total revenues for each country in 2019. Bunn concludes, “With so many countries having adopted and then abandoned a wealth tax, perhaps the U.S. should avoid adopting one in the first place.”
Even Janet Yellen, Treasury secretary and former chair of the Fed, told the New York Times that the wealth tax “has very difficult implementation problems.” Imagine surprise visits by IRS agents to snoop around mansions for Rembrandts and Van Goughs, or hauling shovels in search of buried Krugerrands.
While the above would provide endless amusement for the headline writers at the New York Post, the wealth tax has far more devastating consequences for non-one percenters. Kerry Jackson cited in his blog that the wealth tax as proposed during Warren’s campaign would cost workers more than a trillion dollars in lost earnings over the first 10 years, and ultimately, for every dollar of revenue raised, workers would lose more than 60 cents of earnings. The OECD’s own report found that wealth taxes deter entrepreneurship, harm innovation, and impact economic growth over the long-term.
While many believe that a wealth tax is not in our future thanks to an evenly divided Senate, the easy passage of the $1.9 trillion so-called COVID-19 relief package means that anything is possible. Rep. Brendan Boyle (D-PA), who introduced the bill along with Warren said, “I have no doubt — none whatsoever — that this is an idea, a concept, that will go very quickly from impossible to inevitable…”
Rowena Itchon is senior vice president of the Pacific Research Institute.