At least one reason why Democrats are so hell-bent on spending trillions of taxpayer dollars: The exploding federal debt provides a perfect excuse for raising taxes.
And so just two days after the House of Representatives passed President Joe Biden’s $1.9 trillion Covid-19 relief package, Senator Elizabeth Warren (D-Mass.) introduced her much-anticipated “wealth tax.”
Warren’s “Ultra-Millionaire Tax Act” imposes a 2 percent annual tax on the net worth of households and trusts between $50 million and $1 billion, and an additional 1 percent surcharge on the net worth of households and trusts above $1 billion.
She claims the new tax would rake in “at least $3 trillion” over 10 years. And while Warren doesn’t mention it, that will likely be about the size of the Democrats’ new infrastructure legislation they hope to take up right after the Covid relief package.
The senator justifies her new tax by claiming, “The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%, and billionaire wealth is 40% higher than before the COVID crisis began.”
Of course, those in the top 1 percent of income pay 38.5 percent of all income taxes, according to the Tax Foundation. And the top 5 percent pay nearly 60 percent. So it’s not like the rich are skirting their obligations. The U.S. tax code is very progressive.
But that’s income. The United States has never had a wealth tax, and many think it would be unconstitutional.
Noted investor Warren Buffet echoed Sen. Warren’s concerns in 2007 when he revealed that he paid a total tax rate of 17.7 percent, while the people in his office paid an average tax rate of 32.9 percent.
The reason for this difference is that the vast majority of Buffet’s income is derived from dividends and long-term capital gains, which are generally taxed at a lower rate than earned income or income from short-term investments.
But low tax rates on investment income is a feature, not a bug, because those low rates encourage both domestic and foreign investment, which are the real drivers behind job creation and economic growth.
Warren’s net wealth tax would discourage new investment—or incentivize investors to either tax shelter their investments or look for various mechanisms to disguise them.
As Daniel Bunn of the Tax Foundation recently wrote: “Over the years, countries have repealed their net wealth taxes for various reasons, and economic impact is included in those reasons. French Finance Minister Bruno LeMaire has made it clear that the repeal of the wealth tax in France was part of a reform package designed to ‘attract more foreign investment.’”
That’s not speculation, it’s history. As Bunn notes, “With so many countries having adopted and then abandoned a wealth tax, perhaps the U.S. should avoid adopting one in the first place.”
March 2, 2021