From the Wall Street Journal, Elizabeth Warren’s Tax Plan Would Bring Rates Over 100% For Some:
Democratic presidential candidate Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%.
That prospect raises questions for taxpayers and the broader economy that experts are starting to ponder: Under which circumstances would taxpayers have to pay those rates? How might that change their behavior? And would investment and economic growth suffer?
Potential tax rates over 100% could result from the combination of tax increases the Massachusetts senator proposes for the very top tier of investors. She wants to return the top income-tax rate to 39.6% from 37%, impose a new 14.8% tax for Social Security, add an annual tax of up to 6% on accumulated wealth and require rich investors to pay capital-gains taxes at the same rates as other income even if they don’t sell their assets.
Consider a billionaire with a $1,000 investment who earns a 6% return, or $60, received as a capital gain, dividend or interest. If all of Ms. Warren’s taxes are implemented, he could owe 58.2% of that, or $35 in federal tax. Plus, his entire investment would incur a 6% wealth tax, i.e., at least $60. The result: taxes as high as $95 on income of $60 for a combined tax rate of 158%.
Of course, this image does not quite capture the impact of the legislation on investment choices because it is only taking into account proposed changes to federal tax law. If you live in a high-tax municipality and/or high-tax state, you are even deeper in the hole. (In places like Chicago, you’d be deeper in the hole to several independent but overlapping taxing districts on top of this.) So you could see these proposals as adding to the factors that would drive the exodus out of high-tax jurisdictions, but that’s already inevitable under current tax laws.
Why does this matter? If you are a Millennial, you probably could care less about how much a multi-millionaire or billionaire has after tax as long as your progressive political pied piper is promising the federal government is going to forgive your student loans and provide you with “free” health care, supposedly on someone else’s dime, someone you are being told you should resent with all your heart.
Tax rates over 100% mean that no matter what a wealthy individual does with their money they will be seeing their wealth confiscated from the government. This removes literally every incentive that person has to put their money to work in the United States. They have zero incentive to invest in companies. They have zero incentive to invest in infrastructure. (The WSJ doesn’t seem to grasp the latter, but a wealth tax would remove the incentive to invest in municipal bonds, unless municipal bonds are specifically removed from the tax. I am not sure they will be, either. Ironically, progressives have historically been some of the biggest proponents of removing tax advantages for public projects because of their economic resentment of the people who can afford to buy them. Yes, they care more about sticking it to the “rich” than they do about whether your kid is spending the day in a school building that was built after we put a man on the Moon.)
These involve putting their money at financial risk, now with no possibility of reward. No rational economic actor ever chooses to do that.
This means they have zero incentive to invest in any activity that ends in workers receiving wages. Even worse, they would have to liquidate current investments to pay for these taxes.
This right here is why socialism always fails. You have people making decisions about how tax policy makes them feel, not what tax policy actually does.
I’m sure if you ask Warren or Sanders about these consequences, they will tell you that having rates over 100% is a feature of their plans, not a bug. As the WSJ article notes, they are running on the idea that concentrated wealth should be broken up and redistributed. They just don’t quite understand that the opportunity cost extends to all the things happening in our economy that come from that wealth being productively invested. These folks are, after all, the products of education institutions that call Karl Marx an economist and not a bad philosopher. They can’t think clearly about economics and it shows in every word they utter.
The ultra-wealthy are not the only people who will be hit by this system, either. Anyone who has done what they were told and built up a serious nest egg to carry them through their golden years will get hit. Progressive politicians love to refer to them as “the 1%,” but really they are capturing anyone who habitually saves and small business owners, where their livelihood is their major asset, most of whom have worked their asses off for their entire goddamn life and are not debutantes trying to figure out what whether she wants diamonds or rubies on her chihuahua’s collar. Progressives live in a world of caricatures, not the real world.
Beyond the estimated 75,000 households that would be hit by the wealth tax, Ms. Warren’s capital-gains plan would transform investing rules for the top 1%—about 1.5 million households.
Under Ms. Warren’s plan, their unrealized capital gains outside retirement accounts would be taxed at 39.6%, just like ordinary income, plus an existing 3.8% investment-income tax. Add to that her new 14.8% investment-income tax to bolster Social Security, and state taxes, and combined tax rates could reach 70% in California and New York City.
The effective tax on business investment could actually be higher because these personal taxes would come after a company has already paid a corporate tax rate, under Ms. Warren’s plan, of 42%, up from 21% now.
I think one serious unconsidered consequence of this is also that investment in US companies may not grind to a stop, but instead is replaced with inflows of foreign money. That is to say, places like China will see progressives’ tax code as an opportunity to purchase the United States’ economic engine at a steep discount.
It never gets less hilarious that these are the people the Democratic Party is offering up for president. It’s like it is a competition to see who can horrify the electorate the most.
Of course a plan like this would likely not be enacted if Warren were implausibly to win the election. She’d spend the entire election trying to convince Americans that she can finance a sliver of the spending she has proposed by only impacting high net worth households and businesses. Then a consensus would emerge that it would be disastrous, so they would end up implementing the kinds of policies their pseudo-socialist darlings in Europe have – steep retail taxes and others that impact the middle class directly. Hahaha, jokes on you, you elected this batshit bullshit artist.
And the middle class can get used to the fact that they are poorer than they used to be and that they live in a society with no serious possibility of upward mobility, because their money is going to pay for a massive bureaucracy instead of savings.