Debunking the Proposed 2¢ Wealth Tax
Senator Elizabeth Warren (D-MA), who is seeking the Democratic nomination for President, has proposed a 2¢ wealth tax on all assets over $50 million. Senator Warren has claimed that this tax will pay for universal childcare for every child age 0-5, raise wages for all childcare workers, provide free tuition for all vocational schools, community colleges, and public 4-year universities, and give $50 billion for historically black colleges and universities.
She also claimed that this tax will provide $100 billion over 10 years to combat the opioid crisis, and to provide a down payment on the unrealistic ‘Green New Deal’ climate change proposal, and the socialist ‘Medicare for All’ system.
What is the biggest problem with this proposed tax? It is blatantly unconstitutional. There is nothing in the United States Constitution which states that federal or state governments can tax actual wealth. What can the government tax?
Article 1, Section 9, allows Congress to impose direct taxes on individuals only if they are equally apportioned with excise taxes and duties. Article 1, Section 8, allows Congress to adopt indirect taxes in the form of excise taxes on specific goods or transactions. Income can be taxed, as allowed by the 16th amendment.
A wealth tax requires the government to seize private property without compensation, in order to determine its value, and then tax it accordingly. Moreover, a wealth tax cannot be “equally apportioned”, and directly targets investments and investors.
This will lead to many unintended consequences, the first being people choosing not to save money to enter a high-income bracket, to prevent being unjustly taxed and targeted. A second consequence is that people will seek to move their assets overseas in offshore accounts, but Warren has noted that she would make that illegal.
What option does that leave? People will establish trusts to give money to their children, only to lock the money away for years, which could cause charitable giving to go down. The U.S. Trust Study of High Net Worth Philanthropy put out a 2017 study that shows 90% of affluent households give to charity. This trend is likely to continue every year, if wealth continues to be unobstructed.
What else would happen if Warren’s wealth tax will come into fruition? Billionaire investors who live in the U.S. will simply move their businesses and assets out of the country, employing foreign individuals, which will simply put hard working every-day Americans out of business. This would cause wages to rise more slowly and inevitably hurt our economy.
To put the icing on the cake, economists stated that Warren’s wealth tax would only raise 40% of the revenue she states it would bring in. Therefore, the programs that would be hypothetically paid for by this tax would either go bankrupt, or taxes would have to be raised on the middle class, as the rich simply do not have enough money to foot the expensive socialist bill.
A free market capitalist solution would be to lower taxes across the board. Studies have shown time and time again that lower tax rates bring in more government revenue. Look at the revenue rates of 1921 when there was a 73% tax vs. the rates in 1925 when the rates were cut to 24%. The lower tax rate brought in more revenue, as the wealthy are more inclined to hide their money and find loopholes when taxes are higher.
Therefore, the government actually received more revenue when the tax rates were lower. Liberals would then respond to this argument by stating that tax cuts lead to huge deficits. Yes, that’s true, if excessive government spending is not reined in by getting rid of waste, fraud, abuse, and unnecessary spending. That’s why we need a balanced budget and a fiscally responsible federal government.
Don’t fall into an economically devastating socialist trap known as the Wealth tax. It will destroy our economy as we know it.
Keyden Smith-Herold is the Founder/Editor-in-Chief of The Daily Analytical