Sen. Elizabeth Warren has introduced an “ultra-millionaire” tax that would apply to households with $50 million or more in net worth. This is on the heels of comments from Rep. Alexandria Ocasio-Cortez, who supports a 70-percent tax rate on “tippy top” earners.
These ideas are ultimately more about politics than public policy, but as policy ideas they would fail to generate significant revenue or address economic inequality. Instead, higher taxes aimed at the uber-rich would take resources out of the private sector — and maybe even out of America — where they could be used to invest in U.S. businesses, create jobs, or fund charitable projects.
The premise behind wealth taxes is the attitude once expressed by former President Obama to business owners: “You didn’t build that.” While we can all acknowledge that government services are helpful to everyone, rich or poor, we should take care not to paint the economy as a zero-sum game; just because one person has a lot of money doesn’t mean he stole it, precluded others from earning it, or now owes the government (or any other party) a piece of that wealth.
Rather than denigrate wealth creation, we should welcome it: Often, individuals, families and businesses that have generated the greatest amount of wealth have often left numerous new jobs and opportunities in their wake as a byproduct of the valuable goods and services they’ve offered. And they’ve often done so fighting government red tape and complex, oppressive taxes at every turn.
Simply put, it is hubris for government leaders to presume that they can better spend or invest money than wealthy individuals who have already proven to be financially savvy. Consider the list of ridiculous projects that have received government funding in the annual Wastebook issued by Rep. Tom Coburn’s office. Do we really need to take more money out of the private sector to fund, say, more poetry in America’s zoos?
Our leaders should address the problems in our current fiscal picture before coming to Americans (rich or poor) with a (forceful) open hand.
Progressive politicians like Warren and Ocasio-Cortez pretend that wealth taxes are a step toward “distributive justice,” or economic equality. Equality (of opportunity) is a noble goal, but there are two ways to reduce inequality: We could punish the wealthy, signaling disdain for success, or we could work to improve the lot of those on the lower end of the wealth gap. Increasing taxes — on the wealthy or the poor — is counterproductive to this end.
In fact, as Investor’s Business Daily points out, since 1990 the number of OECD countries who have imposed wealth taxes had decreased from 12 to four. The countries that abandoned wealth taxes learned from their failed experiments that very wealthy people are very mobile people; they will flee the country and take their assets with them. These are assets that could be used to start new businesses, create new job opportunities, and yes, feed government coffers at reasonable tax rates.
The extreme (although accurate) example of redistribution-gone-bad is today’s Venezuela, which demonstrates clearly the words of Margaret Thatcher: “The problem with socialism is that eventually you run out of other people’s money.” The economic collapse of the socialist country didn’t fix inequality but exacerbated it.
Even within the United States there is some evidence that high taxes — not low taxes — are associated with inequality. Consider the top states for economic equality: Utah, Alaska, New Hampshire, and Wyoming: Wyoming and Alaska have no personal income taxes. New Hampshire has no sales tax. (Utah, not incidentally, has the nation’s highest charitable giving rate). On the other hand, the states with the biggest economic inequalities (New York, Louisiana, Connecticut and California) have some of the highest tax burdens in the nation.
Warren and Ocasio-Cortez are relying on popular support for their bad ideas, which have little to offer beyond political pandering to the far left. Wealth taxes won’t help anyone, but they may do serious harm. We should put class warfare aside and focus instead on practical solutions to make success more attainable for everyone.