Elizabeth Warren’s wealth tax proposal has our richest parasites fainting over the imminent death of capitalism. Reasonably respected pundits and authors are decrying the concept as a certain way to suffocate innovation, a slide into socialism, difficult to implement, and constitutionally illegal (I’ll leave that for the moment). Obviously, a wealth tax is not a new idea. It has been used for decades in the northern European countries and, as recently as 2012 had some conservative support in the US. The Conservative Case for a Wealth Tax .
I’ll provide a list of resources at the end for those who are interested in delving into the history and constitutionality of a wealth tax. For now, I’d just like to point out a simple but not very common framework for looking at the issue.
What is wealth? At it’s most basic (disregarding the wealth of friendships, love, and health, wealth is the assets we own. If I have a stock portfolio, that is wealth. If I have an art collection, that is part of my wealth. If my parents left me antique silverware or a valuable coin collection in their will, they were transferring wealth to me. These are the things we commonly think about when the idea of a wealth tax is promoted.
But an individual’s wealth has some more mundane aspects that the non-wealthy, those who are not, how shall I say it, ‘people of means’ share. If we own a car, or a mobile home, or a house for those lucky enough to that part of the American Dream, those assets are, indeed, wealth. Any disagreement with that?
Well, I live in NH, with a governor who in his last State of the State address, echoed the pledge of GHWB – “No new taxes!”. In this case, he was specifically referring to income tax and sales tax, neither of which we have. Instead, the state is funded through business taxes, sin taxes (on liquor and tobacco), property taxes, and rooms and meals tax (preferentially hits visitors to the state). And, locally, property taxes fund more than 60% of education costs. (NH has one of the 5 lowest state contributions to education in the whole country. )
What are property taxes? They are a tax on the value of the real estate (real property) that is assessed by our towns and cities. But, isn’t that a tax on an asset? Isn’t that asset, in fact, wealth? NH also has an annual registration fee for automobiles that is calculated on the current worth of the vehicle. It’s hard to argue that that isn’t a wealth tax.
And one of the more insidious and regressive parts of both of these taxes is that they are calculated on the appraised value of the asset, not the fraction of the asset that is actually part of your wealth. So, if you have a $60,000 mortgage outstanding on a $100,000 house, your wealth is the difference ($40,000) but you are taxed on the whole $100,000 value. (The same is true for a vehicle that you are financing)
So, not only is a wealth tax not a new idea but we are already paying it. And the current system unfairly (surprise, surprise) targets the lower and middle classes whose largest share of assets/wealth is in real property. The millionaire/billionaire/zillionaire has a much larger fraction of their wealth in assets like stocks and investment funds and those are the assets that Elizabeth Warren wants to add into the tax equation. I could not agree more.
Promised sources:
Legality of a wealth tax.
Looking Beyond Income, to a Tax on Wealth (nyt)
The Constitutional Fiasco of a Wealth Tax (National Review)
Is it possible:
Elizabeth Warren Wants a Wealth Tax. How Would That Even Work?
How to Soak the Rich (The Atlantic)
I know, I know, the crisis de jour is the emergency declaration but this is important. Now I’m off to see a Kamala Harris town hall event in Portsmouth. Yay!
_____________________________________________________
Hey! Thanks to the Rescue Angels!