Democrat presidential nomination candidate Sen. Bernie Sanders (I-VT) unveiled a “tax on extreme wealth” that targets billionaires with the intention of cutting their wealth in half over 15 years.
“Billionaires should not exist,” Sanders stated in a tweet after announcing his proposal on September 24.
The proposed wealth tax would be levied annually on well-to-do individuals’ or married couples’ net worth. The tax would have progressive rates and would be imposed on top of other taxes paid.
The annual rate for the tax on a married couple would start at 1 percent of net worth above $32 million, and reach 8 percent on wealth over $10 billion.
Sanders’ plan outbids a similar proposal by another potential Democrat presidential candidate, Sen. Elizabeth Warren (D-MA), for an “Ultra-Millionaire Tax.” Sanders says his plan would raise $4.35 trillion over a decade. Warren’s economic advisers project her wealth tax would raise $2.75 trillion over 10 years.
Bucking International Trend
Other countries have reduced the burden on capital in recent years, says Chris Edwards, director of tax policy at the Cato Institute.
“The Warren and Sanders wealth taxes run counter to the international trend of declining taxes on capital,” Edwards said.
Wealth taxes have been tried in a dozen Western European countries, and most have been repealed, Edwards says.
“The number of European countries with wealth taxes has fallen from 12 in 1990 to just three today,” Edwards said. “Even the welfare states leftist Americans most admire—such as Sweden and France—repealed their wealth taxes.”
European governments found wealth taxes damaged their economies and produced little revenue, Edwards says.
“Europeans found that wealth taxes encouraged avoidance, evasion, and capital flight,” Edwards said. “In most countries, wealth taxes raised little revenue and became riddled with exemptions.
“If the United States were to actually impose a wealth tax, it would be repealed within a year or two as the economy sunk and the massive administrative complexity became clear,” Edwards said.
‘Poorly Designed’ Tax
Under wealth tax plans, money that is currently being invested in the economy would instead be transferred to the federal government, says Adam Michel, a senior policy analyst at The Heritage Foundation.
“Taxes on wealth are poorly designed taxes on investment,” Michel said. “Investment is the lifeblood of our economy. It’s needed to add new jobs, update aging factories, and develop new technologies,” Michel said.
“Under a wealth tax, the world’s wealthiest investors—many of whom live in the United States—would shift their businesses elsewhere, would employ citizens of other countries, and would raise wages in the U.S. more slowly.”
‘Don’t Get Too Successful’
A wealth tax would have a corrosive effect on society, Michel says.
“Our public policy sends a message about our culture, our institutions, and what we value,” Michel said.
“A wealth tax says, ‘Don’t get too successful here,” Michel said. “We want only middling ideas. If you have a really good idea, don’t sell it to the rest of the world, or we’ll hit you with a penalty.’
“In summary, wealth taxes are a terrible idea,” Michel said.
Bonner R. Cohen, Ph. D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.