Bernie Sanders is pitching a new absurd economic idea that fortunately has no chance of ever becoming a reality.
“Sir, you’re saying that billionaires should not exist,” CNN host Chris Wallace said to the socialist Senator in a CNN interview. “So are you basically saying that once you get to $999 million, that the government should confiscate all the rest?”
“I’m saying that we should go back to a very progressive tax policy like what we had under Dwight D. Eisenhower,” Sanders replied.
“Which would mean that, over a billion dollars, it basically all goes to the government?” Wallace asked in response.
“Yeah. You may disagree with me, fine. Yeah, I think people can make it on $999 million,” Sanders added.
Wealth taxes have been attempted in the past, and always run into the problem of defining wealth. For example, how is the government to calculate the net worth of someone with a high percentage of their net worth in an illiquid asset such as art?
Of liquid assets, how is the government account for the value of assets that fluctuate by the second?
If a wealthy individual’s entire net worth is invested in a stock portfolio worth $990 million and it were to increase to $1.001 billion the next day, would he then have to cut the government a check for the $11 million difference immediately? What if the stock were to then fall in value by $20 million in coming days, which would’ve put them below the “$1 billion” threshold again even if they didn’t have to cut the government check?
Similarly, for those who have large shares of their wealth tied up in private stock, would they be forced to sell off holdings if its assessed value were to exceed $1 billion, and who would they sell it to if there’s no buyer at its subjectively-determined hypothetical price? Private valuations are often lofty to begin with. Countless promising tech companies went public during the 2020-21 “dot-com bubble 2.0” only to be worth a few pennies on the dollar of their private valuations on public markets.
For logistical reasons like this, among others, most European countries that formerly had wealth taxes have scrapped them (going from 12 in the 1990s to only three today). With wealth taxes, the cost of enforcement simply isn’t worth the effort.
As for Bernie’s rhetoric about past top tax rates (which were on income, not wealth), as I noted in my book “Debunk This: Shattering Liberal Lies,” the high marginal tax rates of the past were mostly higher in name only, mainly due to the massive amount of loopholes that used to exist in the past tax regimes, and the fact that rates applied to much higher levels of income than they do today:
As everyone who has filed taxes knows, the marginal tax bracket you fall into isn’t the effective tax rate you pay, because of deductions and other factors. In the past, the tax code was ridden with loopholes (many of which were closed when rates were lowered). When the Revenue Act of 1935 was passed, raising the top income tax bracket to 75 percent, literally only one person paid it: John D. Rockefeller. Only eight taxpayers paid the 91 percent rate present in 1960.
It is true that we did use to have massively high marginal tax rates, but it was never the case that we had high effective tax rates. Nor are the top rates of the past comparable in the levels of income they affect. The new top income tax rate for households of 37 percent kicks in at $500,001 of income. The 91 percent rate in 1955 kicked in at an inflation-adjusted $3.5 million in [2019 dollars].
Regardless, if we were to implement a new top marginal tax rate on income above $1 billion instead of a wealth tax, it would affect roughly zero people in any given year, since anyone earning that much is going to be receiving it in the form of capital gains, not ordinary income.
Matt Palumbo is the author of Fact-Checking the Fact-Checkers: How the Left Hijacked and Weaponized the Fact-Checking Industry and The Man Behind the Curtain: Inside the Secret Network of George Soros
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