The mere threat of a ballot initiative to impose a one-time wealth tax in California has billionaires fleeing to other states. Of course, the solution from Sen. Bernie Sanders (I-Vermont) is to propose a more extreme version at the federal level.
Sanders wants to confiscate 5 percent of all assets every year from America’s billionaires, with the goal of stealing half their fortunes. He estimates, unrealistically, that this could raise $4.4 trillion over 10 years to fund a wish list of progressive fantasies, including something akin to a universal basic income and more government-managed health care.
The socialist’s goal is to make this a litmus test for 2028 Democratic presidential candidates, just as his Medicare-for-all proposal was in 2020. Rep. Ro Khanna (D-California), who has made no secret of his presidential ambitions, will sponsor the House version of Sanders’s bill.
Even for billionaires, a 5 percent tax on every asset they own would virtually wipe out any gains they make in a normal year. No one that rich keeps all their money sitting around in a checking account. They own real estate and make long-term investments that might not pay out for years.
In addition to being unconstitutional, a federal tax on unrealized gains would force people to sell illiquid assets every year. A lot of AI founders, for example, are billionaires on paper, but their shares are effectively worthless until their businesses deliver on their promises and go public.
The federal government struggles to administer the already complicated tax code; thousands of new bureaucrats would need to be hired to fight with tax lawyers over asset valuations for collections of wines, art, jewelry, and yachts. (America is currently home to roughly a thousand billionaires, including Post owner Jeff Bezos.)
For all the protestations about “fairness,” the U.S. already has one of the most progressive tax systems in the developed world.
Sanders’s revenue estimates were calculated by Emmanuel Saez and Gabriel Zucman from the University of California at Berkeley. They factor in a tax avoidance and evasion rate of just 10 percent, reasoning that people won’t leave the United States. But studies analyzing what other wealth taxes have raised show they raise less than their boosters promise because people shift their behavior. Many billionaires would simply flee or find new ways to shield their holdings. Plenty of European countries already learned this lesson.
Outgoing California Gov. Gavin Newsom (D), who has a better shot than Khanna of being the party’s standard bearer in two years, opposes the wealth tax ballot initiative because he understands how much it would further hobble California’s competitiveness. Much of Silicon Valley could relocate to other states that would love to incubate the next unicorn.
Sanders and Khanna take as a given the capacity of American capitalism to deliver continuing prosperity, no matter how many anchors they weigh it down with. Yet economic history proves that future growth is never guaranteed.
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