The only way that rich people could pay Bernie Sanders’s proposed annual 8% wealth tax would be by selling enough stock to get the money to pay the tax. This would drive down stock prices, and would hurt every single middle class person who has a pension, a 401K, or an IRA.
Billionaires don’t just have billions of dollars in cash just sitting around, waiting to pay Bernie Sanders’s proposed annual 8% wealth tax.
For example, the richest person in the world is Jeff Bezos, the guy who created amazon. 99.9% of his wealth is in the form of stock in the company that he himself created. In the beginning, that company was worth zero. The only reason that it has value today is because he created that value. The stock in any company is worth only as much as what people are willing to pay for it.
If Sanders forced Bezos to pay an 8% annual wealth tax, Bezos would have to sell enough of his amazon stock to get the money to pay the tax.
That would drive the price of the stock down.
And that would hurt every single middle class person who has a pension, a 401K, or an IRA.
And it gets even worse than that.
Sanders tried to justify his annual 8% wealth tax by saying
“Billionaires should not exist.”
But if billionaires don’t exist, then the companies that those billionaires created would not exist either.
And the goods and services that are provided by those companies would not exist either.
Which is why Sanders also said that people in the U.S. have too many choices when it comes to deodorant and shoes, and that it’s a “good thing” when people have to wait in line to buy food.
Sanders said that Americans have too many choices when it comes to deodorant and shoes. These are his exact words:
“You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.”
Well, as it turns out, the policies of Hugo Chavez and Nicolas Maduro have caused a shortage of both deodorant and shoes in Venezuela.
Sanders also said that it was a “good thing” when people have to wait in line for food.
These are Sanders’s exact words:
“It’s funny, sometimes American journalists talk about how bad a country is, cause people are lining up for food. That’s a good thing! In other countries people don’t line up for food: the rich get the food and the poor starve to death.”
You can see and hear Sanders saying those words in this video:
https://www.youtube.com/watch?v=zJBjjP8WSbc
Well, as it turns out, the policies of Chavez and Maduro have caused shortages of food in Venezuela.
For example, in May 2017, the Washington Post reported:
In a recent survey of 6,500 Venezuelan families by the country’s leading universities, three-quarters of adults said they lost weight in 2016 — an average of 19 pounds… a level of hunger almost unheard-of outside war zones or areas ravaged by hurricane, drought or plague.
Then in February 2018, Reuters reported:
Venezuelans reported losing on average 11 kilograms (24 lbs) in body weight last year… according to a new university study…
That’s 43 pounds in two years.
Here’s a photograph from 2014 of people in Venezuela waiting in line for food: (posted here under fair use from http://www.businessinsider.com/long-food-lines-are-in-venezuela-2014-2 )
You can read all about how Venezuela ended up like this at this link.
All of this happened in Venezuela because Chavez and Maduro decided to wage war against the rich.
What is exactly what Sanders is trying to do.
In fact, I have never, ever heard Sanders criticize any of the specific economic policies of Chavez or Maduro.
Sanders hasn’t criticized Chavez or Maduro for setting price controls on food.
Sanders hasn’t criticized Chavez or Maduro for nationalizing farmland.
Sanders hasn’t criticized Chavez or Maduro for nationalizing the electric, steel, cement, and construction industries.
On the contrary, every single economic policy that Sanders has ever expressed support for adopting in the U.S. is completely in line with the economic policies that were enacted by Chavez and Maduro in Venezuela.
You cannot help the poor and the middle class by hurting the rich people who provide the goods and services, as well as the jobs, that the poor and the middle class need.
Bernie Sanders’s hatred for the rich exceeds any concern for the poor and the middle class that he claims to have.
Sanders would rather hurt the middle class and the poor, as long as it also meant that he got to hurt the rich.
A falling tide lowers all ships.
Sanders has repeatedly criticized the existence of “millionaires and billionaires.” (Although he stopped doing so after the New York Times reported that he was one of them.)
Sanders defended his own millionaire status by saying the following:
“I wrote a best-selling book. If you write a best-selling book, you can be a millionaire, too.”
I agree with Sanders.
But here’s the difference between what I believe and what Sanders believes: I believe that it’s a good thing when any person becomes a millionaire or billionaire by providing their customers with the goods and services that their customers choose to buy. By comparison, the only person whose millionaire or billionaire status Sanders has ever defended is his own.
And I never trust anyone who doesn’t hold themselves to the same standards that they expect everyone else to follow.
Why a “Billionaire” Wealth Tax Would Hurt the Working Poor and the Middle Class
Why a “Billionaire” Wealth Tax Would Hurt the Working Poor and the Middle Class
Although the wealth tax was drafted with the poor in mind, its passing could cause them more harm than benefit.
By Mark Hornshaw
October 4, 2019
Vermont Senator Bernie Sanders wants to tax billionaires out of existence, or at least make them an endangered species. His proposed wealth tax of up to 8 percent per year would mean “the wealth of billionaires would be cut in half over 15 years,” he says.
The progressive tax would start at 1 percent on retained wealth over $32 million, rising to 2 percent over $50 million, and so on, reaching to the top rate of 8 percent on wealth over $10 billion. Whatever is left would be taxed again the following year, and every year until it was gone.
Let’s assume for the sake of argument that you don’t have an ethical problem with taxing people a second time on wealth that has already been taxed. And let’s set aside the issue of whether billionaires would simply leave their wealth on the table for Sanders to take, rather than fleeing to places with less ambitious governments. Let’s posit for the sake of argument that the tax achieves its aims.
The question then becomes, would it be beneficial for the working poor who Sanders is appealing to? Would it leave them better off or worse?
Net Worth Isn’t What You Think It Is
Amazon founder Jeff Bezos has a net worth of $109 billion, according to Bloomberg. If you think you can get a decent abode for $1 million, then it seems like he could buy 109,000 plush houses. Does anybody need that much wealth? Wouldn’t it be better off going to people who need it more? How does leaving that corporate wealth in private hands help the average person? This is the simplistic way that Sanders wants you to think about the situation. But this is not a true reflection of the situation at all.
In pre-capitalist feudal times, wealth was acquired by conquest and subjugation. The Duke in the castle was there because his group was militarily the strongest, having defeated the previous band of marauders, who defeated everybody else in the area. A Duke’s castle might be sacked by the army of another Duke, but the common person’s lot in life would be the same, albeit with a new master.
In this system, nearly all production was for the benefit of the wealthy “strongman.” The tailor-made fine clothes for the Duke. The blacksmith shod the Duke’s horses, the woodworker made the Duke’s furniture, and so on. For everybody else, virtually nothing was produced at all apart from meager subsistence. It was not possible to “become” wealthy in such a society—there was no peaceful process by which it could occur.
Sanders and many others would like you to view the world in that paradigm. But that is not how a market economy works.
Sure, the rich still appreciate their custom furniture and fine clothes—and you can make a modest living as a craftsman or tailor. But you don’t become a billionaire yourself from those activities. You become a billionaire in a market economy by producing products for millions, or even billions of people.
The people who started Amazon, Google, Walmart, Apple, Microsoft, and Disney got rich through their unparalleled level of service to the masses. They were “voted rich” through the voluntary choices of millions of people.
Amazon is one of the most amazing engines of poverty reduction and enhancement of living standards the world has ever seen. They literally make the working poor less poor, by offering them goods and services they like at prices they can afford. (Not to mention the opportunities Amazon creates by empowering and encouraging entrepreneurs to start new side businesses at very low start-up cost.)
The Problem with a Wealth Tax
I’m sure Bezos has some nice houses (as does Sanders) and other luxury items that would make our minds boggle. But not $109 billion worth. Most of the wealth of people like Bezos consists of shares in the companies they started, which were initially worth zero. It is other people’s recent valuations of those shares on the stock exchange that we are quoting. The figures come from multiplying the last traded parcel of shares by the total number of shares owned – not from any realistic offer to purchase the whole company.
Somebody like Bezos does not normally keep a spare $8 billion under the mattress, just in case Uncle Sam asks for it. In order to raise that money, he would have to sell down some of the stock of his company, and probably much more than $8 billion worth at the current valuation. But who would buy them?
When you credibly threaten to confiscate wealth, valuations can plummet. Not to mention the fact that all other billionaires (at least American ones) would be in the same predicament, being forced sellers of large portions of their own stocks.
Perhaps during the initial rounds of the tax, there may be some small investors, small enough to be flying below Sanders’s radar for the time being. But if these shareholders thought they could do a better job running those companies, they could just buy those shares on the open market right now. By not doing so in an un-coerced market, they are indicating that they feel less competent than the current owners.
So over time, it would be unlikely that any new Amazons or Apples would be started, and existing firms would be placed in ever less capable hands, with ever lower valuations as the wealth tax works its way down the line from billionaires to millionaires.
Sanders would either have to tax a vastly diminished pie or ask foreign investors to buy up US firms or, more likely, just confiscate shares directly and nationalize the companies. After a very short time, these companies would end up being majority-owned by the state – a veritable “trillionaire.”
Who’s Best Suited to Run a Business?
But perhaps you agree with Sanders that billionaires should not even exist, so it is still worth it anyway, regardless of how much tax is raised. The key question is, would the state do a better job running those companies than the entrepreneurs who started them or the investors who may have voluntarily bought them?
This is an important question, since these companies were started to provide goods and services to the masses, so it is the poor and middle class who will suffer if they do not operate efficiently. But now, instead of being run by competent, productive, future-oriented billionaires, these companies would be managed by an incompetent, non-productive, ultra-short-term-oriented trillionaire institution.
A billionaire businessperson could, if they wanted to, spend their fortune building statues of themselves. But that would only be a drain on the wealth they had acquired through previous rounds of serving customers. They would quickly find that it does not generate new income, and would promptly stop, choosing instead to invest in ways that expand the business by serving even more people. There is an effective feedback loop to weed out unproductive choices and reward productive ones.
But the state, for its entire existence, has had the privilege of being able to just confiscate any resources it wants and order them to be used in any way its rulers direct. It can choose to build statues, pyramids, or whatever it wants, whether or not it serves real consumer needs. Neither does it have to worry about competition from new entrants doing a better job; it can just ban them. Since nobody gets to choose whether to commit the resources or buy the finished goods, there is no way of knowing whether those resources were spent wisely or poorly.
This does not mean people in government don’t make any good decisions. They will stumble upon some good ones over time. But the people involved do not bear any direct consequences for their bad decisions, and neither are they directly rewarded for their good decisions. They have less effective mechanisms for weeding out the bad decisions and doubling down on the good ones. There is more incentive for managers and employees to make their own job more comfortable and less demanding, and there is less consequence for leaving customers twisting in the wind.
In short, a wealth tax means state-owned enterprises, and a state-owned enterprise can get away with being unresponsive, self-absorbed and lazy.
If you dislike productive billionaires, you ought to be 1,000 times more suspect of confiscatory trillionaires.
Elizabeth Warren doesn’t seem to know that France’s wealth tax caused a REDUCTION in tax revenues
This is what the Washington Post wrote about France’s wealth tax:
http://www.washingtonpost.com/wp-dyn/content/article/2006/07/15/AR2006071501010.html
Old Money, New Money Flee France and Its Wealth Tax
July 16, 2006
Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.
Anyone who looks at the above numbers would know that all of that capital flight means less income tax, less capital gains tax, less sales tax, less social security tax, and less of many other taxes too. Whatever tax revenue France gets from its wealth tax is more than dwarfed by the reductions in other taxes.
And Warren’s proposed wealth tax rate is actually higher than France’s, so its potential for harm is actually bigger as well.
That doesn’t sound like a good idea for anyone who wants to increase the amount of tax revenue that gets collected by the government.
On the other hand, if Warren’s real goal is to appeal to Democratic primary voters who feel envy and jealousy, and who don’t understand math or the concept of capital flight, then her proposal is a brilliant strategy. Her horrible proposal could very well get her elected President in 2020.
Dan from Squirrel Hill's Blog 