There is actually some merit in this argument. One of Adam Smith’s principles of taxation is that only people who can pay should be taxed. The rationale, of course, is that people who are productive and thus have income, use more government services than those who do not, and should pay for it.
Of course, that argument goes out the window under the “new” philosophy of government that started edging out the traditional view of the role of the State about two-hundred years ago. Instead of the State’s job being care of the common good — that vast network of institutions within which people become more fully human through their own efforts — the State’s role became perceived as care of all individual good.
|Henri de Saint-Simon|
This was probably best articulated by the early socialist and inventor of one of the “New Christianities” that sought to replace traditional Christianity with the Democratic Religion of socialism, Henri de Saint-Simon. As he said, “The whole of society ought to strive towards the amelioration of the moral and physical existence of the poorest class; society ought to organize itself in the way best adapted for attaining this end.” (“Saint-Simon,” Encyclopedia Britannica, 19: 14th Edition, 1956, Print.)
That is, instead of enforcing contracts, providing a level playing field, and ensuring equality of opportunity and access to the means of each person being able to live what Aristotle called “the good life” (with adequate provision made for the unfortunate who had no other recourse), the State’s job became construed as ensuring that everyone had whatever those in power decided was a “good life.”
To finance the Welfare, Nanny, or Servile State (whatever you want to call it), it seems only right that anyone with gigantic piles of cash that they can’t possibly spend in a thousand lifetimes should surrender some of their pelf — obviously ill-gotten, because labor is the only productive input, and nobody’s labor is worth that much — for the benefit of everyone else so that everybody can have a decent life . . . as defined by somebody else.
There are quite a few problems with that, from denying that private property is valid to the incredibly expanded role of the State. The big problem, however (at least in “practical” terms) is the vast wealth of the super-rich isn’t in the form of cash that can be confiscated, taxed, or otherwise diverted from its current holders into the coffers of government for reallocation. No, it’s in the form of capital (corporate equity), not cash . . . and that’s another problem.
|It's okay, he's speaking Chinese.|
For the wealthy to pay a wealth tax of a modest 25% on the current value of their holdings, virtually all of them would have to liquidate a large chunk of that wealth in order to cough up the cash. Take, for example, Jeff Bezos, whose accumulated pile is somewhere in the rather exclusive neighborhood of $191.4 billion. His gross income, however — the cash he gets, out of which he would pay his taxes — was $1.7 million in 2019.
Now, a 25% wealth tax would mean that Poor Ol’ Jeff gets socked with a tax bill of $47.85 billion . . . or 28,148 times his annual income. Since all taxes are, in effect, income taxes (what else are you going to pay them with?), Ol’ Jeff would have an effective income tax levy on top of whatever else he pays, of 2,814,800%.
How about we reduce the tax rate to 10%? Not much better. POJ (Poor Ol’ Jeff) would get a tax bill of $19.14 billion, or an effective income tax rate of 1,125,882%. How about a 1% tax, such as the rest of us pay on real estate? $1.914 billion, an effective income tax rate of 11,259%.
Conclusion? To pay even a 1% special wealth tax levy, POJ is going to have to liquidate some of his holdings . . . and that means Trouble, Big Time. Here’s why.
|Not how the rich keep their wealth.|
First off, who has the cash to purchase even $1.914 billion worth of equity shares at one go? Not the other super-rich — they’re getting socked, too. That leaves either foreign super-rich (who don’t have that much cash lying around, either) or a government.
The U.S. government? Hardly. It’s the U.S. government that is trying to raise cash, not figure out yet more ways to spend it. Giving someone the cash to pay their taxes would be a wash, and a washout, leaving the government and POJ worse off than before.
That means a foreign government, and we know which one will be standing first in line. That’s right, China. If they use their foreign currency reserves or print up money to purchase equity at POJ’s fire sale, China ends up with a significant stake in Amazon . . . which they would almost certainly leverage as soon as possible into a controlling interest. Multiply that times all the other U.S. super-rich, and guess who ends up owning most of the U.S. economy?
And believe it or not, that’s a best case scenario!
Suppose POJ and the other super-rich say they won’t sell out to China. They prefer to dump their equity shares on the U.S. market. Now you’re looking at a financial firestorm that makes the 1929 Crash look like a pink tea party.
Even a few million being dumped on the market by the super-rich would start a panic, and we’re talking billions here, all at once. Prices would plunge, and then accelerate as anyone holding corporate shares would rush to lock in some value before the final plunge wipes them out. True, the margin calls would be minimal compared to 1929, but the losses would be cosmically greater on fully paid shares as people lost actual cash, not credit. Pension plans would be wiped out along with personal savings invested in mutual funds.
And guess who would be there with cash in hand to pick up massive amounts of corporate equity at bargain prices?
So, is there an alternative to China becoming the U.S.’s financial and economic overlord?
Absolutely. It’s called the Economic Democracy Act, and the sooner it gets enacted, the better.