Recently, Bernie Sanders held a rally in the Boston Commons to promote his presidential campaign in which he addressed issues such as affordable housing, healthcare, and childcare. Yet how can the US afford to address these issues when we are $22.7 trillion in debt? Bernie has a solution: a wealth tax. If you have followed Sanders’ campaign, you would know that he is very passionate about the 1% and their wealth, but not in an admiring maner. Bernie does not support the high concentration of wealth in the US’s ‘billionaire community’ and is attempting to reach a distribution of wealth that reflects his vision of what the United States of America should be. A brief overview of his plan is to tax the rich to give to the poor, a sort of Robin Hood strategy to overcome poverty and improve the lives of the middle class. He plans to tax the rich at different rates depending on their income. Is this plan possible? Probably not.
What Is A Wealth Tax?
A wealth tax is an annual tax on the total net wealth that a person holds. It is their total assets subtracting their debts. A simplified way of looking at it is using the concept of property taxes. Rather than taxing ones property, a wealth tax is applied to one’s net wealth depending on their social class. This tax will only affect people with a net wealth over $32 million, affecting nearly 182,000 people. Sanders’ plan is to place a 1% tax on wealth over 32%, and an 8% tax on wealth above $10 billion. The main purpose of this tax is to lower economic inequality and to grow the middle class in order to reach an appropriate distribution of wealth. A main issue within this plan is that wealthy people do not hold all their assets in stocks and bonds, most of them have expensive artwork, jewelry, etc. So how will we be able to calculate assets to know how much to tax? We will have to expand the IRS resources, so they are able to easily calculate tax percentages (“How Would A Wealth Tax Work?”).
Has This Worked In Other Places?
Multiple European countries have attempted to enforce a wealth tax but only three countries still implement it. Spain is one of the european governments that are still carrying out this tax. It was first introduced in 1977, and was maintained until 2008. The reason why it ended in 2008 was because of the financial crisis that affected every economy on a global level. It was then implemented again in 2011 to increase public finances. Spain taxes 0.2% on incomes of €700,000 and a tax of 2.5% for €10.7 million. This is dependent on the region meaning those who live in Madrid, the capital, do not have to pay the tax. Other places such as Norway, Switzerland, and Belgium have introduced wealth taxes to increase revenue within their country (Zeballos-Roig). Other countries who formerly had a wealth tax such as Germany, France, Austria, and Sweden abandoned these ideas because of the outcome. Germany analyzed how this would affect their economy and estimated that their GDP would lower by 5% and employment would decline 2%. For Sweden, the wealth tax drove out some of the countries most affluent citizens such as IKEA founder, Ingvar Kamprad. Austria abolished the wealth tax, due to how difficult it was to calculate someone’s wealth because as stated before, wealth is not just income, it can be art pieces, jewelry, cars, and even race horses (The Editorial Board).
Why Won’t This Work?
Implementing a wealth tax will not work due to marginal tax rates. This is when you add up your income, subtract some deductions, and then you will be able to see how much you owe. If this increases to 70%, it will impact mostly businesses, not billionaires. Another reason is because the rich do not have a basic income like lower classes do. They earn their income based on the performances of their investments, which is known as capital gain. Yes, capital gains are taxed but at a low rate that ranges from 0% to 20%. Estate taxes are another way to have the rich pay taxes, but the rate is set at 40% which is only applicable to estates worth more than $11 million (“Why Taxing the Rich Doesn’t Work”). Finally, this tax is seen as unconstitutional according to Article I, section 9, clause 4, which states that direct taxes must be divided among the states by population (“A Wealth Tax Is Constitutional”). Direct taxes, are income taxes not carriage taxes, real estate taxes, and wealth taxes. This will lead to the rich to hiding their wealth by either spending their money or donating to charities,
As great as it sounds to have affordable housing, healthcare and childcare, imposing a wealth tax is not a fully effective plan. The rich will hide their income. It will impact businesses more than it will the 1%. Additionally, it is unconstitutional. Therefore, another source of money will have to be found in order to achieve economic equality and an efficient distribution of wealth restored once again.
“A Wealth Tax Is Constitutional.” Www.Americanbar.Org, www.americanbar.org/groups/taxation/publications/abataxtimes_home/19aug/19aug-pp-johnson-a-wealth-tax-is-constitutional/. Accessed 4 Mar. 2020.
“How Would A Wealth Tax Work?” NPR.Org, www.npr.org/2019/12/05/782135614/how-would-a-wealth-tax-work. Accessed 4 Mar. 2020.
The Editorial Board. “Where Wealth Taxes Failed.” WSJ, Wall Street Journal, 4 Nov. 2019, www.wsj.com/articles/where-wealth-taxes-failed-11572910833. Accessed 18 Dec. 2019.
“Why Taxing the Rich Doesn’t Work.” Www.Countable.Us, www.countable.us/articles/21913-taxing-rich-doesn-t-work.
Zeballos-Roig, Joseph. “4 European Countries Still Have a Wealth Tax. Here’s How Much Success They’ve Each Had.” Business Insider, www.businessinsider.com/4-european-countries-wealth-tax-spain-norway-switzerland-belgium-2019-11#belgium-enacted-a-limited-wealth-tax-last-year-on-securities-accounts-containing-over-500000-4. Accessed 4 Mar. 2020.