American Consequences - April 2021


countries had a wealth tax... Today, only three still do. Other large countries like India have also experimented with a wealth tax before abandoning the concept. It wasn’t a change in sentiment toward billionaires that caused a reversal in these policies. Rather, it was real- world experience in implementing a wealth tax. Senator Warren at least partially acknowledges this problem in her own legislation. She allocates $100 billion over 10 years as a boost for the Internal Revenue Service to administer the tax. This would represent a near doubling of the agency’s budget, which is projected to be $12 billion in fiscal year 2021. But even with an unlimited budget, real-world experiences in other countries suggest that it’s unlikely the IRS could be successful in administering a wealth tax. France imposed a wealth tax, but it was riddled with exemptions that allowed wealthy individuals to shield certain assets from taxation. These exemptions included rugs, antiques that were more than 100 years old, stamp collections, zoological specimens, and items having numismatic value. And because it’s France, wine and brandy were also excluded. The result was a tax that collected a fraction of its estimated revenues. French bean counters expected it to bring in 5 billion francs, but it delivered only 2.8 billion in its first year. Even after repealing the wealth tax in 1986 and reinstating it in 1988, it remained an administrative nightmare for French tax collectors. According to a 2008 study, the tax reduced GDP by roughly the same amount as the revenue it produced. Furthermore, it led to an exodus of high-wealth individuals. Former Prime Minister Édouard Philippe estimated

It wasn’t a change in sentiment toward billionaires that caused a reversal in these policies. Rather, it was real-world experience in implementing a wealth tax. wealth, as doing so requires assessing the value of all of an individual’s assets. That includes real estate, privately owned businesses, stocks, cars, antiques, coin collections, artwork, wine collections, and much more. The precise value of these assets is not only extremely hard to ascertain, but it’s also extremely volatile. pitches this as a minimal sacrifice that the extremely wealthy can easily afford for the betterment of other Americans. Her rallying cry of “just two cents” may have struck a nerve with the populist Left, but her proposal leaves much to be desired. First of all, it’s extremely difficult to tax TAX EVASION This lends itself to a host of tax avoidance strategies that wealthy people can employ. As Andy Puzder, former CEO of CKE Restaurants, noted in a Wall Street Journal op-ed: “The tax would also give wealthy Americans an incentive to own illiquid assets with values that are easier to understate, rather than publicly traded stocks and bonds that have an observable value the Internal Revenue Service can feast on.” Indeed, this is exactly what happened in Europe. As recently as 1990, 12 European


April 2021

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