September 26, 2019


Do We Need a Wealth Tax? (Spencer Bokat-Lindell, Sept. 26, 2019, NY Times)

Even those sympathetic to the spirit of a wealth tax acknowledge that there are considerable pragmatic obstacles to its implementation. Even if there were sufficient political will to pass it, it could face a constitutional challenge. Megan McArdle, a libertarian Washington Post columnist, writes:

The big problem is Article 1, Section 9 of the Constitution, which forbids "direct taxes" on people or property unless they're "apportioned" -- doled out among the states by population. Instituting an income tax required a constitutional amendment to override that clause, and Warren's plan might well require another.

Both Mr. Sanders and Ms. Warren have cited numerous legal experts who say a wealth tax would be constitutional. But with the Supreme Court's composition being what it is, the question is far from settled.

There's also the matter of enforcement. As Paul Krugman notes, the wealthy are quite good at avoiding taxes and evading them illegally. And because many assets owned by the ultra-wealthy -- like artwork and diamonds -- aren't always traded on the market, Ms. McArdle writes, taxing them would mean "creating a lot of administrative capacity to track and price the assets, with the wealthy and their lawyers fighting every step of the way."

"If these difficulties prove insurmountable," writes Noah Smith, a left-leaning economist, in Bloomberg, "Warren and other egalitarian tax crusaders might consider an alternative -- an inheritance tax, which would close many of the loopholes that now riddle the U.S. estate tax." He adds:

Taxing all income from inheritances -- including trusts, foundations, gifts, estates, and any other kind of family transfers -- at a very high rate would yield a result similar to a small annual wealth tax, only its constitutionality would be less in doubt. And it would focus the tax on the rich people whose fortunes Americans are most likely to think of as being undeserved.

Skeptics of the idea of a wealth tax argue that it has a bumpy track record. While 12 European countries had a wealth tax in 1990, Greg Rosalsky writes in NPR, only three (Norway, Spain and Switzerland) still do. He writes:

According to reports by the OECD and others, there were some clear themes with the policy: it was expensive to administer, it was hard on people with lots of assets but little cash, it distorted saving and investment decisions, it pushed the rich and their money out of the taxing countries -- and, perhaps worst of all, it didn't raise much revenue.

Posted by at September 26, 2019 7:20 PM