The Democrats’ so-called “Billionaire Income Tax” now being written by Senate Finance Committee Chairman Ron Wyden (D-Ore.) with “input from the U.S. Treasury Department and the White House,” according to SWFI.
“It’s not a wealth tax, but a tax on unrealized capital gains of exceptionally wealthy individuals,” U.S. Treasury Secretary Janet Yellen told CNN on Sunday. That’s like saying you have a four-legged pet that eats kibble, barks, fetches, and looks exactly like a Golden Retriever — but it isn’t a dog.
Yellen told Jake Tapper, “I think what’s under consideration is a proposal that Senator Wyden and the Senate Finance Committee have been looking at that would impose a tax on unrealized capital gains, on liquid assets held by extremely wealthy individuals, billionaires. I wouldn’t call that a wealth tax.”
It’s a wealth tax. Worse, it’s a tax on the investments and productivity gains that make the entire country richer.
Let’s pretend for a moment that I’m a young entrepreneur whose company just went public. I’ve been personally scraping by to get my business going, working long hours and not taking much pay. Overnight, though, the shares I hold are worth a billion dollars. Let’s also pretend that you, dear reader, are a smart investor who bought a few shares in my IPO and tucked them away in your IRA account.
I don’t actually have a billion dollars. I just have these shares that the stock market values at a billion dollars. But according to Yellen, wealth tax-proponent Elizabeth Warren (D-Mass.) and Presidentish Joe Biden, I “made” a billion dollars yesterday. And being a naughty rich person, I must pay taxes on that money I don’t actually have.
So what do I do? I’m forced to sell off enough shares in my own company to pay the tax bill. What does that do to you, Mr. or Mrs. Smart Investor? My big sell-off reduces the value of your shares and your retirement account. In essence, you’re paying the “Billionaire Income Tax” even though you aren’t a billionaire and haven’t made any income. Every year aroundApril 15th there would be a big sell-off.
So not only is Yellen lying when she says it isn’t a wealth tax, she’s lying when she says it will fall only on the “extremely wealthy.”
I’m going to need at least one more cup of coffee before I can figure how, exactly, a wealth tax would stifle investment and innovation, so let’s just say for now that it would create several disincentives to smart investing, along with a few more perverse incentives toward making bad investments.
We’d be looking at a replay of the 1970s, when people were looking more for tax shelters than they were for smart investments. There are reasons the ’70s was the Malaise Decade, and that’s a big one.
But thank goodness that you only have to pay for the unintended (?) consequences of this wealth tax… for now. You won’t pay today, but someday you certainly will.
When the income tax first went into effect in 1915, the top rate was a mere 7% and fell only on those making $500,000 a year or more — that’s $13.5 million in today’s dollars. The vast majority of Americans paid the lowest 1% rate.
Today, the federal income tax ranges from 10%-37% and that’s on top of all the FICA withholding. Today’s top rate — more than five times higher than it was in 1915 — falls on those making about $500,000.
Which means top rate-payers are paying 5.5 more income tax on about one-thirtieth of the income. The lowest rate-payers are paying 10 times more on about the same fraction — and that still doesn’t count FICA deductions, which hit the poorest the hardest.
The income tax was sold by early 20th Century progressives as a way to sock it to the rich, but progressives made sure it become a way to sock it to everybody.You can bet your bottom dollar — if Congress doesn’t confiscate that, too — that today’s “Billionaire Income Tax” is tomorrow’s “Tax Your Middle Class Retirement Accounts Before You Even Retire Tax.” ✪
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