Many people resent the ultra-wealthy, especially those with a billion dollars or more of it. If we want to force these people to live in other lands, we can, but do we want to?
In the wake of the splash that rookie Congresswoman Alexandria Ocasio-Cortez recently made in the media with her proposal of a 70% marginal tax rate for earned amounts over $10 million a year, another Democrat has come up with another tax idea of her own, only this one is a much bigger bomb.
We might think that the 2% wealth tax on amounts over $50 million and 3% on wealth over a billion dollars may not be all that significant. 2% and 3% are much smaller numbers than 70% after all, and what’s a couple of percent when you have that much money.
As was the case with Rep. Ocasio-Cortez’s idea, it was met with much disdain among those wealthy enough to need to care. Oaktree Capital’s CEO Howard Marks was the latest to weigh in on these suggested tax reforms, and he strongly cautions us against considering such things.
Sen. Warren shot back that we should expect billionaires to object to this because they are billionaires, but this issue runs much deeper and risks much more than just seeing some very wealthy people get upset and complain.
Marks is himself a billionaire, so there no doubt is a personal side to his remarks, but his focus isn’t so much on the disappointment and loss of money he and fellow billionaires would suffer at the hands of these tax reforms, it’s more about what their response would be, and would not be one that our economy would ever welcome or perhaps not even be able to reasonably withstand.
The self-professed rationale behind these proposals of raising the tax roof on the very wealthy is to seek to reduce the gap between the wealthy and the poor, not by looking to help the poor but to cut down the rich a few notches.
Marks’ remarks may have been originally inspired by the 70% solution, but it applies to the 2% and 3% solutions as well, and more so actually.
There Will Be A Lot Less People at the Top to Resent
Addressing Ocasio-Cortez’s idea, he shot back that “people at the bottom won’t have as many at the top to resent.” Those at the bottom might actually welcome this, at least on the face of this, but this remark is quite telling as far as what the upshot of these tax changes would be, people just leaving.
This is especially the case with Warren’s proposal, as her net is much larger and would have an effect on its intended targets well beyond what raising the marginal tax rate so high could ever cause.
Marginal tax rates could be worked around, with people restructuring their compensation to steer clear of this, and there are several ways they could do this. Some may of course leave, but nothing compared to what would likely happen if we impose Elizabeth Warren’s wealth tax upon people.
Unlike most of us, the ultra-wealthy are much more mobile, and can simply move to another country and take their enormous amounts of money with them. While it is worth it to people to continue to live in the U.S. if the price is right, and other countries do aggressively go after this sort of people by offering much lower tax rates, or in some cases, no tax at all, if this gets too out of hand, you can guess what will then happen.
You can buy yourself residence in what many consider paradise for a relatively small amount of money. In the Cayman Islands, which does not have any income tax at all, buying a property worth a couple of million there is all you need to be welcomed with open arms. There are many other locales which offer some very attractive places to live with very attractive tax rates, far below what people pay in the U.S. now.
If the price of remaining in the U.S. goes up, and especially if it goes up by a big amount, this could change dramatically. Elizabeth Warren’s wealth tax has the potential to put the price through the roof.
Some Things That Would Happen from This
Facebook CEO Mark Zuckerberg has been used as an example of how this would all play out, and he’s probably as liquid a guy as you’ll ever see with this amount of money, meaning that he could adapt better than some others.
The cost for Zuckerberg to stay in the U.S. if the proposed 3% starts biting him every year is quite illuminating. Mark’s down to $50 billion these days, which also makes the numbers easy to figure.
He would have $1.5 billion extra taken away from his fortune, which would likely require him to dump part of his stock every year to pay this tax. We’re not just talking about a billion and a half worth of Facebook stock by way of the last trade, as it actually would work out to quite a bit more than that, since there aren’t people lined up to take that much stock off his hands and selling this much, even over the whole year, is going to depress the price of this stock significantly.
A lot of stocks would be affected by this sort of thing, and this would have a constricting effect upon stocks and stock markets if this was all complied with. Stock market prices are representative of how much money is invested in it, and when you take away from this, you either slow down price growth or send it down faster, depending on other influences.
Paying wealth tax is nothing like paying income tax, where amounts just get withheld or just reduce our income accordingly. Wealth tax takes no prisoners, and if Zuckerberg owned a private company, this would be even worse, as he’d have to sell off parts of the company just to pay this personal wealth tax, as many would have to do.
Like the losses that one has to go through when they unload huge amounts of company stock that they otherwise would not sell, selling off property or business interests will also create price inefficiencies, and when you dump assets when you don’t intend to you will suffer loss of value over more timely sales, or in the case of company assets, profit potential.
Perhaps more notably, each year that passes would eat away more and more at one’s wealth, significantly depreciating it over time. Others may not care about this, but this all goes back to how much more incentive people affected by this would have to leave, and in the end, there would no doubt be a lot less of these people to shake our fists at.
There’s lots more to this story and Marks does not hold back in his criticism of these ideas, which he claims cross the line from fair to simply punitive. He believes that this would drive a lot of people to change their citizenship, and that would be very likely in fact.
People thinking that this would bring in in $2.5 trillion in extra tax revenue over the next 10 years, to the government of course, therefore doesn’t seem realistic at all. This assumes they will all stay and gladly pay this tax. Don’t count on it though.