Wealth Tax – Good Idea? Bad Idea?



Do you support a wealth tax?  What is wealth?  As this writer sees it, wealth is everything that you hold legally in your possession.  That would include antiques, art, furniture, real estate, automobiles, clothing, appliances, cash, equities, precious metals, collectibles, options etc.

So, a wealth tax is a tax on all of the items listed above.  Now, let’s take antiques/furniture for example.  How is the government going to know about your furniture?  Are they going to come into your house and do an inventory?  This writer knows a lady who went to an estate sale, and she saw a chair she liked.  She bought it for a song, and it turned out to be a Louie XIV chair worth hundreds of thousands of dollars.  She used it as a chair.  Should she have to pair a percentage of the chair’s worth to keep it?  Who will determine the worth?  Typically, and in particular, things of an antique or collectible nature can be appraised, but different appraisers may have different estimates of value.  The only way to determine the “real” value of something is to sell it because something is only worth what the buyer is willing to pay for it, and what the seller is willing to take for it, and the price upon which they agree is the “value”.

Values change.  In 2008/9 home prices dropped 40% or more in some places.  Now if you had to pay 6% or 2%, as the case may be, on the house right before it dropped in price, then you could end up paying the cost of the lost value plus the tax.  That could be very devastating.  Should people be forced to sell what they own in order to pay their wealth tax?  If so, then what happens to capital gains tax?  Capital gains tax, currently at the federal level, is 15%.   On top of that, the state in which you live likely has a capital gains tax which likely is close to or greater than 5%.  So, capital gains for our examples, will be calculated at 20%.

Let’s take the above example and extend it out.  You buy a house in 1979 when the market is in a down situation, so the price is $100,000.  You happen to be in a good market (markets of course can and do change), and by 2020, your house is now worth $2,000,0000.  That’s $1,900,000 in capital gains, and your wealth tax will be $38,000 up to $120,000, but it’s still the same house, and it’s where you live.  You’re now retired and have no earned income.  You just have the income from your 401K, or your IRA, or your investments.  Elizabeth Warren comes along with her wealth tax, and you have minimal cash on hand – it’s all tied up in real estate, stocks, bonds, art, collectibles etc.  These are things you’ve been able to accumulate wisely and through frugal living and saving and investing.

You have furniture you’ve bought used at stores and estate sales.  You only spent $40,000 on your furniture over the years, but the furniture is worth, if someone is willing to pay the price, $500,000 now – a wealth tax of $10,000  up to $30,000, but these are just tables, chairs, sofas, beds and dressers that you use everyday to sit down and eat dinner or relax before the television or sleep on at night.  Better have the receipts to prove the purchase price of all of them, or you’ll pay capital gains on all of the sale price. And, what if you inherited a painting from your grand parents who had it in the family for a few generations.  You didn’t pay anything for it, and yet it may be worth $1 million! Now, you’ll have to pay a wealth tax of from $20,000 – $60,000 every year!  Can you even afford to keep the painting?  Likely it won’t go up in value that much every year, and after a few decades, you will have paid the full price of the painting anyway, and then what?  Do you have to keep paying for it?

Now, you may say; “Oh, but the tax is only on people who have wealth over $50,000,000!” Well, that may be true, but are you aware that when the income tax was passed at the federal level in 1913, is was only for people who earned over $70,000 a year!  $70,000 a year in 1913 would be like $3 1/2 million a year today – maybe more.  $3 1/2 million is 100 times what the average American earns today, and yet, the average, or slightly above average American today  is subject to income tax!  How did that happen?  Well the greedy politicians kept changing the tax code incrementally and in small amounts until everyone was in the trap.  Meanwhile, the wealthy people had accountants and attorneys lobbying for them to have “write offs”.  Now, the average person who makes $3 1/2 million a year is paying less taxes than the average person making $100,000 a year – only 2.8% of what the millionaire is making.

Now, who’s to say that if a wealth tax is instituted that people who have less wealth than $50 million will never be targeted.  Once the camel’s nose is in the tent, what will keep them from lowering it to $40 million, then $30 million, then $20, $10 etc., and with inflation, everyone may be worth $50 million in another 20 years.  Your utility bill may be $3,000 a month and a loaf of bread may cost $50, and a new car may cost $750,000.00  $50 million may not be much then.  You laugh and say “no way”.  Consider in 1913 when the income tax was instituted, a loaf of bread was 2 cents, a gallon of gas was 11 cents, a new car was $500, and a new house (a nice one) was $3,000!

A wealth tax is obviously a bad idea, because there is no way to pin down, at any given time, what someone’s wealth is because prices are constantly fluctuating, and the available money and credit supply to buy something is subject to extreme volatility.  On top of that, a wealth tax would be an extreme invasion of privacy not to mention an expensive, time consuming and cumbersome effort to go through the inventorying and evaluation process – and to do that every year!  A wealth tax will only amount to a destruction of wealth, and the only wealth that will be destroyed will be those who are not politically favored.  The rest of the wealthy will be just fine.


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