Soaking the rich with a wealth tax
Published January 21, 2021
It’s so easy to let jealousy trump good sense. I think that’s what a ‘wealth tax’ is all about. A wealth tax, you see, is much more than hiking taxes on high earners because you think they don’t pay their ‘fair share.’ It’s about taking away the fruits of their labor. It ignores the many contributions of the wealthy to helping improve the lives of others. In short, it’s about penalizing the productive. Just because.
But even if I’m wrong on the motivation, a wealth tax flies in the face of sound economics. Michael Hendrix of the Manhattan Institute explains why a wealth tax is such a mistake.
Wealth taxes are known for driving the wealthy out, discouraging new wealth from moving in, and generally crushing entrepreneurial ambitions. Combined with the cost of implementing such a tax, it could even be a net negative revenue generator for states. And that’s assuming a wealth tax is even constitutional.
Billionaires may have the ability to pay a wealth tax, but they also have the ability to leave — just witness their moves during the COVID-19 pandemic. Alain Trannoy, a French economist, found that the “wealth tax in some countries seems more efficient to repel [the] rich than to effectively redistribute wealth.” Roughly 10,000 people left France with 35 billion euros in assets after the country imposed a wealth tax. And assets are even easier to move than people.
That’s just the beginning of the long-term economic carnage.
Some of the biggest losers from the wealth tax would not be the wealthy, but entrepreneurs and risk-takers who would find it harder to grow their small business and would be likelier to sell to a bigger business for cash to pay their taxes. What are the chances inequality actually increases under such a scenario? As it stands, new business formation in America has already been in a multi-decade slump, harming minorities and women the most.
One more time: “harming minorities and women the most.”
Is that really want we want? I’d like to think not. But it’s what we’ll get by imposing a wealth tax.
Here in North Carolina, Republican legislators have, for years, thought about taxes and economic growth in a much different way. Their view — based in part on the sound tax policy guidance of the John Locke Foundation — is that people should be able to keep as much of what they earn as possible. Taxes are imposed to pay for the core services we need and can’t fund as individuals.
Unlike the negative impacts of a wealth tax, North Carolina’s approach to taxes is creating positive impacts. Johnny Kampis reports for Carolina Journal:
A recent examination by the Tax Foundation shows North Carolina’s high net migration rate may be due to its friendly tax climate.
The nonprofit, nonpartisan group annually examines migration trends, using data from United Van Lines, the largest moving company in the country. That company’s National Movers Study found that in 2020, Idaho saw the highest percentage of net migration at 70%, followed by South Carolina (64%), Oregon (63%), South Dakota, and Arizona (both 62%). North Carolina ranked sixth at 60%.
The states with the highest exodus? New Jersey, New York, Illinois, Connecticut, and California.
The Tax Foundation’s Janelle Cammenga compared this list to her organization’s 2021 state business tax climate index, finding that those states with the higher net migrations tended to also rank high for friendly tax rates, while those who fared poorly in the United Van Lines study had the most people leaving their borders. North Carolina ranks 10th on the Tax Foundation’s 2021 list.
Tax policy isn’t some academic exercise. The choices we make have a direct impact. That’s why it’s so important to reject negative notions such as a wealth tax and to embrace fair, neutral tax policy that respects each person’s hard work, whether they’re middle class or wealthy.