Push For A Wealth Tax Strikes Hard At Investment Returns To The Detriment Of The U.S. Economy

Cameron Keegan: Dear Rest Of America Header

While eight states propose their own โ€œwealth taxโ€ targeting the highest earners, there are significant economic consequences to consider, even at the national level.

Over the years, politicians have suggested a โ€œnational wealth tax,โ€ but the idea never gained much momentum in Congress. In another attempt, lawmakers from eight Democratic-leaning states want to introduce their own โ€œwealth taxโ€ to raise funds for social programs, including childcare, affordable housing and an end to homelessness.

The lawmakers, who represent California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington, argue that their proposal for a wealth tax is necessary because the current federal tax code allows multimillionaire Americans to evade paying their fair due.

According to a report released in mid-January from the charitable organization Oxfam, affluent Americans within the top 1% have witnessed their wealth exponentially grow 19 times faster than the bottom half of the nation over the last decade.

One of the reasons that multimillionaire or billionaire American entrepreneurs can continue growing their fortunes at a much faster rate than others is, in part, due to differences in taxation with income from investments, i.e., capital gains, taxed at a lower rate than earned income.

Noel Frame is a state senator in Washington. โ€œWe need to fix our upside-down tax code that rewards the wealthiest few and makes it difficult for working people to pay their rent, put food on the table, and ensure their families have what they need to thrive,โ€ she said during a news conference in late January.

Speaking of a proposed โ€œWashington State Wealth Tax,โ€ Frame went on to say that the bill is โ€œcommon senseโ€ and will ensure that โ€œsome of the richest people in the world, some of whom live right here in Washington state, pay property taxes on their assets just like middle-class families who own a home pay taxes on theirs.โ€

The eight lawmakers in question are eager to tax โ€œappreciating assets,โ€ that is, assets that increase in value, such as equity, bonds and real estateโ€”which presently initiate a tax payment only once sold.

It might be common practice among the wealthiest in the United States to hold on to such assets by taking out bank loans that use those assets as collateral, i.e., an asset that a business can use as security for a loan.

Complaints about the current tax system:

According to Fame, the state of Washington harbors nearly a hundred billionaires (think Microsoft co-founder Bill Gates) and reckons it could raise practically $3 billion annually through its wealth tax proposal by adding a 1% tax on financial assets. That said, the first $250 million worth of assets would be exempt.

California is another state home to mega-millionaires and billionaires, and anyone with over $50 million worth of assets would face a 1% tax on their wealth. Meanwhile, a 1.5% tax would be added to an individualโ€™s wealth of more than $1 billion. According to California Assemblyman Alex Lee, the proposal would raise $22 billion in new revenue. He has commented that:

โ€œWhile the income tax is successful at taxing most Californians, it is not very effective at taxing the ultra-wealthy who do not need to realize their incomes. For instance, the richest Californians like [Facebook co-founder] Mark Zuckerberg or [Google co-founder] Larry Page can largely avoid the stateโ€™s income tax as long as they do not sell their Facebook or Google stocks. This is a loophole in our current tax system that unfairly shifts the tax burden to middle- and low-income Californians while incentivizing wealthier individuals to continue hoarding their wealth.โ€

Will Guzzardi, a Democratic member of the Illinois House of Representatives, projects that his wealth tax proposal could raise between $200 to $500 million annually. The idea is to direct any revenue into new โ€œWorking Familiesโ€ state fund, which would support social programs such as funding education, housing initiatives (i.e., ending homelessness) and universal childcare.

โ€œWhen you hear Elon Musk or Jeff Bezos has made billions, tens, hundreds of billions of dollars during the pandemic, they didnโ€™t make that in income like wages the way that you and I make income,โ€ Guzzardi said, likely speaking of mostly middle or upper-middle class Americans. โ€œThey made that through the growth of their assets. The value of their stocks went up. Thatโ€™s what they do to make money. Thatโ€™s income for these guys. So, we want to tax that just like the income that the rest of us make.โ€

One of the challenges with this kind of thinking is that those who occupy the top 1% of financial wealth are often, unlike most Americans, large business owners, and the wealth tax drive focuses on investment and entrepreneurship.

Relocation to a different state to evade a wealth tax?

It is not unusual for the wealthiest residents in these eight states to move to states where the taxes are much lower, a move already taken by podcaster Joe Rogan and conservative political commentator Ben Shapiro.

Consider New York state. The top 1% of the wealthiest residents currently pay around half of state income taxes, so additional wealth taxes that might push them away could seriously threaten the stateโ€™s fiscal stability. In recent years, Florida, Tennessee, Arizona and Texas have stacked multiple billions of dollars in gross income due to affluent and upper-middle class residents relocating from states with higher taxes.

Yet, according to Frame, although many of the eight states currently have higher taxes than others, Americaโ€™s wealthy moguls continue to inhabit and remain within them. โ€œWhen we try to get billionaires to pay what they owe, we always get threats,โ€ Frame said. โ€œThe data doesnโ€™t support it. Have we seen a max exodus of wealthy people? No, we have not.โ€

According to the University of California Berkeley economist Emmanuel Saez, who helped design Massachusetts Sen. Elizabeth Warrenโ€™s national wealth tax proposal, some people would leave. However, that number would be small relative to the number of wealthy people concentrated in a particular state.

State wealth taxes target investment:

At the federal level, the wealthiest earners must pay a 20% tax on capital gains and a 37% tax on earned income. New York state Sen. Gustavo Rivera has proposed a bill that would impose an extra 7.5% tax on capital gains for married couples with incomes above $550,000 and 15% for couples earning above $1.1 million.

As expressed most poignantly in the TaxFoundation, the proponents of a wealth tax โ€œsometimes argue that wealth taxes are small and that the rich can afford them. But because the rates are on net worthโ€”not on incomeโ€”they cut deeply into investment returns.โ€

Indeed, everyday Americans and the average taxpayer may not be concerned if the top 1% of the nationโ€™s earners have a lower net worth due to higher taxation. However, many might be worried if investments in new innovative ideas decline as a result.

Furthermore, it would be fair to say that most people think about taxes in terms of their income as opposed to accumulated wealth such as stocks, bonds, precious metals, jewelry, art and real estate. Therefore, the average taxpayer can learn to appreciate how a wealth tax rate compares to income tax rates.

Reported in the TaxFoundation is a practical and succinct example:

Imagine a $50 million investment, held for 10 years and earning a 10% nominal annual rate of return in a 3% annual inflation environment. Without a wealth tax, that investment would yield $46.5 million in investment returns, in current dollars, after 10 years. With a 1% wealth tax, it would yield $37.3 million. The wealth tax would wipe out nearly 20% of the gains. If the gains were realized at the end of 10 years, a 1% wealth tax would have reduced gains by as much as the 20% federal capital gains tax.

Americaโ€™s entrepreneurial underpinning is a remarkable achievement. As a proponent of innovation, such as medicine for targeted cancer treatment or maximizing space in a small bedroom, it would be great if the public conversation steers towards the type of creations within a business as opposed to adding another layer of tax that would hamper investment in new, meaningful ideas.

Byย Cameron Keegan

Read Original Article On Dear Rest Of America

Cameron Keegan is an independent researcher and writer on American politics, faith, and culture through a conservative disposition. To learn more, visit Dear Rest Of America. Please consider making aย small contributionย via โ€œbuy me a coffeeโ€ because yourย supportย will help provide you with ongoing commentary.ย 

Substack
Substackhttps://substack.com/
Substack believes that great writers, bloggers, thinkers, and creatives of every background should be able generate income from their audiences on their own terms.

Columns

Viewers like you

There is no constitutional authority for any spending on public broadcasting โ€“ period. Any questions: See Article 1, Section 8 of the U.S. Constitution.

Beyond the Trump-Musk fallout?

We are witnessing an unprecedented, unhinged Democrat effort to use lawfare, big Democrat donors, street theater, congressional disruptions, potty-mouth videos, the administrative state, the legacy media, and discredited pollsters to stop the Trump agenda.

Trans-wormal

No worm ever said "I am anthropomorphizing, I am a butterfly" to a toad or flock of geese and expected acknowledgement and support.

In Greenlandโ€™s Icy Capital, Past Troubles Haunt Hopes for the Future

As geopolitical realities and ongoing economic growth raise the stakes, U.S. interest in Greenland and the dream of independence may change things in a big way.

How a Chinese Government Statistician Was Forced to Report Fake Data

Chinese local govt employee produced a non-authorized report on bees and was visited by police and threatened with being sent to a mental hospital.

News

Supreme Court Sides With DOGE in Social Security, Records Cases

The Supreme Court handed DOGE two big wins late on June 6 in its effort to reduce the size of the federal government.

Kilmar Abrego Garcia Returns to US to Face Criminal Charges

Kilmar Abrego Garcia, a citizen of El Salvador, is on his way back to the US, where he will face criminal charges for allegedly smuggling illegal immigrants.

White House Adviser Gives Update on DOGEโ€™s Future Amid Muskโ€“Trump Spat

A top White House adviser said DOGEโ€™s work will likely continue amid a spat between its former chief, Elon Musk, and President Donald Trump.

Trump Administration Asks Supreme Court to Allow Dismantling of Education Department

Trump admin asked Supreme Court to allow it to resume dismantling U.S. Dept of Education, following a lower courtโ€™s previous order halting process.

FTC Warns of Rising Student Loan Scams, Says Fraudsters Took Millions From Borrowers

FTC is warning borrowers to steer clear of student loan debt-relief scams, after shutting down group of companies that allegedly charged millions in illegal fees and left customers worse off.

Walmartโ€™s Drone Delivery Coming to 5 More US Cities

Walmart is set to launch its drone delivery service in five more U.S. cities: Atlanta, Charlotte, Houston, Orlando, and Tampa, the company.

Court Orders Trump Administration to Restore AmeriCorps Funding to States

Federal court ordered Trump admin to restore AmeriCorps funding to states. The ruling comes as part of a lawsuit filed by 24 states and DC.

Tax Deductions You Can Take Without Itemizing

Itโ€™s not always beneficial to itemize. With IRSโ€™s current standard deduction for 2025 most Americans who canโ€™t itemize go with standard deduction.
spot_img

Related Articles