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What you need to know about Bernie Sanders’ ‘Tax on Extreme Wealth’

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Senator Bernie Sanders announced his new “Tax on Extreme Wealth” proposal by tweeting, “Billionaires should not exist.” Under his wealth tax plan, far fewer would.

Billionaires should not exist. https://t.co/hgR6CeFvLa

— Bernie Sanders (@BernieSanders) September 24, 2019

There should be no billionaires. We are going to tax their extreme wealth and invest in working people. Read the plan: https://t.co/RJDLvX5H4c

— Bernie Sanders (@BernieSanders) September 24, 2019

Here are the facts you need to know.

What are the details of Sanders’ wealth tax?

Bernie Sanders would impose a graduated tax on wealth (not income), ranging from one percent on all net wealth above $16 million per individual (or $32 million per couple) to eight percent on net wealth of more than $21 million (or $42 million per couple).

Sanders’ website states:

It would start with a 1 percent tax on net worth above $32 million for a married couple. That means a married couple with $32.5 million would pay a wealth tax of just $5,000.

The tax rate would increase to 2 percent on net worth from $50 to $250 million, 3 percent from $250 to $500 million, 4 percent from $500 million to $1 billion, 5 percent from $1 to $2.5 billion, 6 percent from $2.5 to $5 billion, 7 percent from $5 to $10 billion, and 8 percent on wealth over $10 billion. These brackets are halved for singles.

These taxes apply to net wealth, defined as total wealth minus debts.

What exemptions would apply?

“The wealth tax would have a comprehensive tax base with no exemptions and would be vigorously enforced,” write Emmanuel Saez and Gabriel Zucman, economists at the University of California at Berkeley who consulted on the proposal. (They also advised Sen. Elizabeth Warren on her “Ultra-Millionaire Tax.” For a comparison, see below.)

How much money would Sanders’ proposed wealth tax raise?

Supporters of the Vermont senator’s wealth tax say it would raise $4.35 trillion over the next 10 years. However, opponents note that this estimate seems overly optimistic: It assumes the tax will apply to all wealth, that illiquid assets (like farm land or rare family heirlooms) can readily be evaluated and monetized, and that the tax has no damaging effects on the rest of the economy.

How would Sanders’ plan avoid tax evasion?

Sen. Sanders’ plan would implement “key enforcement policies” to stop “millionaires and billionaires” from taking their belongings to another country. The government would require all wealth to be registered in a national “wealth registry” and add “significant additional” reporting requirements to deter underreporting. Bernie’s plan would supercharge IRS audits, requiring the Internal Revenue Service to audit every billionaire, every year, and audit 30 percent of those in the top one percent of income earners annually.

To avoid a mass exodus, Sanders would impose a draconian “exit tax” on expatriates eligible for the wealth tax. This tax would reach 60 percent for those with net assets exceeding one billion dollars and 40 percent for those with fortunes under a billion. He also proposes “enhancements to the international tax enforcement,” something European nations have proposed for years. Even at that, Saez and Zucman “assume an evasion tax rate of 16%.”

How does Bernie Sanders’ proposal compare to Senator Elizabeth Warren’s wealth tax plan?

Sanders’ “Tax on Extreme Wealth” would claim a far greater share of the nation’s wealth for the government than Elizabeth Warren’s “Ultra-Millionaire Tax.” Sen. Warren would levy a two percent tax on net assets worth more than $50 million, or three percent on assets exceeding $1 billion. Sanders’ plan lowers the threshold to $16 million for a single filer, and graduated tax rates reach as high as eight percent. Sanders’ supporters say his plan would raise nearly twice as much revenue as Warren’s estimated $2.75 trillion over 10 years.

Would the new wealth tax fund Bernie Sanders’ proposed new government programs?

Not even close. Sanders told The Washington Post in July that his “Medicare for All” plan alone would cost “somewhere between 30- and $40 trillion over a 10-year period.” That doesn’t count his $16.3 trillion Green New Deal, his $2.5 trillion “free” housing plan, forgiving $1.6 trillion of student loan debt, universal pre-k (at least $700 million), his “free” college tuition proposal ($600 million), or any other new or increased spending. Even if his $4.35 trillion in estimated wealth tax revenues materialize, he will need to draw from a far deeper pool.

How many other developed nations have a wealth tax today?

The number of OECD countries with a wealth tax peaked at 14 in 1996 but today, only a handful of developed nations impose a wealth tax. Three nations impose a proper wealth tax: Norway, Switzerland, and Spain, although several Spanish provinces opt out of the Patrimonio. Three other nations have a tax total assets in other ways: Belgium taxes holdings of financial instruments above €500,000 ($571,000 U.S.) per person. Italy taxes financial assets and real estate at differing rates. The Netherlands taxes wealth, but exempts a primary home and substantial holdings, e.g., in a family business.

Non-OECD member Venezuela just enacted a wealth tax on July 3.

How has a wealth tax worked in other nations?

Wealth taxes have drain other nations’ tax bases by encouraging capital flight. In 2014, more than twice as many people subject to the wealth tax left France than paid its solidarity wealth tax (ISF). A total of 42,000 millionaires exited the country between 2000 and 2012, taking  between €143 billion and €200 billion in assets with them. The jobs not created as a result account for a little under two percent of French unemployment, according to the Fondation iFRAP. (President Emmanuel Macron converted the ISF into a graduated real estate tax in 2017.)

Tax-inspired capital flight affects citizens well down the wealth scale. “The capital owned by these high-net-worth individuals is used to employ others, to make products consumed by other individuals, or to generate returns for pensions and retirement accounts owned by others,” the Tax Foundation explains. “While the legal incidence of the tax would be on the wealthy individuals, the economic impacts (incidence) would be much more dispersed.”

Wealth taxes discourage entrepreneurship, dry up the pool of investment, punish success, discourage thrift, encourage expatriation and evasion, defund churches and private philanthropies, and fall disproportionately on the elderly.

This may explain why nine OECD nations – including Sweden, Denmark, Finland, and Germany –have abolished their wealth tax since 1990.

How would this tax affect charity?

“The government would have to determine whether the assets of charities controlled by wealthy people would be subject to the tax,” writes Robert Rubin at the Wall Street Journal, “and the decision could reshape the nonprofit sector.” This and Sanders’ other tax proposals are likely to impact the giving patterns of the top one percent of income earners, who account for one-third of all donations to private charity in the U.S., according to the Philanthropy Roundtable. Taken together, Sanders’ plans would radically shift the nation’s philanthropy – and resources – from churches and private charities to the federal government.

What other practical problems does a wealth tax present?

It is difficult to properly evaluate an individual’s wealth. The value of business holdings, which make up 40 percent of the wealth owned by top one percent of Americans, fluctuate daily depending on market trends. Nor can it be easily paid. Illiquid assets – tangible goods such as homes, farm land, valuable paintings, and rare family heirlooms – cannot be gradually depleted; they must be sold for the cash to pay the tax bill. They are also more easily hidden from auditors.

Is a wealth tax constitutional?

Not under any plain reading of the document. Article I, Section 9, Clause 4 states, “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.” The Constitution had to be amended for the income tax to take effect. Sanders’ campaign asserts the wealth tax “is constitutional” but cites only a 2011 Los Angeles Times op-ed by Yale Law professors Bruce Ackerman and Anne Alstott, who argue the Roberts Court would not defend any constitutional provision once tied to slavery. It identifies no constitutional authority for the tax.

However, any nation that enacts Sanders’ redistribution plans has limited concern for constitutional constraints.

How should Christians view a wealth tax?

As a matter of economic policy, its unintended consequences outweigh its benefits.

As an ethical matter, Pope Leo XIII wrote that socialists’ proposals would punish those who saved money for themselves under the guise of providing services for the poor. “While they seem desirous of caring for the needs and satisfying the desires of all men, they strive to seize and hold in common whatever has been acquired either by title of lawful inheritance, or by labor of brain and hands, or by thrift in one’s mode of life,” he wrote in his encyclical on socialism.

(Photo credit: Gage Skidmore. This photo has been cropped. CC BY-SA 2.0.)

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Rev. Ben Johnson Rev. Ben Johnson is Senior Editor at the Acton Institute.

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