Tag: economics

Komrade Kamala (“KK”) has proposed a radical new tax plan. Like many socialist proposals at first, it appears to be attractive but upon detailed analysis the luster fades rapidly, and the warts become evident. As always, “the devil is in the details” and one must beware of unintended consequences. Read on, and I will explain.

Essentially, KK’s plan is a wealth tax, and its intent is a redistribution of wealth. This is consistent with classic socialist/communist doctrine, which should not be surprising given Harris’ real “core values” that she espoused during her entire political career until she became the Dem nominee for president. Many of its provisions are consistent with the proposed Ultra-Millionaire Tax Bill of 2021, which was sponsored by Elizabeth Warren, Bernie Sanders, and other far-lefties. That particular bill was not passed for various reasons, but the general idea of it is still popular with the far left.

As I have explained repeatedly, at her core KK is a socialist/communist. Her basic instincts are to replace capitalism and free enterprise with government administration and control in virtually all aspects of one’s life. She has advocated replacing our capitalist economic system, which is based on free enterprise, competition and private sector decision-making, with public sector (government) decision-making. For example, she has been advocating government-administered price controls in the economy to eliminate what she perceives as “price gouging” even though there has been no evidence of it. Similarly, under the guise of providing everyone, including illegal aliens, access to free healthcare she has been advocating an aggressive revamping our healthcare system to a single-payer system that would be administered and controlled by the federal government. Her proposed tax plan would be consistent with those precepts. As we have seen time and time again, anything administered by the government becomes plagued with inefficiency and waste.

Like most tax plans hers is complicated. Moreover, it is too vague and not well reasoned. Even proponents of the general idea should realize that there are a multitude of rough edges that need to be clarified. Like I said above, the devil is in the details and beware of unintended consequences. Below please find my opinions and comments regarding KK’s tax plan.

With respect to the “wealth tax” provision:

1. According to the Tax Foundation such a tax has never been implemented in the US. A handful of other countries have tried it, but most were forced to abandon it due to unforeseen problems.
2. The proposal would penalize savers, discourage economic growth, discourage entrepreneurship and investment in start-ups, decrease employment, and increase the trade deficit, among other ramifications.
3. For starters, according to Wikipedia the paramount issue is that some legal scholars question the constitutionality of such a tax. Article I, Section 9 of the US Constitution precludes any “capitation or other direct tax.” Because of this clause in 1895 SCOTUS declared that a federal income tax was unconstitutional. Subsequently, Congress passed the 16th Amendment, which made a federal income tax constitutional, however, the amendment did not cover a “wealth tax.” This matter would have to be resolved or else the proposal would be “dead on arrival.”
4. Its primary purpose is to eliminate, or at least substantially reduce, the wealth gap by mandating that the uber-wealthy pay their “fair share.” What does that phrase even mean? What would constitute a “fair share?” It is so vague as to be meaningless. Is it a higher percentage? If so, how high? Also, how does one define “wealthy” or “uber-wealthy? I suppose all that depends on one’s economic status and one’s political point of view. But you can see how the murkiness complicates the issue.
5. It is fashionable, in some quarters to want to punish the rich for being rich. These people want to take away some of their wealth and spread it around. This ignores the fact that income and wealth disparity is a natural consequence of our free market, capitalist system. Some people will always be more ambitious, more industrious, smarter, more willing to take chances to succeed, or just be luckier than others. Our system rewards that. The attitude of the masses should not be to confiscate wealth from the rich, but to aspire to become rich, themselves.
6. In my view, “equality” means “equal opportunity.” It does not advocate some sort of balancing act where the rich keep giving and the needy keep taking until everyone has an equal amount of wealth. That is fatuous on its face. History tells us it cannot be legislated. Even in Russia there is a small group of rich and superrich persons, and the vast majority are poor.
7. In the opinion of former Treasury Secretary, Janet Yellen, the cost of implementation, administration and enforcement of a wealth tax would be extremely expensive, cumbersome and problematic.
8. How would assets be valued, particularly illiquid ones such as land, a farm, a ranch or a business? In my opinion, this would be the most inequitable and troublesome aspect of KK’s proposal. Taxpayers would be required to pay tax based on an unrealized gain with respect to assets that they had not sold. Therefore, they might be forced to sell their business, farm, ranch, or house to raise the money to pay the tax. This particular provision was most troublesome to the Tax Foundation as well.
9. Furthermore, who would ascribe a value, the owner, the IRS, a government bureaucrat with limited knowledge of the worth of the asset, or someone else? This would be a particularly troublesome issue.
10. I presume the IRS would enforce the tax. That would also be problematic. Public confidence in the fairness and competence of the IRS is at an all-time low, and no one would want more government intrusion in their lives.
11. Inevitably, the wealthy would find and exploit loopholes. They always do. Consequently, there would be contested valuations and lawsuits with all the ancillary problems.
12. Some wealthy would be tempted to transfer assets out of the country or perhaps relocate. Such people have the wherewithal to do so. The question is would they have the motivation? This became a problem in other countries that had enacted a wealth tax, which ultimately forced them to abandon it. For example, in 2018 France’s President Emmanuel Macron noted that it had resulted in brain drain, loss of jobs, and flight of capital. This could be negated by including an “exit tax” in the proposal, although I’m not sure how it would work or if it would even be legal.
13. Very likely, it would discourage foreign investment in businesses, real estate and the like.

In addition to the aforementioned wealth tax KK’s tax proposal would raise tax rates on corporations. Presently, thanks to the Tax Cuts and Jobs Act of 2017 (“TCJA”) enacted during the Trump presidency the US has a very competitive corporate tax rate of 21%. This encourages both domestic corporations to remain in the US and foreign corporations to invest here. That translates to economic growth and lower unemployment.

In addition, the TCJA reduced individual tax rates. Unfortunately, the TCJA is set to expire in 2025, and KK will be unlikely to extend it. Therefore, the corporate tax rate will revert to its pre-TCJA level of 35%. Consequently, corporations will be incentivized to invest elsewhere rather than in the US. Also, corporations typically pass on such tax increases to you, the consumer, in the form of higher prices, which feeds inflation. More bad news, individual tax rates will also revert to pre-UCJA levels, which means a top rate of 39.6%.

CONCLUSION

Frankly speaking, the KK tax plan would be an unmitigated disaster for most individuals and the US economy as a whole. Don’t be seduced by her “mantra of tax the rich” and make them “pay their fair share.” As I said, this is a typical lefty idea. It sounds good on the surface, but it would lead to unforeseen problems in practice. If one takes the time to analyze it in detail the warts become apparent. It’s just a ploy to divert your attention away from the disastrous Biden-Harris economic policies of the last 3 1/2 years.

KK thinks that her plan will raise more revenue to pay off the deficit. In my opinion, it will have the opposite effect. Directly as a result of the Biden-Harris Administration’s wild, irresponsible deficit spending, notably the stimulus packages that were enacted against the advice of even progressive economists, the budget deficit is already projected to exceed $2 trillion this year. Moreover, absent policy changes it is projected to double to $4 trillion within ten years. Folks, this level of spending is unsustainable.

She and her advisors who developed this proposal have demonstrated repeatedly that they know next to nothing about economics and business. It’s astounding but true. History tells us unequivocally that tax increases stifle economic growth, and tax reductions spur economic growth. Growth actually results in increased revenues. Many of you will remember the Reagan Tax Cuts, which illustrate my point. Don’t be gaslighted.