One is solid, the other is squishy.
Less than two weeks ago, in Kermit, presidential candidate Sen. Elizabeth Warren, D-Mass, advocated an “ultra-millionaire” income tax of an additional 2 percent on income after the first $50 million earned. She further proposed that it would be dedicated to fighting opioid addiction. Now, don’t confuse that with her wealth tax proposal, which would tax an estate’s net worth over $50 million by 2 percent each year. One is solid and the other squishy. Allow me to explain.
A solid tax, in my view, is one that is easy to administer and spreads its burden fairly. A squishy tax is one that many avoid and results in others paying a higher burden because of the scofflaws. This is also based on the understanding that we must pay for the government we consume. So, let’s either pay for it or don’t provide so many services.
Now, that said, income is what we earn, wealth is what’s left over.
Sen. Warren’s proposal for a 2 percent additional tax on income based above $50 million would return these taxpayers to a rate still below what was paid prior to the Tax Cut and Jobs Act of 2017 (39 percent proposed, versus 39.6 percent previously).
But more than that, it’s solid, meaning we have an infrastructure that ties down what everyone earns so it’s measurable. And it’s legal by way of the U.S. Constitution’s 16th Amendment.
So, whether you’re for or against this proposal, it’s solid and doable.
Conversely, her other proposal is a yearly 2 percent tax on the net worth (what you’ve got minus what you owe) of estates worth more than $50 million.
This is where I take issue, not for moral reasons of the wealthy being unfairly taxed, but from an administrative and practical standpoint.
How do you know how much your “stuff” is worth? Some buy a house for $100,000, but immediately claim it’s worth $200,000, unless they’re talking to the property appraiser. In those cases, it’s worth $50,000.
That’s why the county assessor doesn’t rely on what the property owner says. Their value is rooted in fact, by basing it on the price paid, which is a public record. Each taxpayer has an opportunity to challenge the valuation, of course, and many do. Even without that, the resulting assessed value is commonly below fair market value. A similar process could be enacted federally for this tax, in order to eliminate existing assessor biases, but the cost would be ginormous, which is one reason not to do it.
Values of publicly traded stocks and bonds are published and, therefore, easy to determine. However, stocks in closely held companies require a full valuation which, from my experience, usually costs $8,000 to $12,000. Estimates cost less, but regardless, variations in valuations are common, based on the purpose: buying, selling or taxing. Same property, different values. Here, the issue is the huge compliance cost to the taxpayer.
And there’s a whole litany of “other stuff” one accumulates. Classic cars, expensive artwork and gun collections come quickly to mind. So, wealth will be hard to factually determine, especially with the armies of accountants and lawyers working for the ultra rich.
Finally, a wealth tax will surely be challenged in the courts. Remember, it took an amendment to the Constitution to enable the income tax.
Now, should a tax on the ultra rich be desired, it must be practical. Sen. Warren should drop her wealth tax proposal and simply nudge up her income tax proposal by enough to collect the same.
As an aside, the Internal Revenue Service estimates 613 West Virginia estates are worth $5 million or more, based on a sampling of estate taxes filed. That’s far below the proposed $50 million, but is an indicator of how few West Virginians would be affected.
By the way, my dog is valued at $100, and I won’t pay one cent more for someone to take her.