Wealth: The Democrats Don’t Get It

Steve Forbes, Editor-in-Chief of Forbes Magazine on wealth tax and why it is a bad idea.

The Publication of our “rich list” will fan the fevers of plundering politicians, especially those “soak the rich” Democratic presidential candidates looking for seemingly easy sources of loot to finance their socialist fantasies. They’re delusional. To hear these White House wannabes tell it, you’d think the people on our Forbes 400 list are like the Disney character Scrooge McDuck, sitting in their money bins loaded with coins, gold, jewels and paper currency. Tax it, and voilà! You’ve got all that lucre for your pet projects. It just ain’t so! Look at what the people on this list actually own, and you’ll quickly see that only a small portion of their assets are in ready cash. Anyone who’s ever owned a home or a car can attest to the distinction between property and cash.

A wealth tax would mean less wealth to tax. Taxing the mere possession of property and securities, by definition, makes them less valuable. Many people would have to sell assets to pay for the tax on what they own.

The value of an asset, especially a financial one, can be heavily influenced by the health of the economy. The radical tax and regulatory schemes (regulations are a form of taxation that today costs us nearly $2 trillion, which is more than the GDP of all but a handful of countries) proffered by the Democrats would slow the economy to a crawl. This, in turn, would cause tax revenues to fall far below expectations. Despite thousands of years of experience, these political hacks cavalierly assume that costly, burdensome rules and higher taxes don’t affect people’s ability to do business.

Wealth taxes would be an unprecedented assault on people’s privacy that would make the transgressions of the so-called FANGs look like small, innocent transgressions. Government bureaucrats would have the right to demand lists of all your assets – as well as the right to examine your home, storage facilities, brokerage accounts, bank accounts and everything else – to determine if you have crossed the wealth-tax threshold. They would, at a click, have – for the same purpose – access to the records of ­everything you have bought or sold.

Democrats (as well as some Republicans) don’t understand the crucial role profits play in a vibrant economy. Their plans for higher income, business, payroll and death taxes, not to mention new exactions such as a levy on carbon emissions, would make for a bleak future, because such taxes would seriously harm the key sources of capi­tal: savings and profits. Without investment the economy will stagnate. As the legendary economist Joseph Schumpeter (“creative destruction”) pointed out, profit is essential for progress. It, like depreciation, is really a business expense. It funds expansions and the cost of productivity improvements. It must replace the capital destroyed by new technologies. The internet, for instance, washed away tens of billions of dollars in legacy newspaper and magazine wealth. Most startups flop, consuming savings. Existing businesses constantly fail, eradicating capital.

Ample capital for startups is essential for the development of new products and services that will enhance future living standards. Profit also provides critical information about people’s preferences. A high-margin product or service will attract competitors, which will, in turn, offer buyers an improved and/or cheaper version.

Author: Steve Forbes

The article was featured in our October edition 2019 „Handel“.

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