Being rightly hard on the Trump administration cannot mean assuming that whatever the most progressive Democratic candidates, or their supporters, find appealing holds water. Take the, perhaps entertaining and perhaps tongue-in-cheek, Elizabeth Warren wealth-tax calculator. Enter it, decide if you are or are not a billionaire (I'm not, in case you were wondering), and if you are not, enter the same of your favorite (or least favorite) billionaire to see how much she or he would be taxed annually under Warren's wealth tax.
Let’s start with Mayor Bloomberg, who’s now contemplating his own run for the Democratic nomination. Here’s what you'll learn:
"MIKE BLOOMBERG WOULD PAY $3.079 BILLION NEXT YEAR UNDER ELIZABETH’S WEALTH TAX.
“Mike Bloomberg has a net worth of $52,000,000,000.
“Don’t worry too much about Mike Bloomberg - if history is any guide, if billionaires do nothing other than invest their wealth in the stock market, it’s likely that their wealth will continue to grow.
“Elizabeth’s wealth tax, which only impacts America’s 75,000 wealthiest families, would generate enough revenue to cover universal child care, quality public education, forgive student loan debt, provide free public college, and help finance Medicare for All."
What fun!
Her interactive webpage lets you play the game with 10 listed multibillionaires. In order of wealth, here’s what you'll learn: next year’s planned tax obligation, her or his total wealth, and (based on my calculation from her numbers) the relevant wealth-tax rate.
Billionaire: Next year’s tax Total wealth Wealth tax rate (pct)
Jeff Bezos 6.697 billion 112.3 billion 5.96
Bill Gates 6.379 billion 107 billion 5.96
Mark Zuckerberg 4.249 billion 71.5 billion 5.94
Jim Walton 3.181 billion 53.7 billion 5.92
Mike Bloomberg 3.079 billion 52 billion 5.92
Charles Koch 2.551 billion 43.2 billion 5.90
Victoria Mars 397 million 7.3 billion 5.43
Betsy Devos Family 283 million 5.4 billion 5.24
Leon Cooperman 151 million 3.2 billion 4.71
Jamie Dimon 55 million 1.6 billion 3.43
As you can see, Mayor Bloomberg is in the middle of Warren’s selected pack of billionaires whose financial futures we need not worry about. Of course, none of us should be worried about their financial well-being. I’m not. I am, however, worried about the impact of her plan, if adopted, on the rest of us.
So back to reality for just a moment. Although Elizabeth Warren calls herself a capitalist, she seems not to understand that financial decisions are almost always made on the margin, not based on wealth in the aggregate. No one says, "gee, I have $52 billion. Next year, I would have 49, then 46, then 43, etc. I’m really, really wealthy, and I will be for a long while, so who cares?" Instead, using the Mayor as an example, Bloomberg is more apt to say something like this: “I, or my estate, is about to be taxed in perpetuity at $3 billion per year. To fund that, I need an asset that yields $3 billion per year. Otherwise I have to gradually deplete assets, presently valued at $52 billion, to finance the tax.”
So what does calculation that look like? An asset yielding $3 billion per year, assuming it earns, say 6% a year, is worth--aha!—Bloomberg’s present valuation of $52 billion. In other words, assuming Bloomberg earns 6% in perpetuity on his assets, any profits will go toward funding the wealth tax and nothing else. If he earns less, he will have to deplete his assets to fund the tax, and only if he earns more can he finance the tax with his assets continuing to grow, albeit at a rate reduced by the wealth tax burden of 5.9%. Bloomberg is apt to assume that six percent in perpetuity is an ambitious rate of return, and certainly represents a hefty deduction from whatever actual rate of return his assets are likely to earn. He’ll realize that he can do far better financially if he figures out a way to relocate major portions of his capital to a place that isn't taxing wealth, or doing so at such a high rate. Where’s that? Pretty much anywhere else in the world. And even the more modest billionaires, such as Leon Cooperman or Jaime Dimon, face asset depletion if the returns are lower than their lower wealth tax rates (4.73% and 3.43%, respectively), and also diminished upside gains, again offset by subtracting the wealth-tax rate from the actual rate of return.
To be sure, the issue is not whether wealthy people will remain wealthy for long periods of time. They will. Instead, the issue is whether wealthy people will keep assets in the US given their taxation rates and their opportunity cost. These assessments will invariably be made along the relevant margin. Progressives are not immune from marginal incentives. Nor are those they wish to target for a wealth tax. Despite it all, Warren impicitly grasps this, which is why she also proposed a 40% capital exit tax above $50 million. Of course, all of this will predictably be opposed by those with the greatest access to the levers of power--the very persons she seeks to hit with the wealth tax. Otherwise, Warren must simultaneously assume that these so-called greedy billionaires will suddenly turn entirely altruistic when her tax proposal is thrust upon them. Perhaps as a candidate she is capable of this level of cognitive dissonance, but as Democratic primary voters, those of us seeking to finally rid the US and the world of this beyond-the-pale presidential administration cannot afford to be. Warren’s assumption that those financially savvy enough to accumulate great wealth will suddenly no longer care about preserving and growing their wealth once she assumes the presidency, as needed to fund her ambitious programs—Medicare for all, free college education, free child care, and the list goes on—is essential to her claim that none of this will impose serious financial burdens on the middle class. The Warren campaign is a fantasy. Democrats need to take a cold hard look. If they do, they will nominate a candidate not only who holds a chance of ousting Donald Trump but also one whose campaign commitments do not rest on on their own financial house of cards.
I welcome your comments.