Democrats always seem to be in search of new ways to get revenue, especially from the rich. One idea being floated around recently, which a few European countries have, is a tax on wealth or assets. According to Daniel Altman in the New York Times, “The real menace for our long-term prosperity is not income inequality–it’s wealth inequality.”
This is the great distortion to economic prosperity, he argues. It sounds good, and I am sure when people think of it, they imagine an NBA superstar or Bill Gates looking at his balance sheet and paying fees on certain items, like houses, cars and yachts, without objection because they are so wealthy. Beneath the surface though, it is legally more complex and could be counterproductive.
First off, the Constitution would complicate its implementation. Article One says, “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers,” along with “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
The 16th Amendment (1913) also says, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
The wealth tax would be considered a direct tax because it is based on the property or assets an individual owns. The tax would have to be “apportioned among the several States,” which means it would be based on the census of a given area. This also means that government must establish a goal or target for revenue, so there would have to be major regulations enacted to enable the government to get an idea of how much revenue it is going to take.
States with small populations like Rhode Island and Montana would have to provide a portion of the overall tax, but the money taken from them would devastate them compared with California or New York. Though California is a financial mess, many wealthy people still live there. So based on their population, they would be taking less of a hit than a smaller state. The dynamics of the states in terms of wealth, population and demographics are not taken into account. The Constitution wouldn’t allow for this because it’s a direct tax.
Wealth inequality over the last 30 years, and subsequent stagnant wages, is a good debate to have. But a wealth tax will exacerbate the problem, not help it, because wealthy people will just move their assets. Those potential yachts and Ferraris will be moved to a different state or off our shores. Wealthy people have the lawyers and accountants to get around the taxes. John Kerry avoided a steep yacht tax in Massachusetts by docking his boat in Rhode Island! Many professional golfers used to live in California, but as the purses got larger on the professional circuit, they moved to Florida, where there is no income tax. Businesses and wealthy individuals are leaving California in droves. The state’s taxes are so high that Texas or Virginia might be a better fit. Donald Trump has said he has considered leaving New York recently for Florida or another business-friendly state.
Rich people will always find ways around the taxes, so the government won’t get the revenue it’s projected for itself in the first place. A wealth tax wouldn’t solve the problem of getting more revenue from the wealthy; it would get less and hurt the economy. Gov. Martin O’Malley in Maryland put a millionaire’s tax in place a few years ago and got less revenue. The rich people moved and found loopholes. We need to encourage economic freedom so this wealth can be spread around, not by force of government, but by the free market and the natural human instinct to better one’s situation.
Wealth at the top is a good thing. It means our nation is doing something right, in that it is letting entrepreneurs have the freedom to take risks and create well-paying jobs for the rest of us. Every year, Heritage releases a list of rankings of the most economically free countries in the entire world. Hong Kong, Singapore and Australia are the first three, while Canada is sixth. Ireland is ninth and the United States ranks 10th. The bottom of the list has countries like Zimbabwe, Angola, North Korea and Cuba. Which countries would you rather live in?
Things like the wealth tax are dropping the United States on the list. This is not the old days where a rich person in New York could just move to Florida. We are dealing with an entirely global economy at this point, and these wealthy people will move out permanently. They will go where the taxes are the lowest and the regulations are less intrusive.
Armstrong Williams is on Sirius/XM Power 128, weekdays 7-8 p.m. and 4-5 a.m. Become a fan on Facebook and follow him on Twitter.