I hate to pick on the Wall Street Journal again, but what the heck is this—an op-ed page article suggesting conservatives support a wealth tax of 3 percent?!?! Prof. Ronald McKinnon of Stanford University thinks this would be the mechanism by which we could lower income and capital gains tax rates. Here’s part of his argument:
In order to have a fairer tax system, we should implement a new federal wealth tax in addition to the federal income tax. Unlike the current income tax, the wealth tax would not rely on how income is defined. Rather, it would require that households list all their domestic and foreign assets on, say, Dec. 31 in the relevant tax year. With a large exemption of $3 million that effectively excludes more than 95% of the population, a moderate flat tax—say 3%, on wealth so defined—could then be imposed.
If on Dec. 31 a household declares total net assets of $5 million, and the “standard” wealth tax exemption is $3 million, then its wealth tax is $60,000 ($2 million x 0.03). Because wealth will generally present a much larger tax base than income, tax rates can be kept low and still raise substantial revenue. The incentive for tax avoidance is minimal—unlike the incentive created by a high marginal income-tax rate of 40% or more for earners paying both federal and state income taxes.
I thought I had invited a lot of grief for my heterodox suggestions previously here and at the Breakthrough Journal that there might be a conservative case for higher taxes, but aimed at the middle class so that the middle class would see the full price tag of all the government they vote for and benefit from. (Spirited rejoinders to my article went up last week, by the way.) But McKinnon’s article is squarely Occupy Wall Street bait: a tax that would only hit the 1 percent! Life doesn’t get any better than that.
Where to begin? Well, perhaps with the Alternative Minimum Tax, the tax started in 1969 to hit a handful of millionaires who escaped the income tax through perfectly legitimate mechanisms that Congress itself had created. Of course, now the AMT hits millions of non-millionaires. How would we keep a “wealth tax” from expanding in a similar way?
The politics of it are just terrible. If the 99 percent can vote to raise revenue by raising the rate on the 1 percent of assets (as opposed to fluctuating income), it will be irresistible. Although McKinnon thinks there won’t be a lot of tax avoidance by the wealthy, I suspect he’s wrong about this. There will be a boom in the appraisal business, with creative appraising become a new art form (especially for art!—say, that scratch in your Monet painting clearly cuts is value by 50 percent!—and real estate.) In any case, you don’t need to be supply-sider to conclude it will raise less revenue than forecast, for the simple reason that there’s so much less wealth these days under Obama.
Besides, we already have a wealth tax, imposed once every generation. It’s called the Estate Tax. Would McKinnon propose abolishing it? I didn’t see that in his piece. Of course, most rich liberals (see: Kennedys; Warren Buffett; Bill Gates) don’t pay the Estate Tax. Maybe we should change that.
I suspect this is the Journal pulling our leg, floating a liberal trial balloon as a way of shooting it down early. A wealth tax is clearly the ultimate dream of redistributionist liberalism. For conservatives to consider supporting the idea, even with the proposed tradeoff of tax reform, would be suicidal.