Warren's 'ultra wealth' tax is misleading

Those in government who want to spend more of other people’s money seek to make taxes appear as low as possible, often through misrepresentation, because minimization increases public support for their policies.

Sen. Elizabeth Warren’s (D-Mass.) recently proposed “ultra-millionaire” wealth tax, estimated to bring in $2.75 trillion over a decade (but given the difficulties of implementation and evasion, that estimate is questionable, illustrated by the fact that when Sweden eliminated its wealth tax roughly a decade ago, The Financial Times reported it had “virtually no effect on government finances”), might be the most expensive tax misrepresentation ever. 

Warren would impose an annual wealth  tax of 2 percent on the 75,000 households with a net worth of over $50 million — 3 percent on those with a net worth of over $1 billion. A 2 or 3 percent tax on a small number of people doesn’t sound so burdensome and an advocate of the tax can always deflect criticism by ignoring that both wealth (representing previous income) and income, if earned via voluntary transactions, produced benefits for others rather than taking from them and saying “the rich” can afford such a seemingly small burden.

However, we must remember that what is proposed is not a one time wealth tax, as much public discussion implicitly assumes, but an annual wealth tax, which would impose a phenomenally larger burden. For a given level of wealth, a 2 or 3 percent annual wealth tax would take 20 or 30 percent of the affected households’ wealth over a decade. (e.g., Someone with $100 million in wealth beyond the exempt level would pay $2 million in taxes each year on it with a 2 percent rate, totaling $20 million — 20 percent of that $100 million —over a decade.)

The American Enterprise Institute’s Alan Viard asks us to consider a wealthy household that invests in bonds paying (that is, increasing net worth) 3 percent annually. A 2 percent wealth tax would thus take away two-thirds of the bond income. (e.g., $100 million of assets invested in bonds at 3 percent would yield $3 million per year, but a 2 percent tax on the $100 million of wealth would take away $2 million per year, which is 67 percent of the earnings on the bonds.)

A 3 percent wealth tax would be the equivalent of 100 percent tax on that income. And that ignores the 37 percent top federal income tax rate (as well as state and local taxes) that would first be applied to that bond income.

Government efforts to hide or disguise taxes have a long history.

For example, employer — paid unemployment insurance contributions, as well as the employer’s half of Social Security and Medicare taxes, minimize taxpayer awareness of the cost of government. Employers, who remit those taxes on behalf of employees, must regard those payments like wages: as part of the cost of employing workers.

Therefore, at least some of that money comes from employees themselves. But they are likely to blame employers rather than government for their not being paid more. Similarly, higher corporate taxes result in lower wages and higher prices, again giving government the money but diverting blame to corporate management. Income — tax withholding further reduces awareness of the tax burdens.

Then we have policies that act like taxes, but aren’t counted as such. Deficit spending, which really represents a shift of taxation from present to future, disguises a substantial part of government’s cost. The massive unfunded liabilities in Social Security, Medicare and other programs disguise even more of it. Mandated benefits, for example, health insurance and paid family leave, ultimately come out of employees’ pockets. Regulatory burdens are also disguised taxes are further similar evasions.

A further technique of tax subterfuge is to apply multiple taxes to the same income, allowing the burden to appear smaller because the focus on only one tax at a time avoids recognition of the cumulative burden.

For instance, a corporation’s income must cover property taxes as well as federal and state (and sometimes local) corporation taxes. When a corporation passes (already reduced) earnings to shareholders as dividends or in higher share prices, the money faces federal and state (and sometimes local) personal income taxes on dividends or capital gains. Each tax bite in isolation looks smaller and less distortion than the far larger cumulative burden.

When you recognize that "small" wealth taxes actually impose huge burdens and that seemingly minimal distortions would actually wipe out substantial wealth creation you can see that this proposal is just the latest in a long line of tax misrepresentations. Unless you believe that dishonesty is the best policy, this is an overwhelming reason to oppose her presidential candidacy.

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Leftist stupidity in San Francisco

Marc Benioff, co-CEO of Salesforce, assailed his own industry in an interview in Davos, calling San Francisco a “train wreck” of inequality “because of the tech sector.”

There’s just one problem with his charge: Both measures he uses for inequality—homelessness and soaring housing prices—well predate the tech boom.

San Francisco has been grappling with homelessness since Dianne Feinstein’s tenure as mayor in the 1980s. In the name of “urban renewal” and “redevelopment,” a wave of demolition of single-room-occupancy hotels hit the city between the mid-1970s and the 1990s. Many low-income apartment buildings were also removed from the market: between 1970 and 2000, almost 9,000 low-rent apartments were demolished or converted. Between 1980 and 2000, another 6,470 were converted to condominiums. As a result, a dearth of cheap housing fed homelessness, which rose to a high of 8,640 in 2002 and approximately 7,500 today.

High housing prices in San Francisco similarly predate its tech boom.

According to the California Legislative Analyst’s Office, the gap between California’s home prices and those in the rest country started to widen in the 1970s, going from 30 percent above U.S. levels to more than 80 percent by 1980. Contrary to Benioff, the LAO blames public policies that suppressed construction when the rest of the country underwent a housing boom. San Francisco’s Budget and Legislative Analyst’s Office calculates that the city would have needed to add 15,000 housing units per year for its prices to have remained in line with the rest of the country, instead of the actual 2,000. That would have resulted in 459,000 units built between 1980 and 2010 instead of 60,334. Thus San Francisco’s housing supply is estimated to be less than half of what it should have been for prices to have kept pace with the rest of the country.

Not only did government policies destroy cheap housing, but expanded building regulations have also made it impossible to build cheaply. Those regulations have increased the cost of building “affordable housing” even more than they have for housing in general; this is due to the more stringent design requirements and NIMBY activism.

Today, California’s development and impact fees are three times the national average, and the Terner Center for Housing Innovation at UC Berkeley estimates that the cost of building an “affordable” 100-unit project in California increased from $265,000 per unit in 2000 to almost $425,000 in 2016.

Benioff is correct that San Francisco has a huge and growing inequality problem, and this city that prides itself as one of the most “progressive” is home today mostly to the very rich and the poor, with the middle class largely driven out. But this is not the result of “the [tech] rich getting richer.” As a recent article in The Economist concludes, California’s inequality problem is not “the stagnation of low incomes per se. It is stagnation relative to costs—in particular, the cost of housing.” Today, a minimum-wage earner in San Francisco would have to work 177 hours per week to afford an average one-bedroom rental. (There are only 168 hours in a week.)

Freeing housing markets is thus the master key to solving San Francisco’s inequality, homelessness and housing crises.

If Benioff really wants to get San Francisco back on track, then he should call for a vast rollback of regulations, which would make it possible to construct housing that is actually affordable—as opposed to permanently subsidized. (Instead, he is pushing multimillion-dollar tax increases for unaccountable city “homeless” funds, such as the recently passed Proposition C he bankrolled.)

A recent McKinsey study found that shortening the land-use-approval process could reduce the cost of housing by more than $12 billion through 2025 and accelerate project approval times by four months on average. Reducing construction permitting times could cut another $1.6 billion, and raising construction productivity and deploying modular-construction techniques could cut up to $100 billion.

Rather than chastising his fellow tech titans, Benioff should lead the way in establishing venture funding for housing that is truly affordable. This same McKinsey study projects that such private funding could finance more than 30,000 affordable units a year. That’s a solution everyone should be able to get behind.

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When is enough federal land enough?

According to The Washington Post earlier this month, “The Senate … passed the most sweeping conservation legislation in a decade, protecting millions of acres of land and hundreds of miles of wild rivers across the country and establishing four new national monuments honoring heroes including Civil War soldiers and a civil rights icon. The 662-page measure, which passed 92 to 8, represented an old-fashioned approach to deal making that has largely disappeared on Capitol Hill.” The House is preparing to vote on the legislation.

I’m always skeptical when I read the Post celebrate the announcement of some bipartisan scheme that ultimately increases federal power and costs taxpayers more. This land grab is a terrible idea. The federal government already controls most of the western United States. This bill will further increase federal control over large areas.

In addition, the Wilderness designation locks land away from most of the public except those who by permit walk in on foot with extreme limitation and countless regulations. Rivers become locked away from any future hydro-electric development in a nation that needs power. More federal employees with more salaries and pensions will be required to “manage” these areas of expanded federal protection. This is more federal forceful protection of stuff rather than people.

I argued many times with National Park Service managers during my career with NPS, and they firmly believed their priority was to protect stuff over protecting the safety and lives of people. What I suggest is a return of most of the many millions of acres of land and hundreds of National Parks back to state control, with the federal government retaining only those exquisite jewels like Yellowstone and Grand Canyon.

Having spent decades as a land manager working from the West Coast to the East Coast, I can cite countless examples of breathtakingly horrible management by federal land managers spurred on by a host of aberrant agendas that are not in the best interests of Americans. We should oppose anything that expands the power of the all-consumptive federal beast.

How much is enough? When politicians seek a lasting legacy, they look in the mirror and imagine Teddy Roosevelt staring back at them, all at our expense. How about this: Secure our borders from a host of threats before any more land within our nation’s interior is essentially confiscated for federal use.

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Four States in Apocalyptic meltdown

"This is the flip side (of) tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?" said New York Governor Andrew M. Cuomo on Feb. 4.

After the Trump tax cut went into effect one year ago, we predicted that the Trump tax reform would supercharge the national economy but could cause big financial problems for the five highest-tax states: California, Connecticut, Illinois, New Jersey and New York.

The capping of the state and local tax deduction at $10,000 raised the highest effective state tax rates by about 66 percent (for example, in New York City and California, the rate on millionaires rose from about 8 percent to 13.3 percent). In New Jersey, the highest rate has risen from 7.5 percent to 12.75 percent. Now, we have Andrew Cuomo conceding that the trend of rich people moving out of New York has caused the loss of $2.3 billion of tax revenue in Albany's coffers. Cuomo called this tax change "diabolical." We think it was a matter of tax fairness. No longer do residents of low-tax states have to pay higher federal taxes to support the blob of excessive state/local spending and pensions in the blue states.

As we predicted, the wealthy are fleeing these five states. The new United Van Lines data were just released that are a good proxy for where Americans are moving to and from. Guess what four states had the highest percentage of leavers in 2018: 1) New Jersey, 2) Illinois, 3) Connecticut and 4) New York. Even California had more Americans pack up and leave than enter.

Ironically, liberals like Cuomo who argued for years that businesses don't make location decisions based on taxes in their states are now forced to admit that the cap on the state and local tax deduction (which primarily affects the richest 1 percent) is depleting their state coffers. The rich change their residence by moving for at least 183 days of the year to low taxers such as Arizona, Florida, Tennessee, Texas and Utah.

We advised Cuomo and other blue state governors to immediately cut their tax rates if they wanted to remain even semi-competitive with low-tax states. They are doing the opposite. Connecticut, Illinois and New Jersey have led the nation in tax increases on the rich over the last three years, while "progressives" have cheered them on.

Last year, legislators in Trenton went on a taxing spree, raising the income tax on those making more than $5 million a year to 10.75 percent — now the third-highest in the country — and then enacting a health care individual mandate tax on workers, a corporate rate increase and an option for localities to impose a payroll tax on businesses. And they are still short of cash. Idiotically, these tax hikes were passed after the cap on state and local tax deductions was enacted, thus pouring gasoline on their fiscal fires.

How has this worked out for them?

In addition to New York's fiscal woes, the deficit in Illinois is pegged at $2.8 billion (with a $7.8 billion backlog of unpaid bills), and Connecticut faces a two-year $4 billion shortfall despite three tax increases in five years. New Jersey has a $500 million deficit this year (even after the biggest tax hike in the state's history) and Moody's predicts that gap will widen to $3 billion over the next five years. This is all happening at a time when most states have healthy and unexpected surplus revenues due to the Trump economic boom and the historic decline in unemployment.

A Pew study published late last year on which states are bleeding the most red ink ranked New Jersey worst, Illinois second worst and Connecticut seventh worst. New York was also in the bottom 10.

Let us state this loud and clear in the hopes that lawmakers in state capitals across the country are paying attention: The three states that have raised their taxes the most now have the worst fiscal outlook.

Worst of all, things don't look like they are going to get better in any of these states. Last fall, Connecticut, Illinois and New Jersey voters elected mega-rich Democratic Govs. Ned Lamont, J.B. Pritzker and Phil Murphy, who have promised to sock it to the rich — the ones who haven't yet left. In Illinois, Pritzker would eliminate the state's constitutionally protected flat tax so that he can raise the income tax on the rich by as much as 50 percent. After raising income taxes three times in the last five years, Connecticut's legislature now wants to raise the sales tax rate. No one in any of these progressive states even dares utter the words tax cut. In just one decade, New York lost 1.3 million net residents; Illinois 717,000, New Jersey 516,000 and Connecticut 176,000. California has lost 929,000.

There is also a useful warning for the soak-the-rich crowd of progressives in Washington. If a rise in the state tax rate from 8 percent to 13 percent can have this big and immediate negative impact, think of the economic carnage from doubling of the federal tax rate from 37 percent to 70 percent as some want to do. The wealthy would relocate their wealth and income in low-tax havens like Hong Kong, the Cayman Islands and Ireland. That would do wonders for the middle class living in those countries.

We are sticking with our warnings from last year. If the four states of the Apocalypse — Connecticut, Illinois, New Jersey and New York — do not reverse their taxing ways and choose to keep making things worse, these once very rich and prosperous states will see thousands more rich taxpayers leave. The politicians in these four states just don't seem to understand math. A soak-the-rich tax rate of 8 percent, 10 percent or even 13 percent on income of zero yields zero income when the wealthy leave the state. Cuomo was right: The bleak outlook for the four states of apocalypse is "as serious as a heart attack."

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