We love accountants. We spent the majority of our life educating them. Unfortunately, we cannot support the plan for a massive expansion of the opportunities for accountants. Veronique De Rugy at the NRO Corner has the details on Elizabeth Warren’s proposed wealth tax. You should, of course, read the whole thing. The tax is loosely justified as a response to income inequality but as we have often said the issue is really envy. Finding the levers to adjust income inequality and agreeing on the right level of inequality are akin to trying to predict climate change.
The one sure thing is the wealth tax will provide lots of opportunities for accountants. Veronique right when she tells us:
That’s why wealth taxes are always so hard to administer and so easy to avoid. It makes them a terrible vehicle for raising money. [and later]
But apparently the senator thinks she can avoid any problems by implementing anti-avoidance measures such as a repressive 40 percent exit tax on any targeted household that attempts to emigrate, minimum audit rates, and increased funding for IRS enforcement. [Emphasis added]
Because it is off her topic she has left out is all the opportunities for the accountants in the private sector to avoid or reduce the tax. She mentions that a wealth tax might be unconstitutional. There is also the issue in bold above. Can we really tax people that want to leave such a repressive regime? On both those questions it is wise to reject the proposal rather than count on the courage of the Supreme Court. Especially when the left wants to pack the court.
One issue we would like to see discussed is the impact of the wealth tax on wealth. We don’t have a complete model but when wealth produces about eight percent returns and you tax it at two or three percent then the returns on assets are substantially reduced. That, it seems to us, would reduce the value of assets. The folks that pay the tax own lots of assets and lots of them are equities. Equities won’t have two prices. Will the wealth tax reduce the value of equities?
A wealth tax is at least a really bad idea for everybody but accountants. It might be absolutely terrible if it has a major negative impact on equity prices.