Following the pattern of past taxes on the rich, it will probably trickle down to everyone else by design, writes John Goodman. But the main reason to oppose the tax is straightforward: It’s not in our self-interest.
he Biden administration is proposing a new tax on households worth more than $100 million. Tagged as a"," the new levy would apply not just to ordinary income but also to unrealized capital gains. If a wealthy person owns shares of stock, and the stock is worth more today than when it was purchased, President Joe Biden wants the federal government to take 20% of the increase.Many things. But the worst offense is the failure to understand the role of capital in the economy.
There is plenty of that to go around. But many very wealthy people live very modest lifestyles. Sam Walton was often seen sporting blue jeans and driving an old pickup truck. Warren Buffett never pays more than $3.17 for breakfast. Although he apparently spends some time in a mansion or two, Elon Musk has a primary residence that is a"foldable, prefabricated" rental house, the size of a studio apartment.
Here’s why you should care. When Warren Buffett pays for breakfast , he is benefiting Warren Buffett. When he invests in the capital market, he is benefiting you and me. Capital is what makes labor more productive, and more productive workers earn higher wages. Wherever we look in the world, we find that the more capital there is, the higher the average wage.
By contrast, taxing unrealized capital income and using the proceeds to subsidize consumption is a formula for reduced growth, lower wages, and smaller incomes for the average family. That is why my colleagues and I, along with many other economists, have long preferred a consumption tax. Let’s tax Buffett and others based on what they take out of the economy and not on what they put into the economy .
Replacing our current tax system with a consumption tax, especially a progressive consumption tax, has a lot of support among economists. But it is not popular with politicians or voters. Beginning with President Ronald Reagan and right through the presidencies of George H.W. Bush, George W. Bush, and Donald Trump, every time the Republicans passed a major tax bill, they took more and more families in the bottom half of the income distribution off the tax rolls.
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