Fly-by-Night Taxation The Democratic tax show has become a tragi-comedy of errors.
There’s never been anything like this, and we’ve been around a long time. Democrats are writing tax policy for a $22 trillion economy on the fly, floating new tax increases willy-nilly, with little thought to the consequences and no time for public debate.
One day it’s an increase in tax rates on corporations and the affluent. But wait, that doesn’t have the votes. How about a carbon tax? That won’t fly either. Hey, there goes Jeff Bezos. Let’s tax him and 699 other billionaires. It polls well. Everyone hates billionaires!
Oh, but that may be unconstitutional. We still need money, so let’s try a 15% corporate minimum tax—though be sure to exempt investments in green energy and other pet progressive ideas. So it will have to be a minimum tax on some companies but not others. Bring on the Gucci Gulch lobbyists, campaign checkbooks at the ready.
And don’t forget to cut taxes for some of the rich by restoring the state and local tax deduction, though only for two years. Need those New York and New Jersey House votes.
Then let’s rush to get all of this “framework” agreed to by Thursday so President Biden can have something to boast about at the global climate gabfest that will do nothing that matters about the climate.
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What a spectacle. For a century Democrats have been the party of higher taxes, but at least they paid some attention to the policy merits. Tax writers Dan Rostenkowski and Lloyd Bentsen were serious people. This crowd has no clue what the consequences of their proposals will be, and they don’t much care.
This would all be low political comedy if Democrats weren’t treating the U.S. economy, the federal fisc, and millions of livelihoods like playthings. Tax policy should be about raising money to finance the government in the most efficient way possible while doing the least amount of economic harm. The Democrats’ main goal these days seems to be to do explicit economic harm for its own sake.
Take Senate Finance Chairman Ron Wyden’s proposal for a wealth tax on billionaires. He finally released the details late Tuesday, and they’re worse even than advertised.
Currently assets are taxed only when they are sold and capital gains are realized. Democrats want to tax the unrealized gains of billionaires with more than $1 billion in assets or $100 million in income for three consecutive years, which the U.S. has never done.
But he also wants to make this tax retroactive. Mr. Bezos, for example, would have to calculate his unrealized gains from the date of his initial investment to the present. He would then have five years to pay this initial wealth-tax bill, which in the Amazon founder’s case could run into the tens of billions of dollars.
This is after-the-fact wealth confiscation—merely because some politicians think Mr. Bezos has too much money. Yet Mr. Bezos made that money legally playing by the tax rules that politicians passed.
Many if not most billionaires hold most of their wealth in unrealized gains. Paying that retroactive bill could require that Mr. Bezos sell his Amazon shares in a way that could affect the company’s stock price. And that in turn would affect the 401(k) holdings of millions of Americans. So in the name of punishing billionaires, Mr. Wyden would hurt the retirement savings of millions of non-millionaires.
Faced with such a punitive tax, many billionaires might choose to move abroad and give up their citizenship. But Mr. Wyden also won’t let them go freely. Under current law, a U.S. citizen who renounces his citizenship is required to pay the unrealized gain on his property, as if it were sold on the date of renunciation. But payment of the tax can be deferred until the time the asset is sold, although interest on the taxes owed will accrue until the sale.
As we read Mr. Wyden’s proposal, he would end the deferral, so the former citizen would owe the tax immediately. This amounts to a forcible sale of assets so the government can confiscate a large part of it. It’s a way of making it so painful to leave the U.S. that billionaires will have to stay. The word for countries that do this sort of thing is authoritarian.
This is the rotten tax policy you get when a party is scrambling and desperate to pass legislation that is increasingly unpopular as more Americans discover what’s in it. The familiar tax increases that people understand are proving to be a hard sell. So Democrats are rummaging through the attic of bad socialist ideas to find some way to pretend they are paying for their multi-trillion-dollar spending blitz. The best result would be for the entire farce to collapse from its own dead weight.
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