Mises Wire

Biden's Wealth Tax Is a Trojan Horse Requiring Multiple Manipulations

While no one expects politicians to be honest, one of the biggest lies that comes from President Joe Biden, members of his party, and those who echo their messages is that “the rich pay less taxes than you.” This crafted statement is designed to stir up emotions at the expense of facts in order to drive popular opinion to support a wealth tax despite its unconstitutionality and lack of support when first proposed in 2020 by Elizabeth Warren, who was decisively defeated during the Democrat primaries that year.

Manipulation 1: Lying through Omission

“The rich pay less taxes than you” creates an image of a Wall Street CEO paying fewer actual dollars annually than a McDonald’s manager. But when authors of articles and politicians make this statement and present the evidence to back it up, it turns out that they are referring to tax rates instead.

Capital gains are taxed at a lower rate than income. Currently the highest income tax rate bracket is 37 percent, while capital gains are taxed at a maximum of 20 percent because long-term capital gains (held for more than one year) are taxed lower than income. Capital gains come in the form of assets like annuities, stocks, and real estate, and they are paid only when the investment is realized and cashed out.

For example, if you paid $100,000 for a piece of land and sold it two years later for $200,000, then you would pay 20 percent tax on the additional $100,000 you made on the sale. And it should be noted that for most Americans, the initial $100,000 investment would have come from savings that accumulated after paying an income tax.

One argument one might hear is that Warren Buffet only pays a tax rate of 20 percent because his money comes from capital gains while his secretary pays a tax rate of 37 percent (she would need to make more than $400,000 a year for that to happen), so she therefore pays more taxes than him. In 2011, Warren Buffet told Congress that he made $62.1 million in 2010. Twenty percent of that number is $12,420,000, while 37 percent of $400,000 is $148,000. Per dollar amount, Warren Buffet’s annual tax bill is more than that of his hypothetical secretary’s.

Manipulation 2: Confusing Unrealized Gains with Income

Regarding President Biden’s proposal for a billionaire minimum income tax, the White House website laments that the current tax code rewards wealth instead of work because workers pay taxes on the money they earn (realize) while investors do not pay any taxes on their investments as they grow in value until they are realized (cashed out), and so they want the ultrawealthy to pay more money annually to the government in the name of fairness. They claim that this is needed because “billionaires pay 8 percent of their total realized and unrealized income on taxes while a teacher or firefighter could pay more than double that.” That statement is manipulative because it contains a technical lie.

Under our current tax system, we pay taxes on income only when it is realized. No one pays a tax on unrealized income because that would be a wealth tax, which is unconstitutional. That statement, which came directly from the White House’s website, is using the tactic of telling a lie so often that it will eventually be accepted as truth.

There are many problems with wealth taxes. Ignoring the moral problems, one of the biggest logistical hurdles is that it is a tax on unrealized gains, which can fluctuate and be subjective in value. You could have bought stock in Disney for $100 per share in 2020, had it be worth $200 per share in 2021, and then watched it drop to less than $90 per share in 2022. Under a wealth tax system, you would have paid taxes on a gain you never enjoyed and then experienced a loss on which you probably wouldn’t be refunded. Under our current system, you don’t have a real gain or loss until you sell.

Manipulation 3: The Rich Do Not Pay Their Fair Share

One statement that is designed to boil up the emotions of the masses is that the rich do not pay their fair share in taxes. However, no one who makes this statement is willing to offer up a percentage or dollar amount, let alone a definition, of what “fair” is. But when reviewing income tax data, it becomes obvious that half of the US taxpayers are subsidizing the other half by paying the overwhelming amount of tax revenue. That half is the top, and they paid 97.7 percent of federal revenue in 2020.

The villainized top 1 percent of earners paid more than the bottom 90 percent, with $723 billion versus $450 billion. More than 60 percent of all revenue came from the top 10 percent of earners. There is definitely a large percentage of Americans who are not paying their fair share, but the reality goes completely against what is popular opinion.

Wealth Taxes Destroy Freedom

The purpose of such manipulation is to sway the public into supporting a wealth tax. We are told that a wealth tax would be wonderful because only the super rich would pay for it while the rest of us would enjoy the benefits at no risk. However, a wealth tax would violate the principle of private property ownership. If private property is viewed as a public resource where the needs of the many outweigh the needs of the few, then political operatives could weaponize it against their opposition and begin a path toward tyranny.

Income taxes were also pitched and bought by the public because they were told that only the superrich would pay it. Experience has shown us differently. Likewise, if an incredibly radical concept like wealth tax is really needed because decreasing the deficit has become a priority for those who have reliably increased it from year to year, then the fastest and most efficient alternative to meet this objective would be to cut spending.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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