SEN. Bernie Sanders recently proposed a “tax on extreme wealth.” Under his plan, the federal government would annually siphon off up to 8 percent of the assets of the wealthiest individuals.
Way to stick it to those robber barons, right?
Unfortunately, the senator grossly misunderstands how wealth is created. He also seems unaware of the state of the middle class, as well as the negative economic consequences of a wealth tax, which actually amounts to an attack on all of us.
Sanders claims that the growth in wealth of the top 1 percent is due to a “massive transfer ... from those have too little to those who have too much.” Under this worldview, wealth and economic production are prefixed values. One becomes wealthier only at the expense of another.
This is incorrect. Total wealth and economic output expands—or shrinks—based on the combination of human ingenuity, labor, natural resources, and capital investment. In a free society, wealth grows as individuals participate in mutually beneficial exchanges.
The wealthiest people in the world did not derive their fortunes by plundering others. Far from it. Chances are, you’ve directly benefited from their contributions.
For example, Jeff Bezos—the wealthiest at $131 billion—transformed commerce through Amazon. Steve Jobs, Bill Gates, Michael Dell and Larry Page revolutionized information technology. The Walton family re-engineered retail through Walmart, expanding consumer choices while driving down costs and creating hundreds of thousands of jobs.
In prior generations, businesspeople and inventors such as Henry Ford and Thomas Edison earned fortunes by massively improving the lives of others.
In the United States, wealth transfer does indeed occur. But it’s not the wealthy stealing from the less well-off. On the contrary, the federal tax system facilitates the transfer of social benefit payments to the tune of more than $2.3 trillion annually—an amount that has doubled over the past decade.
The wealthy rarely hoard their assets in bank vaults, treasure chests or under mattresses. Instead, they invest this capital, which is then used to enable the technological advancement, business opportunities, and medical breakthroughs that boost everybody’s quality of life.
So plundering their capital via a wealth tax for a short-sighted, envy-inspired political gain is an attack on all of us.
A politician may reap momentary public approval by confiscating this capital. A few select special interests may enjoy temporary financial benefits if these proceeds are transferred to their hands. But eroding the capital base -whether it be through taxation, inflation, or consumption—hinders long-term economic prosperity.
Indeed, even as the share of wealth owned by the top 1 percent grew from 21 pecrent in 1990 to 29 percent in 2017, Americans of all income levels became better off. The senator’s very premise—”the disappearing middle class”—is a fabrication.
Data from the Census Bureau show the middle class (those households earning between $35,000 and $100,000 adjusted for inflation) did shrink from 48 percent in 1990 to just 41 percent in 2017. Those in the lower class (under $35,000) dropped from 32 percent of total households to under 30 percent, nearly an all-time low.
Combined, middle-income and low-income households dropped from 80 percent to 71 percent of the population.
What happened to these millions of families? They migrated up the income chain! During the same period, the percentage of households earning $100,000 nearly jumped from 20 percent to an all-time high of 29 percent. In fact, the proportion of high-income families has nearly doubled since 1980.
This isn’t a paradox. Instead, it’s a direct result of a free-market system in which individuals can earn wealth by satisfying the needs of the marketplace.
Worse, the wealth tax won’t come close to paying for the promises of the progressive agenda. Even the more than $4 trillion in capital over 10 years estimated to be confiscated under Sanders’ plan covers just a small fraction of the $48 trillion to $92 trillion in estimated costs for a variety of proposals touted by leading progressive presidential candidates.
Nor would imposing a 100 percent corporate income tax and a 100 percent income tax on those earning more than $200,000 come close to paying for this explosion in federal spending. Only sharply higher taxes on the poor and middle class will pay for such a vision.
Attacking the wealthy may indeed lead to less inequality. But a smaller gap in wealth does not mean the poor become better off. Consider the most radical of leveling experiments last century in the Soviet Union, Cuba or score of other “socialist republics.”
For those on an ideological crusade to level society, sacrificing broad economic prosperity in order to secure greater equality of outcome may be an acceptable trade-off. Prime Minister Margaret Thatcher said it best: “(They) would rather the poor were poorer, provided the rich were less rich.”
For the vast majority of Americans, however, fostering a nation of opportunity and abundance for all is far more desirable than sacking our wealthy neighbors.