Wealth Taxes Are a Mystery to Most
The Democratic presidential candidates have been talking a lot about imposing "wealth taxes" to pay for their takeover of the health care system or the infamous "green new deal". A wealth tax on all those rich people certainly makes good campaign fodder, but the reality doesn't match the rhetoric.
The reality is that the wealthiest Americans already pay most of the income taxes in the United States.
The reality is that the bottom 50 percent of taxpayers (those with AGI below $40,078) earned 11.6 percent of total AGI. This group of taxpayers paid $43.9 billion in taxes, or roughly 3 percent of all income taxes in 2016.
In contrast, the top 1 percent of all taxpayers (taxpayers with AGI of $480,804 and above), earned 19.7 percent of all AGI in 2016, and paid 37.3 percent of all federal income taxes.
In 2016, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. Or another way to put it, the top 10% of wage earners (those rich people) already pay 69.5% of all the income taxes.
And yet, you hear people constantly saying the rich don't pay their fair share. They have been saying that in political campaigns for as long as I can remember, but it is just - as our current president would say - more fake news.
Let's take a moment and look at a couple of these wealth tax proposals the Democratic candidates are touting:
First up is Mass. Senator Elizabeth Warren't plan. Her "ultramillionaire tax" would give the Federal Government 2% of a household's total net worth above $50 million to 6% on net worth above $1 billion. The total net worth would consist of all worldwide assets, including residences, businesses, trusts, retirement funds and personal property worth $50,000 or more. Assets held by minors would also count. People with liquidity issues could defer payment of the tax for up to five years. IRS audits of wealthy individuals would increase. And in case Americans get sick of being fleeced, she also wants to levy a 40% "exit tax" on the net worth above $50 million for anyone who renounces their U.S. citizenship.
Then there is Vt. Senator Bernie Sander's ambitious plan. He wants a 1% tax on a married couple's net worth above 32 million. This rate wold gradually increase to 8% on wealth over $10 billion. Tax brackets would be cut in half for singles. His version of the exit tax would be 40% on the net value of All assets under $1 billion to 60% for assets over $1 billion. The IRS would also be required to audit 30% of wealth tax returns for anyone in the 1% bracket and 100% of returns for billionaires. A national wealth registry would also be formed to help enforcement. (That's a scary police-state tactic)
So, would we end up with a wealth tax if a Democrat is elected President? Probably not. Even if Democrats had both houses of Congress, it would really be hard to get enough lawmakers to vote for it. And if the Senate remains in Republican hands, any wealth tax would be dead on arrival.
Then there is the debate amount legal scholars as to whether this type of tax is even constitutional. The U.S. Constitution requires a "direct tax" to be apportioned among the states according to their population. So, for example, California has twice the population of New York, so California residents would have to pay twice as much as New York residents. If a wealth tax is enacted and isn't apportioned correctly, the courts could decide it is not a direct tax and unconstitutional.
While a wealth tax probably won't become a reality, the candidates have other ideas to separate us from our hard earned money. Raising the top income tax back to 39.6% or higher. Doing away with the step-up basis for inherited property so the "death tax" get even higher. Ending favorable tax rates for long-term capital gains which would take away the incentive for people to invest in businesses. And lowering the estate tax exemption to $3.5 million so they could continue to tax you after you are dead.
We really are at a crucial point in our country. Do we want to go the direction where we believe that government can take care of us better than ourselves, (socialism) or whether we return to the limited government republic that our founders created over 200 years ago? Do we want to continue the policies of hate and division or turn back to a time of respecting each other and learning from our divergent views of the world? 2020 may very well answer those questions.