New York Times’ Wealth Tax Miss
The Paper of Record seems to be on an advertising run for a controversial proposal
This morning, I woke up to the following headline in my inbox:
The word “tax” shows up a million times in my inbox for all kinds of reasons, but this one was from the New York Times rather than the AICPA. I’m always interested to see how my chosen profession is covered by those who dabble in it for their reporting job (plus I love my morning news) so of course I clicked through.
And what I found was…disappointing.
The author, David Leonhardt, gives a big push for the benefits of a wealth tax, then paves over some very real concerns.
With all this wealth tax stuff going around (which I’ve written about at length previously), I figured point out my concerns with Leonhardt’s push.
Are Your Paying a Wealth Tax Already?
The article starts out by asserting that most Americans already pay a wealth tax: your annual property tax.
It’s an interesting argument, for sure. People have been fighting about how to classify property taxes for years (I found this research paper dating back to 1972 arguing about classification), and claiming it’s a wealth tax isn’t completely without merit.
What actually happens matters, though. It is a specific asset that is being taxed at a specific rate set by law, which is more like an excise tax. Not completely, though, since you already own it.
More importantly, property tax is a LOCAL tax.
That is huge. Even if Leonhardt is right that property tax is a wealth tax, the Federal government is specifically limited over what it may tax. State and local jurisdictions are allowed much more leeway.
Which is huge in the “constitutionality” argument Leonhardt papers over later.
Will It Destroy The Economy?
In tackling alleged arguments against a wealth tax, Leonhardt takes on the supposed argument that it’ll destroy the economy.
He claims it’s a weak argument, and then he gives a weak response.
I’m not sure where to start on this one…maybe his response.
Using a different tax from a different time doesn’t help your case
For his defense that a wealth tax won’t destroy the economy, Leonhardt points to higher income taxes back in the 50’s and 90’s, which were good times economically.
While it’s true we had a bustling economy then, in the 50’s and 60’s, we were the only developed economy not completely ravaged by war, which makes it a a terrible comparison point. And the 90’s was a weird, weird time economically.
More importantly, though, is that these times never had a WEALTH tax. He’d have a much stronger argument if he pointed to one of the many European countries that tried a wealth tax and how their economies thrived under it.
(Spoiler: they didn’t)
Not destruction, but change
So this is weird.
Leonhardt says a wealth tax won’t destroy the economy, yet he spent several paragraphs (and graphs!) before basically saying that he’s really hoping a wealth tax will have a destructive effect on the economy.
By that I mean he points out that the wealthy have relatively too much money, and we need to take that away.
Or, using the kind of language my son would use, we should DESTROY their wealth.
It’s very much “fixed pie” thinking, believing that there’s only so much pie, so taking it away from the wealthy will give it to others. But that’s not how economics works.
But I’m not going to defend Leonhardt’s hope that it will somehow hurt part of the economy without touching the rest. He can do that.
Besides, I agree that it won’t destroy the economy.
It will, however, have some sort of negative effect.
If you tax something, you get less of it.
That is, in fact, one of the main goals of a wealth tax. It’s specifically designed to have less wealth.
This WILL somehow affect the rest of the economy.
How? I don’t know. It could be small, or it could be huge.
It seems like the people pushing for massive change should have a better answer on the economic effect than hand waving it away by pointing to post-World War II reconstruction.
Doomed to Fail — The Logistics
The next argument Leonhardt has is about logistics. Some point argue, he says, that the wealthy will avoid the tax. Plus collecting the tax will be difficult.
Logistics is a key part of my argument I linked to above (I’ll put this link here, too).
He basically hand waves away the wealthy avoiding the taxes with a quote from Berkeley economist Gabriel Zucman, “That’s wrong. Look at history.”
I think they’re mostly right on this point, though there will absolutely be people avoiding the tax. The world has globalized versus history. It’s much easier for the wealthiest to move than ever before. The real argument, just like with the destruction argument, is “to what extend?”
The actual tax collection logistics is a bigger issue. The rumblings I’ve heard about only taxing publicly traded assets would clear up much of that, since there will be an easily determined value to point at.
I’ll wait to see the actual proposal (likely coming next week) before I pass judgment.
As I argued in my previous piece, there’s a very strong argument that a wealth tax is unconstitutional, but the devil is in the details. There’s a reason the 16th Amendment had to be passed.
But, more importantly, Leonhardt undermines his own argument here. He basically says, “it might be deemed unconstitutional, but even if it is, we’ll still have all this great stuff!”
Okay…but shouldn’t constitutionality matter? Shouldn’t our elected officials try to do their best to follow the law, rather than forcing the Supreme Court to be the heavy?
And, furthermore, if it is deemed unconstitutional, how are we going to pay for that stuff?
I’m Less Reassured After Reading This Article
Leonhardt seems to be arguing that you should ignore any concerns about a wealth tax, because it hurts the right people. And even if it is illegal, at least we get stuff out of it!
And what stuff are we getting out of this, anyway?
So we’re raising taxes on the super wealthy to give a tax break to the very wealthy. Now I’m convinced.