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The Bernie Sanders Wealth Tax

Summary:
Presidential candidate Bernie Sanders has proposed an annual wealth tax on families with net wealth above million. The tax is even more aggressive than the one proposed by Elizabeth Warren. As I discuss here, the number of European countries with Sanders- or Warren-style wealth taxes has fallen from 12 in 1990 to just 3 today, and those 3 countries have cut their rates in recent years. The Europeans found that wealth taxes induced widespread avoidance, evasion, and capital flight. They raised little revenue and became riddled with exemptions. The economists helping Sanders and Warren design their plans are doing the candidates a disservice by feeding them fairy tales about government revenues. Sanders claims his tax would raise .35 trillion over 10 years (about 5 billion a year),

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Presidential candidate Bernie Sanders has proposed an annual wealth tax on families with net wealth above $32 million. The tax is even more aggressive than the one proposed by Elizabeth Warren.

As I discuss here, the number of European countries with Sanders- or Warren-style wealth taxes has fallen from 12 in 1990 to just 3 today, and those 3 countries have cut their rates in recent years. The Europeans found that wealth taxes induced widespread avoidance, evasion, and capital flight. They raised little revenue and became riddled with exemptions.

The economists helping Sanders and Warren design their plans are doing the candidates a disservice by feeding them fairy tales about government revenues. Sanders claims his tax would raise $4.35 trillion over 10 years (about $435 billion a year), while Warren claims hers would raise $2.75 trillion over 10 years (about $275 billion a year).

But European wealth taxes typically only raised about 0.2 percent of gross domestic product a year, which would be about $40 billion in the United States. The wildly exaggerated estimates of Sanders and Warren apparently assume that virtually all wealth above the thresholds would be taxed, but that is not the real world, as the European experience shows.

Reporters should ask Warren and Sanders whether farmland would be taxed under their plans. Obviously, the farm lobby would never let that happen, thus blowing a hole in theoretical wealth tax revenues. If a wealth tax were imposed, there would be a massive flow of money into tax-exempt farmland, which in turn would wreak havoc on the farming industry. Rich people would jack up their borrowing to shrink their net wealth tax bases, and then proceed to purchase much of Kansas.

If by some fluke a President Sanders or Warren did get a wealth tax enacted, it would be repealed within a year or two as the economic damage and administrative nightmare became clear to even the most ill-advised politicians.

Chris Edwards
Editor of http://DownsizingGovernment.org (@DownsizeTheFeds) at the Cato Institute.

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