Warren’s Ultra-Millionaire Tax Could be a Windfall for Foreign Billionaires
Massachusetts Sen. Elizabeth Warren has proposed legislation that would impose so-called “wealth taxes” on the net worth of the nation’s richest people. Her aim: raised lots of money to fund new government programs and reduce income inequality.
But as the Tax Foundation’s Scott Hodge writes in the Wall Street Journal, Warren’s “Ultra-Millionaire Tax Act of 2021” would have the perverse effect of transferring the assets of wealthy American to wealthy foreigners…who aren’t subject to her tax. A Tax Foundation analysis showed:
…wealthy U.S. citizens would sell their assets at fire-sale prices to pay the tax. Because the U.S. is an open economy, many of these assets would be bought by foreign investors at the discounted prices. Thus, while a wealth tax wouldn’t shrink the U.S. economy much, it would change who owns U.S. assets. What Jeff Bezos, Warren Buffett and Mark Zuckerberg sell, Jack Ma, Carlos Slim and the sultan of Brunei might buy—and they’d be exempt from the U.S. wealth tax.
Might the wealthy try to renounce their U.S. citizenship, or otherwise game the tax code to protect their assets? Hodge says Warren’s bill “would attempt to discourage wealthy Americans from renouncing their citizenship by imposing a 40% exit tax.” Some few may choose such an option. But others, Hodge says, will “stay home and simply liquidate some of their assets to pay the tax.”
It would be easy to call these hypotheticals or unintended consequences. But the reality is confiscatory tax rates rarely if ever generate the revenue and other social goods politicians promise. The incentives to dispose of, shelter, or avoid creating new wealth get stronger as the rates go higher. It will be no different with Warren’s tax folly.