Progressives love to point to Europe as an example for their policies. So let’s look there. In Europe, we find that the wealth tax as a policy has a fundamental flaw. Thirty years ago, 12 European countries had some form of wealth tax. Now, only three remain. Why is that?
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The results do not suggest a legacy of success for this tax policy.
Most recently, President Macron was responsible for the removal of France’s wealth tax. The move follows the exodus of over 42,000 taxpaying millionaires between 2000 and 2012. Every time a wealth tax has seen implementation the results are the same two phenomena.
The wealthy population, those who previously were paying plenty in taxes, leave the state or country. Tax receipts end up being lower than they would otherwise have been. Got it? Taxes go up. The rich leave. They take their businesses with them. Government revenue goes down. It ain’t rocket science. It is a history lesson. That is if you read history… but I digress.
The costs of a wealth tax outweigh the benefits. Analysis by The Cato Institute shows European wealth taxes only targeted about 0.2 percent of GDP in revenue. That’s about 1/40th of the revenue from federal income taxes. That is a drop in the tax bucket.
Difficult to administer, negative revenue, crippling future economic growth
Yet, these taxes prove incredibly difficult to enforce and administer. In order to properly administer the tax, governments “… have to get very good at valuing art, diamonds, superyachts, and all the other fabulous things the super-rich collect…” The government is ill-equipped to perform this task. Doing so has historically proven nearly impossible.
People do not appreciate having their hard-earned money taken away by the government. Rich or poor, there is no difference in how people feel about this. Wealth taxes have been tried. They always result in failure. They are certainly a large risk for a small gain. Any gambler will tell you that’s a poor bet.
The wealth tax, AB 2088, is only one legislative option for the California legislature. Here’s the problem; it signals a dangerous policy trajectory for progressive Democrats. We must understand the national proposals from progressive Democrats parallel the California example. Kamala Harris, a Californian is at the head of the Socialist Ticket this year.
Such policies fail to produce the revenue their proponents promise. They also create an incentive for the rich and businesses to move away. Worse, it will keep them away. Building a sustainable revenue stream for a state is difficult work. It requires balance and perspicacity.
Our response to the existing self-inflicted revenue decline will be important to our future. States should look for free-market solutions. The way forward involves belt-tightening and bringing in new investment. Businesses must be stimulated and supported. We should not drive it away. There is wealth tax history in Europe if we are willing to learn from their mistakes. Just say no to wealth taxes in all their permutations.