(Or, why Bernie Sanders and Elizabeth Warren are clueless.)
Not only will wealth taxes destroy America, it will happen in a matter of months.
There are 100 reasons to tax wealth, and only one reason not to, but the reason not to is the only one that matters. Wealth taxes destroy wealth. For all the populist clap-trap about redistributing wealth, one fact rises above all.
If you must sell something, the price will collapse.
Wealth is not income. In fact, the actual income return, (interest, dividends and flow through gains) on American assets has never been lower. The cost of buying an income stream is in the stratosphere.
Market economies are designed to market (sell) consumables. If you go to a grocery store and buy tomatoes, they are replaced with new tomatoes. If there’s a shortage of tomatoes, the price goes up and farmers produce more. If the price falls, farmers produce less.
Stocks are, for the most part, not consumed.
If you sell them, they’re not replaced by new stocks and they don’t get eaten. All they do is change hands. When a person buys a share of stock, money goes from one account to another and stock goes from that account to yours.
In other words, no new money enters or leaves the system.
If a person has to sell assets to get money to pay taxes, money leaves the system, and this causes the market to collapse. This is why wealth taxes will cause the economy to collapse. It’s true of every asset market and every system. Consider residential properties.
In suburban New York, property taxes are extremely high yet in some of the richest areas in America, property taxes as a percentage of property values are extremely low. The tax on a $300,000 house in Western New York is about the same as the property tax on a $800,000 house in Natick, Massachusetts.
This is because property taxes take money from the system.
In Western NY, property tax is the equivalent of 3 ½ percent annual interest on a buyer’s mortgage. In Natick, it’s closer to 1 ½ percent. So, the Natick buyer can afford a higher priced house with the same income.
Populist politicians don’t think about this. They don’t care. They’re just trying to get elected. Once they get elected, it’s your problem.
Now, this is where it gets really weird. The building and buying of houses actually adds money to the system
You have to put your thinking cap on for this. Banks do not lend money, they create it. Imagine you go to your banker and say, “I want to sell my house to my friend Jorge, but he hasn’t any money.” What does the bank do? They create a mortgage.
Tell Me Again How #Pizzagate And Comet Ping Pong Is Just A Conspiracy Theory
Posted by Morpheus on Monday, January 8, 2018
In return, they tell you that you have the right to the value of your house, and we call this right, a checking account deposit.
So, now you have a $300,000 balance in your checking account and what do you do? You start writing checks. And what happens to those checks? They get deposited into banks and so on and so on. In other words, it may not be at your bank but it’s in some bank. It’s in the banking system.
That money ONLY leaves the system if you take it in currency and put it in your mattress.
As Jorge pays off his mortgage, the bank writes down the value of the mortgage on their books. It’s a zero-sum transaction. Nothing is gained, nothing is lost.
In property taxes, the financing comes from your INCOME and it depresses your home value. But in the stock market, the situation is worse and why wealth taxes will destroy America.
No one pays their property taxes by selling a bedroom. The stock market is different.
Imagine we put a wealth tax on Bill Gates of say, 3% per year. You might think, “that’s nothing. Bill Gates is worth $100 billion.” But that $3 billion is money leaving the system to pay a tax bill. The money has to leave the stock market and go into another market.
To the US government, $3 billion is like a fart in a wind storm.
But multiply this by the tens of thousands of people that would have to be taxes to collect any real money, and you’d send the stock market into total freefall.
Well, guess what? You own Microsoft! Almost every stock mutual fund on the planet owns Microsoft. And when Bill Gates net worth collapses, yours is going along for the ride along with every other stocking in the market.
Property taxes are a form of asset confiscation. In America we tax the gain on the sale of assets, not the asset itself.
In communist countries and some dictatorships, they confiscate assets. This has a crushing effect and is whjy wealth taxes will destroy America. First, it reduces the value to zero, wiping out the wealth of the private owners. Second, it takes away the relationship between the assets price and income it produces.
In other words, it destroys the incentive of profit.
Bernie Sander’s argument is, like almost everything Sanders says, childish. Sanders demagoguery is so pathetically juvenile, and so mindlessly stupid, he isn’t worth arguing with.
But to a frustrated single mother with two kids and a beat-up minivan, it’s total ear candy.
One thing that all communist countries have in common is they are poor. They’re all poor for the same reason. If you look at the oil industry, the countries that nationalized their oil companies are all, with the exception of two that have huge oil deposits and tiny populations, dirt-ass poor.
Countries that try to live off assets eventually collapse.
Saudi Arabia needs $85 a barrel oil to balance their budget. Oil is $57. Mexico, Venezuela, Iran and Libya are a disaster. So are Nigeria, Russia and Iraq. When Canada nationalized Dome Petroleum in the 80’s they ruined it. In fact, Canada has a long and storied history of ruining its asset values.
The situation with farmland is even worse.
In a market system, asset values rise and fall based on the income streams those assets produce, which is based on the quality and price of the products that asset (or company) produces.
In Sanders based economy, assets are bled down and finally, because a constantly cash starved government can’t afford to lose them, they’re artificially propped up. New products and innovations never appear and black markets, that is, real markets emerge.
The only difference between a 3% annual tax and flat out confiscation is the time it takes. The effect is the same.