6 BARRON’S October 21, 2019
wealthofAmericansinthetop0.1%ofthe
wealtharenaisinequityinpublicorprivate
businesses,withanother5%inthevalueof
theirhomes.Thevalueofthoseassetscould
bereadilydetermined.Aseveryhomeowner
knows, houses are assessed for property
taxes, a form of wealth tax, while publicly
traded securities—even rarely traded debt
issues—can be valued.
Manyoftheseassets,however,especially
privatebusinesses,aredifficulttovalueand
illiquid.Theirownerwouldhavetosellsome
to render unto Uncle Sam.
AsCatopointsout,thelion’sshareofthe
wealthofthewealthiestisinbusinessassets
that produce economic growth, and forcing
theirownerstosellthemtopaytaxescould
hurt growth. Such arguments have held
sway for four decades now, but are being
metwithcounterargumentsthatthesepoli-
cieshavegeneratedincreasedinequalityand
stagnant household income.
EmmanuelSaezandGabrielZucman,the
economists at the University of California,
Berkeley, who are advising Warren, esti-
mate that if a “radical” wealth tax of 10%
wouldhavebeenimposedsince1982onfor-
tunesabove$10billion,theshareofwealth
ownedbytherichest400Americanswould
havestayedflatatabout1%.A“moderate”
wealth tax of 3% on the portion above $
billion (the Warren plan) would have re-
sulted in the 400’s share rising to 2% over
that period. (In both cases, wealth above
$50 million would have been taxed at 1%,
which is also Warren’s plan.)
If reducing inequality is the aim, there
areotherwaystodoit.A2018studybythe
OrganizationforEconomicCooperationand
Developmentfoundthatanetwealthtaxre-
sultsinmoredistortionsandislessequita-
blethanleviesoncapitalincome(dividends
and interest) or capital gains. An inheri-
tance tax is an important complement to
capitaltaxesinreducinginequality,there-
portadded.Thefederalestatetaxcurrently
starts on wealth of $11.4 million, but the
thresholdiseffectivelydoubledformarried
couples. As a result, the tax should affect
only 2,000 U.S. estates—0.1% of them—in
2019, according to the Tax Policy Center.
The remaining wealth taxes in Switzer-
land, Norway, and Spain are far lower, but
kick in at more modest levels. They also
provide a relatively trivial percentage of
those nations’ tax revenue.
Besideshavingmoremoney,therichare
differentinanotherway.Theyusesomeofit
tohirelawyersandaccountantstominimize
theirtaxes.Youcanbesuretheywilldothat
if a wealth tax comes to fruition.
email: [email protected]
Up & Down Wall Street continued
ambitious social programs each favors.
But if wealth taxes are such a bonanza
forgovernmentcoffers,counteredAndrew
Yang,thetechentrepreneurmakingalong-
shot bid for the presidency, why have they
beenendedbyallbutthreeEuropeancoun-
tries that once levied them?
Looking at the record, it appears there
were several reasons, most notably that
theseleviesbroughtinrelativelylimitedrev-
enues,especiallycomparedwiththeircosts.
Éric Pichet, a professor at the Kedge busi-
ness school in France, estimates that the
now-repealed French wealth tax raised 3.
billion euros ($4.01 billion) a year, but cost
thenation’seconomysome€7billionannually
in fraud and shrinkage of the tax base,
Bloomberg reported this year. Germany,
Sweden, the Netherlands, and Austria also
foundthattherevenuesweresmall,relative
to the cost of implementation.
Yettheappealofawealthtaxisvisceral,
especiallywhenBerkshireHathawayCEO
Warren Buffett, No. 4 on Bloomberg’s Bil-
lionaires Index, has famously pointed out
thathepaysalowertaxratethanhissecre-
tary.That’sbecausethevastmajorityofhis
$82.4 billion in wealth is in Berkshire
shares,whoseunrealizedappreciationcon-
tinues to build without being taxed. That
helpsexplainwhyBuffettfamouslysayshis
preferredholdingperiodforastockis“for-
ever.” Just as famously, Berkshire doesn’t
pay a dividend, so that all of its earnings
areretainedinsteadofbeingdistributedto
shareholders, most of whom would owe
taxes on the payouts.
Indeed,themainreasonthericharedif-
ferentisthattheirwealthbegetswealth.For
a household in the top 1% of wealth—
$10,374,030, according to the Federal Re-
serve’s 2016 Survey of Consumer Finances,
releasedthisyear—a4%returnfromaport-
folioof60%tax-efficientexchange-tradedeq-
uity funds or individual stocks and 40% in
municipalbondswouldreturn$414,000annu-
ally. That would be lightly taxed, if at all.
Dividendsandcapitalgainsgetfavorabletax
treatment, while most munis are tax-free.
Thebiggestprobleminadministeringthe
wealth tax in Europe was valuing assets.
Warren’sandSanders’levieswouldapplyto
afarsmallernumberofuber-rich.Butinan
articlepublishedthisyearonPolitifact.com,
Wojciech Kopczuk, a Columbia University
economist,warnedthattheproblems“areas
dauntingintheUnitedStatesasinEurope.”
The popular image of the superrich is
that their wealth is in megayachts, private
jets,jewelry,orartworks.Butaccordingto
arecentstudyfromthelibertarianCatoIn-
stitute, those baubles make up only 2% of
billionaires’wealth.Incontrast,73%ofthe
- Jim Cullen, Chairman & CEO
For further information, please contact Schafer Cullen Capital Management
212.644.1800 • [email protected] • schafer-cullen.com
Schafer Cullen Capital Management is an independent investment advisor registered under the Investment
Advisers Act of 1940. This information should not be used as the primary basis for any investment decision
nor, should it be construed as advice to meet a particular investment need. It should not be assumed that any
security transaction, holding or sector discussed has been orwill be profitable, or that future recommendations
or decisions we make will be profitable or equal the investment performance discussed herein. A list of all
recommendations made by the Adviser in this strategy is available upon request for the 12 months prior to the
date of this report.
High Dividend Value Equity
Enhanced Equity Income
Value Equity
International High Dividend
Emerging Markets High Dividend
“Invest for the long term and
be disciplined about price.
The rest is noise.”