Barron\'s - 21.10.2019

(Barry) #1

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



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