Wealth: The Democrats Don’t Get It

Forbes Middle East - - FACT & COMMENT - By Steve Forbes, Edi­tor-in-Chief


“rich list” will fan the fevers of plun­der­ing politi­cians, es­pe­cially those “soak the rich” Demo­cratic pres­i­den­tial can­di­dates look­ing for seem­ingly easy sources of loot to fi­nance their so­cial­ist fan­tasies. They're delu­sional.

To hear these White House wannabes tell it, you'd think the peo­ple on our 400 list are like the Dis­ney char­ac­ter Scrooge McDuck, sit­ting in their money bins loaded with coins, gold, jew­els and pa­per cur­rency. Tax it, and voila! You've got all that lu­cre for your pet projects. It just ain't so! Look at what the peo­ple on this list ac­tu­ally own, and you'll quickly see that only a small por­tion of their as­sets are in ready cash. Any­one who's ever owned a home or a car can at­test to the dis­tinc­tion be­tween prop­erty and cash.

A wealth tax would mean less wealth to tax. Tax­ing the mere pos­ses­sion of prop­erty and se­cu­ri­ties, by def­i­ni­tion, makes them less valu­able. Many peo­ple would have to sell as­sets to pay for the tax on what they own.

The value of an as­set, es­pe­cially a fi­nan­cial one, can be heav­ily in­flu­enced by the health of the econ­omy. The rad­i­cal tax and reg­u­la­tory schemes (reg­u­la­tions are a form of tax­a­tion that to­day costs us nearly $2 tril­lion, which is more than the GDP of all but a hand­ful of coun­tries) prof­fered by the Democrats would slow the econ­omy to a crawl. This, in turn, would cause tax rev­enues to fall far be­low ex­pec­ta­tions. De­spite thou­sands of years of ex­pe­ri­ence, these po­lit­i­cal hacks cav­a­lierly as­sume that costly, bur­den­some rules and higher taxes don't af­fect peo­ple's abil­ity to do busi­ness.

Wealth taxes would be an un­prece­dented assault on peo­ple's pri­vacy that would make the trans­gres­sions of the so-called FANGs look like small, in­no­cent trans­gres­sions. Gov­ern­ment bu­reau­crats would have the right to de­mand lists of all your as­sets—as well as the right to ex­am­ine your home, stor­age fa­cil­i­ties, bro­ker­age ac­counts, bank ac­counts and ev­ery­thing else—to de­ter­mine if you have crossed the wealth-tax thresh­old. They would, at a click, have—for the same pur­pose— ac­cess to the records of ev­ery­thing you have bought or sold.

This is the road to serf­dom.

Profit Is Good, Not Evil

DEMOCRATS (as well as some Repub­li­cans) don't un­der­stand the cru­cial role prof­its play in a vi­brant econ­omy. Their plans for higher in­come, busi­ness, pay­roll and death taxes, not to men­tion new ex­ac­tions such as a levy on car­bon emis­sions, would make for a bleak fu­ture, because such taxes would se­ri­ously harm the key sources of cap­i­tal: sav­ings and prof­its. With­out in­vest­ment the econ­omy will stag­nate. As the leg­endary economist Joseph Schum­peter (“cre­ative de­struc­tion”) pointed out, profit is es­sen­tial for progress. It, like de­pre­ci­a­tion, is re­ally a busi­ness ex­pense. It funds ex­pan­sions and the cost of pro­duc­tiv­ity im­prove­ments. It must re­place the cap­i­tal de­stroyed by new tech­nolo­gies. The in­ter­net, for in­stance, washed away tens of bil­lions of dol­lars in legacy news­pa­per and

mag­a­zine wealth. Most star­tups flop, con­sum­ing sav­ings. Ex­ist­ing busi­nesses con­stantly fail, erad­i­cat­ing cap­i­tal. Schum­peter rec­og­nized that com­merce's suc­cesses must not only cover their own ex­penses and re­ward their in­vestors but also, in essence, re­cover the costs of un­suc­cess­ful ven­tures.

Am­ple cap­i­tal for star­tups is es­sen­tial for the dis­cov­ery and de­vel­op­ment of new prod­ucts and ser­vices that will en­hance fu­ture liv­ing stan­dards. Like ex­per­i­ments in the lab­o­ra­tory, star­tups and re­search and de­vel­op­ment are cru­cial to gain­ing new knowl­edge that will en­able us to ad­vance.

Profit also pro­vides crit­i­cal in­for­ma­tion about peo­ple's pref­er­ences. A high-mar­gin prod­uct or ser­vice will at­tract com­peti­tors, which will, in turn, of­fer buy­ers an im­proved and/or cheaper ver­sion.

Truths About Eu­ro­pean Par­adises

FREE COL­LEGE! FREE health­care! Free day care! Huge min­i­mum wages!

Europe, in gen­eral, and Scan­di­navia, in par­tic­u­lar, are hailed by Democrats as mod­els for how the U.S. should do things. Their so­cial wel­fare pro­grams, af­ter all, are so much more gen­er­ous than ours.

What these pols leave out is that the non-rich get whacked hard for the costs of these free­bies.

Eu­ro­peans' in­come tax rates are higher than ours. All of these coun­tries are af­flicted with a su­per sales tax called the value-added tax (VAT) with rates that rou­tinely range from 20% to 25%. With few ex­cep­tions in the U.S., sales taxes are around 6%. Wouldn't it be fun dur­ing the next Demo­cratic pres­i­den­tial de­bate to ask each can­di­date how he or she would avoid the im­po­si­tion of an ef­fec­tive sales levy of 20% on just about ev­ery­thing we buy in or­der to cover the costs of Eu­ro­pean-style health­care? To get a sense of what we'd hear, just take a look at how El­iz­a­beth War­ren re­sponded when Stephen Col­bert pressed her on whether her health­care nos­trums would mean sock­ing it to the mid­dle class with higher taxes. She clum­sily tried to dance around the ques­tion, em­bar­rass­ing her­self. At least Bernie San­ders told the truth: Yes, they would. (But then in Oba­maesque “You can keep your doc­tor and health in­sur­ance” style, he claimed they would come out ahead because med­i­cal care would be so much cheaper and bet­ter when Wash­ing­ton bu­reau­crats ran it.) Poor Col­bert was pil­lo­ried by the left for be­ing so mean to War­ren.

As if more in­come taxes weren't bad enough, Eu­ro­pean na­tions are also crushed with sky-high pay­roll levies. In the U.S. the max­i­mum tax rate for the pay­roll tax dubbed “FICA” on your pay stub is 15.3%. In Europe the norm is 35% to 50%!

In­deed, the best things in life are not al­ways free.

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