A Wealth Tax Would Spark a Recession — And It Might Not Be an Accident

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Bernie Sanders and Elizabeth Warren at the Democrat primary debates. Source: The New Yorker

Recently, Sen. Bernie Sanders (I-VT) released a position for his 2020 Presidential campaign that called for the implementation of a progressive wealth tax on the wealthiest Americans. Unlike a traditional income tax, this would levy an annual tax on all assets of those who fall under it.

Sanders’s plan, which would tax between 1–8% of wealth starting at $32 million, is even more severe than the similar plan of his 2020 rival Sen. Elizabeth Warren (D-MA), who proposed in January a 2% tax on wealth above $50 million and 3% above $1 billion.

While these tax plans have been hailed by “progressives” as a substantial way to “reduce income inequality,” and help finance the candidates’ enormous spending proposals, one only need apply the most basic layer of economic pushback to understand why these proposals would spell catatrophe for the American economy.

In the video above, independent political commentator Tim Pool states the should-be-obvious differences between wealth assets and actual liquid money. Pool points out that while CEOs and tech giants, like Amazon head Jeff Bezos, may have a multi-billion dollar net worth, their salaries and/or cash-on-hand are nowhere near enough to cover the requirements of a wealth tax. The only way these people would be able to afford the tax would be to sell massive amounts of stock shares they possess in their own or other companies.

The issue is: A flooding of the stock market with available shares from many of the nation’s biggest companies would drastically reduce the demand of the stocks, and by extension greatly degrade their value. A supply shock of this level would crash the stock market, potentially destroy these companies, cost thousands of people their jobs, and at bare minimum spark a recession.

While some commentators make the claim that Sanders and Warren’s wealth tax proposals are just them virtue signaling on their dedication to combating “income inequality,” there is a case to be made of a much more devious nature:

If those taxed were unable to produce the liquid cash (which would be made more difficult by capital gains taxes), there is a possibility that this would allow the federal government the ability to seize these stock assets from the millionaires and billionaires. It would appear as a prudent move by the government: Circumventing a recession while avoiding stumulus spending. It would also give the government a dispproportionate control over the market share, potentially even leading to majority stakeholding in some of these companies. A wealth confiscation of this magnitude, if properly executed, could lead to a state of de facto socialism.

While this is admittingly ghoulish motive to attribute to the respective tax proposals, the fact that both Sanders and Warren are two of the most prominent “progressive” American politicians, with Sanders even being a self-identified socialist, one must give pause in regards to a policy that would be so difficult to comply with, and would likely even be declared unconstitutional.

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