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Posts Tagged ‘Class warfare’

I want more people to become rich. That’s why I support free markets.

But a few already-rich people say such silly things that I wonder whether a big bank account somehow can lead to a loss of common sense.

For background information on this issue, there’s a Politico article on some of the recent statements by Bill Gates.

It appears he’s embracing the horribly unworkable notion of taxing unrealized capital gains, and he definitely wants more double taxation of capital gains, a more punitive death tax, and a higher tax rate on capital gains that are part of “carried interest” (even though that becomes irrelevant if the regular capital gains rate is being increased).

And he’s getting closer to endorsing a wealth tax, which – to be fair – would address one of my criticisms in the interview.

Bill Gates…is echoing Democrats’ calls for higher taxes on the rich. …the Microsoft co-founder and philanthropist cites a litany of ways the rich ought to be paying more. …he favors “taxing large fortunes that have been held for a long time (say, ten years or more).” …Capital gains taxes should go up too, “probably to the same level as” ordinary income, he said. The estate tax should be hiked, and loopholes used to duck it ought to be shut down. People should also pay more on “carried interest,” Gates said. He also called for higher state taxes, including the creation of an income tax in his home state of Washington.

An income tax in the state of Washington would be particularly misguided. At least if the state hopes to be competitive and not drive away wealth and entrepreneurship.

A few months ago, Gates was in the news for the same reason.

At the time, I suggested that he should simply write a check to the federal government. After all, there’s nothing to stop him – and other guilt-ridden rich people – from paying extra tax.

But he conveniently says this wouldn’t suffice. To make matters worse, Gates apparently thinks government should be bigger, that there’s more it “needs to do.”

Gates rejected the notion that the wealthy could simply volunteer to pay more. …”Additional voluntary giving will never raise enough money for everything the government needs to do.”

I guess he’s not familiar with the Rahn Curve.

In any event, Bill Gates isn’t the only rich person who feels guilty about their wealth (or strategically pretends to feel guilty in order to either virtue signal or appease the class-warfare crowd).

The New Yorker has an article on the so-called Patriotic Millionaires, a group of masochists who want more of their money confiscated by Washington.

Abigail Disney…is the granddaughter of Roy O. Disney, who founded the Disney company with his younger brother, Walt, in 1923, and her father was a longtime senior executive there. …In 2011, she joined an organization called the Patriotic Millionaires… She began to make public appearances and videos in which she promoted higher taxes on the wealthy. She told me that she realized that the luxuries she and her family enjoyed were really a way of walling themselves off from the world, which made it easier to ignore certain economic realities. …Patriotic Millionaires…now has more than two hundred members in thirty-four states…the group’s mission was initially a simple idea endorsed by a half-dozen rich people: “Please raise our taxes.”

The good news is that only a tiny fraction of the nation’s millionaires have signed up for this self-loathing organization.

To qualify for the group, members must have an annual income of at least a million dollars, or assets worth more than five million dollars. That could include many families who would describe themselves as upper middle class—who, for instance, own homes in cities with hot real-estate markets. When I asked Payne how hard it was to persuade rich people to join, she said, “I think the last time I checked there were about three hundred and seventy-five thousand taxpayers in the country who make a million dollars a year in income”—there are now almost half a million—“and we have a couple hundred members.” She laughed. “If you ever needed a back-of-the-envelope calculation of how many of America’s élite are concerned about the basic well-being of their fellow-citizens, that should give you a rough estimate.”

I’m also happy to see that the article acknowledges a very obvious criticism of Ms. Disney and her fellow travelers.

At a time when political activists are expected to live according to their values, Disney’s role as an ultra-wealthy spokesperson for the underclass makes her a target of vitriol. In late September, someone tweeted at her, “Boy do I despise virtue signaling rich liberal hypocrites living off the money earned by their far better ancestors. Bet you live in a luxury apt in NYC! Why don’t you renounce your corporate grandad’s money and give it ALL away! You never will . . . HYPOCRITE!”

And she is a hypocrite.

Just like the other guilt-ridden rich people I’ve had to debate over the years.

If you want to see hypocrisy in action, there’s a very amusing video showing rich leftists being offered the opportunity to fill out this form and pay extra tax – and therefore atone for their guilt without hurting the rest of us. Needless to say, just like Abigail Disney and Bill Gates, they’re all talk and no action.

P.S. I wasn’t fully responsive in the interview since I was also asked how higher taxes on the rich would affect the economy. I should have pointed out that class-warfare taxes are the most destructive, on a per-dollar-collected basis, because they impose heavy penalties on saving, investment, and entrepreneurship. And that’s very bad news for workers since less innovation translates into lower wages.

P.P.S. Guilt-ridden rich people also exist in Germany.

P.P.P.S. I’m especially nauseated by rich politicians who advocate for higher taxes, yet refuse to put their money where their mouths are. A partial list includes Senator Elizabeth Warren, Senator John Kerry, Bill and Hillary Clinton, Congressman Alan Grayson, Governor J.B. Pritzker, and Tom Steyer.

P.P.P.P.S. If you’re a rich leftist, you can even be a super-hypocrite and utilize tax havens to protect your money.

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Based on rhetoric, the Democratic Party is committed to a class-warfare agenda.

They want higher income tax rates, higher capital gains taxes, higher Social Security taxes, higher death taxes, a new wealth tax, and many other tax hikes that target upper-income taxpayers.

There are various reasons why they push for these class-warfare tax hikes.

I don’t pretend to know which factor dominates.

But that’s not important because I want to make a different point. Notwithstanding all their rhetoric, Democrats are sometimes willing to shower rich people with tax breaks.

The Wall Street Journal exposes the left’s hypocrisy in the fight over the deduction for state and local taxes.

Democrats have…grown more concentrated in the richest parts of the country. That explains the strange spectacle of a Democratic presidential field running on the most redistributionist agenda in memory even as Democrats in Congress try to expand a tax break for high-earners in the New York City, San Francisco and Los Angeles metropolitan areas. …Coastal Democrats have failed with gimmicks at the state and federal level to eliminate the SALT cap. The latest effort is the Restoring Tax Fairness for States and Localities Act, which passed the House Ways and Means Committee last week. …The bill would raise the SALT deduction cap in 2019 and eliminate it in 2020 and 2021. …The Tax Foundation found the biggest benefit from the unlimited deduction went to households with incomes above $1 million.

A related issue is the federal government’s special tax exemption for interest paid to holders of state and local government bonds.

I explained in 2013 why it’s bad tax policy.

Josh Barro explained the previous year why this tax break is a boon for the rich.

In 2011, 35,000 taxpayers making more than $200,000 a year paid no federal income tax. …61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds. As Washington looks…to eliminate tax preferences for the wealthy, why not eliminate this exemption? …Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference… muni bonds have an unfortunate feature…subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.

Needless to say, it’s not a good idea to have a tax break that benefits the rich while subsidizing profligate states like New Jersey and Illinois.

In a column for Real Clear Policy, James Capretta analyzes how Democrats are working hard to preserve a big loophole.

The push to get rid of the Cadillac tax is short-sighted for both parties, but particularly for the Democrats. …In its estimate of H.R. 748, CBO projects that Cadillac tax repeal would reduce federal revenue by $200 billion over the period 2019 to 2029, with more than half of the lost revenue occurring in 2027 to 2029. …When examined over the long-term, repeal of the Cadillac tax is likely to be one of the largest tax cuts on record. …If the Cadillac tax is repealed, the government will have less revenue to pay for the spending programs many in the party want to expand. And Republicans will be able to say that it was the Democrats, not them, who paved the way for this particular trillion dollar tax cut.

Not only is it a big tax cut to repeal the Cadillac tax, it’s also a tax cut that benefits the rich far more than the poor.

Here are some distributional numbers from the left-leaning Tax Policy Center. I’ve highlighted in red the most-important column, which shows that the top-20 percent get more than 42 percent of the tax cut while the bottom-20 percent get just 1.2 percent of the benefit.

For what it’s worth, I don’t care whether tax provisions tilt the playing field to the rich or the poor.

I care about good policy.

That’s why I like the Cadillac tax, even though it was part of the terrible Obamacare legislation.

In other words, I think principles should guide policy.

My Democratic friends obviously disagree. They beat their chests about the supposed moral imperative to “soak the rich,” but they’re willing to shower the wealthy with big tax breaks so long as key interest groups applaud.

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Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings.

In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid).

Instead, I’m going to praise Okun for his honesty. Is his book, Equality and Efficiency: The Big Trade Off, he openly acknowledged that higher taxes and bigger government – policies he often favored – hindered economic performance.

Sadly, some folks on the left today are not similarly honest.

A column in the New York Times by Jim Tankersley looks at the odd claim, put forth by Elizabeth Warren and others, that class-warfare taxes are good for growth.

Elizabeth Warren is leading a liberal rebellion against a long-held economic view that large tax increases slow economic growth… Generations of economists, across much of the ideological spectrum, have long held that higher taxes reduce investment, slowing economic growth. …Ms. Warren and other leading Democrats say the opposite. …that her plans to tax the rich and spend the revenue to lift the poor and the middle class would accelerate economic growth, not impede it. …That argument tries to reframe a classic debate…by suggesting there is no trade-off between increasing the size of the pie and dividing the slices more equitably among all Americans.

Most people, when looking at why some nations grow faster and become more prosperous, naturally recognize that there’s a trade-off.

So what’s the basis of this counter-intuitive and anti-empirical assertion from Warren, et al?

It’s partly based on their assertion that more government spending is an “investment” that will lead to more growth. In other words, politicians ostensibly will allocate new tax revenues in a productive manner.

Ms. Warren wrote on Twitter that education, child care and student loan relief programs funded by her tax on wealthy Americans would “grow the economy.” In a separate post, she said student debt relief would “supercharge” growth. …Ms. Warren is making the case that the economy could benefit if money is redistributed from the rich and corporations to uses that she and other liberals say would be more productive. …a belief that well-targeted government spending can encourage more Americans to work, invest and build skills that would make them more productive.

To be fair, this isn’t a totally absurd argument.

The Rahn Curve, for instance, is predicated on the notion that some spending on core public goods is correlated with better economic performance.

It’s only when government gets too big that the Rahn Curve begins to show that spending has a negative impact on growth.

For what it’s worth, modern research says the growth-maximizing size of government is about 20 percent of economic output, though I think historical evidence indicates that number should be much lower.

But even if the correct figure is 20 percent of GDP, there’s no support for Senator Warren’s position since overall government spending currently consumes close to 40 percent of U.S. economic output.

Warren and others also make the discredited Keynesian argument about government spending somehow kick-starting growth, ostensibly because a tax-and-spend agenda will give money to poor people who are more likely to consume (in the Keynesian model, saving and investing can be a bad thing).

Democrats cite evidence that transferring money to poor and middle-class individuals would increase consumer spending…liberal economists say taxes on high-earners could spur growth even if the government did nothing with the revenue because the concentration of income and wealth is dampening consumer spending.

This argument is dependent on the notion that consumer spending drives the economy.

But that’s not the case. As I explained two years ago, consumer spending is a reflection of a strong economy, not the driver of a strong economy.

Which helps to explain why the data show that Keynesian stimulus schemes routinely fail.

Moreover, the Keynesian model only says it is good to artificially stimulate consumer spending when trying to deal with a weak economy. There’s nothing in the theory (at least as Keynes described it) that suggests it’s good to endlessly expand the public sector.

The bottom line is that there’s no meaningful theoretical or empirical support for a tax-and-spend agenda.

Which is why I think this visual very succinctly captures what Warren, Sanders, and the rest (including international bureaucracies) are proposing.

P.S. By the way, I think Tankersley’s article was quite fair. It cited arguments from both sides and had a neutral tone.

But there’s one part that rubbed me the wrong way. He implies in this section that America’s relatively modest aggregate tax burden somehow helps the left’s argument.

Fueling their argument is the fact that the United States now has one of the lowest corporate tax burdens among developed nations — a direct result of President Trump’s 2017 tax cuts. Tax revenues at all levels of government in the United States fell to 24.3 percent of the economy last year, the Organization for Economic Cooperation and Development reported on Thursday, down from 26.8 percent in 2017. America is now has the fourth lowest tax burden in all of the O.E.C.D.

Huh? How does the fact that we have lower taxes that other nations serve as “fuel” for the left?

Since living standards in the United States are considerably higher than they are in higher-taxed Europe, it’s actually “fuel” for those of us who argue against class-warfare taxation and bigger government.

Though maybe Tankersley is suggesting that America’s comparatively modest tax burden is fueling the greed of U.S. politicians who are envious of their European counterparts?

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With their punitive proposals for wealth taxes, Bernie Sanders and Elizabeth Warren are leading the who-can-be-craziest debate in the Democratic Party.

But what would happen if either “Crazy Bernie” or “Looney Liz” actually had the opportunity to impose such levies?

At the risk of gross understatement, the effect won’t be pretty.

Based on what’s happened elsewhere in Europe, the Wall Street Journal opined that America’s economy would suffer.

Bernie Sanders often points to Europe as his economic model, but there’s one lesson from the Continent that he and Elizabeth Warren want to ignore. Europe has tried and mostly rejected the wealth taxes that the two presidential candidates are now promising for America. …Sweden…had a wealth tax for most of the 20th century, though its revenue never accounted for more than 0.4% of gross domestic product in the postwar era. …The relatively small Swedish tax still was enough of a burden to drive out some of the country’s brightest citizens. …In 2007 the government repealed its 1.5% tax on personal wealth over $200,000. …Germany…imposed levies of 0.5% and 0.7% on personal and corporate wealth in 1978. The rate rose to 1% in 1995, but the Federal Constitutional Court struck down the wealth tax that year, and it was effectively abolished by 1997. …The German left occasionally proposes resurrecting the old system, and in 2018 the Ifo Institute for Economic Research analyzed how that would affect the German economy. The authors’ baseline scenario suggests that long-run GDP would be 5% lower with a wealth tax, while employment would shrink 2%. …The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that have already been taxed at least once as individual or corporate income, and perhaps again as a capital gain or death tax. The European experience shows that it also fails in practice.

Karl Smith’s Bloomberg column warns that wealth taxes would undermine the entrepreneurial capitalism that has made the United States so successful.

…a wealth tax…would allow the federal government to undermine a central animating idea of American capitalism. …The U.S. probably could design a wealth tax that works. …If a country was harboring runaway billionaires, the U.S. could effectively lock it out of the international financial system. That would make it practically impossible for high-net-worth people to have control over their wealth, even if it they could keep the U.S. government from collecting it. The necessity of this type of harsh enforcement points to a much larger flaw in the wealth tax… Billionaires…accumulate wealth…it allows them to control the destiny of the enterprises they founded. A wealth tax stands in the way of this by requiring billionaires to sell off stakes in their companies to pay the tax. …One of the things that makes capitalism work is the way it makes economic resources available to those who have demonstrated an ability to deploy them effectively. It’s the upside of billionaires. …A wealth tax designed to democratize control over companies would strike directly at this strength. …a wealth tax would penalize the founders with the most dedication to their businesses. Entrepreneurs would be less likely to start businesses, in Silicon Valley or elsewhere, if they think their success will result in the loss of their ability to guide their company.

The bottom line, given the importance of “super entrepreneurs” to a nation’s economy, is that wealth taxes would do considerable long-run damage.

Andy Kessler, in a column for the Wall Street Journal, explains that wealth taxes directly harm growth by penalizing income that is saved and invested.

Even setting comical revenue projections aside, the wealth-tax idea doesn’t stand up to scrutiny. Never mind that it’s likely unconstitutional. Or that a wealth tax is triple taxation… The most preposterous part of the wealth-tax plans is their supporters’ insistence that they would be good for the economy. …a wealth tax would suck money away from productive investments. …liberals in favor of taxation always trot out the tired trope that the poor drive growth by spending their money while the rich hoard it, tossing gold coins in the air in their basement vaults. …So just tax the rich and government spending will create great jobs for the poor and middle class. This couldn’t be more wrong. As anyone with $1 billion—or $1,000—knows, people don’t stuff their mattresses with Benjamins. They invest them. …most likely…in stocks or invested directly in job-creating companies… A wealth tax takes money out of the hands of some of the most productive members of society and directs it toward the least productive uses. …existing taxes on interest, dividends and capital gains discourage the healthy savings that create jobs in the economy. These are effectively taxes on wealth—and we don’t need another one.

Professor Noah Smith leans to the left. But that doesn’t stop him, in a column for Bloomberg, from looking at what happened in France and then warning that wealth taxes have some big downsides.

Studies on the effects of taxation when rates are moderate might not be a good guide to what happens when rates are very high. Economic theories tend to make a host of simplifying assumptions that might break down under a very high-tax regime. …One way to predict the possible effects of the taxes is to look at a country that tried something similar: France, where Piketty, Saez and Zucman all hail from. …France…shows that inequality, at least to some degree, is a choice. Taxes and spending really can make a big difference. But there’s probably a limit to how much even France can do in this regard. The country has experimented with…wealth taxes…with disappointing results. France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. …The wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium… France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax.

In other words, the much-maligned Laffer Curve is very real. When looking at total tax collections from the rich, the wealth tax resulted in less money for France’s greedy politicians.

And this chart from the column shows that French lawmakers are experts at extracting money from the private sector.

The dirty little secret, of course, is that lower-income and middle-class taxpayers are the ones being mistreated.

By the way, Professor Smith’s column also notes that President Hollande’s 75 percent tax rate on the rich also backfired.

Let’s close with a report from the Wall Street Journal about one of the grim implications of Senator Warren’s proposed tax.

Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%. That prospect raises questions for taxpayers and the broader economy… How might that change their behavior? And would investment and economic growth suffer? …The rate would vary according to the investor’s circumstances, any state taxes, the profitability of his investments and as-yet-unspecified policy details, but tax rates of over 100% on investment income would be typical, especially for billionaires. …After Ms. Warren’s one-two punch, some billionaires who generate pretax returns could pay annual taxes that would leave them with less money than they started with.

Here’s a chart from the story (which I’ve modified in red for emphasis) showing that investors would face effective tax rates of more than 100 percent unless they somehow managed to earn very high returns.

For what it’s worth, I’ve been making this same point for many years, starting in 2012.

Nonetheless, I’m glad to see it’s finally getting traction. Hopefully this will deter lawmakers from ever imposing such a catastrophically bad policy.

Remember, a tax that discourages saving and investment is a tax that results in lower wages for workers.

P.S. Switzerland has the world’s best-functioning wealth tax (basically as an alternative to other forms of double taxation), but even that levy is destructive and should be abolished.

P.P.S. Sadly, because their chief motive is envy, I don’t think my left-leaning friends can be convinced by data about economic damage.

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Last month, I accused Elizabeth Warren of being a “fiscal fraud” for proposing a multi-trillion dollar government takeover of healthcare.

She then unveiled a plethora of class-warfare taxes. As I discussed yesterday on CNBC, she even wants to tax capital gains even if the gains are only on paper.

By the way, I’m disappointed that I forgot to mention in my final soundbite that school choice would be a very specific and very effective way of helping poor people climb the ladder of opportunity.

But let’s set that aside and focus on Senator Warren’s radical proposal.

Because the idea would be such a nightmare of complexity, I joked in the interview that the Senator must own shares in firms that do tax accounting.

That’s not a novel observation on my part. Earlier this year, the Wall Street Journal opined why this was a bad idea. Not just a bad idea, a ridiculously foolish idea.

Under current law, long-term capital gains are taxed at rates up to 20%—plus a 3.8% ObamaCare surcharge on investment income—only after the asset is sold. Mr. Wyden calls this a loophole. …Mr. Wyden…proposes an annual “mark to market” scheme… As an asset rises in value, its owners would pay tax each year on the incremental gain. This would create an enormous new accounting burden. Mr. Wyden may say that his mark-to-market rule will apply only to the top 1% or 0.1%, but it would still be a bonanza for tax attorneys. How will people in the top 2% know whether they’ve passed the threshold, and how far will they go to avoid it? …Mr. Wyden’s plan would tax gains that exist merely on paper. …And what about illiquid investments, such as private companies or real estate? As with Ms. Warren’s suggested wealth tax, no one knows how Mr. Wyden would go about valuing them. …Would the owner of an apartment building be asked to revalue it every year? Will an art investor be told to mark that Picasso to market? Good luck.

I’ve already written about Senator Wyden’s proposal.

It’s not just absurdly complex. It’s also bad tax policy, as the WSJ noted.

…there are good reasons to tax capital gains at preferential rates, which is why the U.S. has done it for decades under Democrats and Republicans. The lower rate…reduces the harm from double taxation after corporations already pay income taxes. …A lower tax rate is also a matter of fairness. If investors have capital losses, they aren’t allowed to deduct more than $3,000 a year. There’s no inflation adjustment either: If $100 of stock bought in 1999 is sold for $150 today, the difference is taxed even though much of it is an illusory gain caused by dollar erosion.

The final sentence should be emphasized.

Under the Wyden – now Warren – plan, you can have illusory gains that only reflect inflation, and then you can get taxed on those illusory gains even if you don’t actually get them because you haven’t sold the asset.

David Bahnsen, writing for National Review, says the idea is simply nutty.

Senator Ron Wyden of Oregon is the top-ranking member of the Senate’s tax committee... And his recent policy proposal to tax unrealized capital gains is just as extreme, silly, impractical, dangerous, and inane as any of the aforementioned policy whiffs floating around in the leftist hemisphere. …The problems here are almost as severe as the problems with getting a wind-powered ride across the Pacific Ocean in the Green New Deal. First and foremost, the compliance costs would be the biggest boondoggle our nation’s financial system has ever seen. How in the world is illiquid real estate that has not sold supposed to be “valued” each and every year, let alone illiquid businesses, private debt, venture capital, and the wide array of capital assets that make up our nation’s economy but do not fit in the cozy box of “mutual funds”? …Another problem exists for this delusional plan: How do smaller investors pay the tax on an investment that has not yet returned the cash to them? …Underlying all of the mess of this silly proposal from Senator Wyden is the Democrats’ continued lack of understanding about what is most needed in our economy — business investment. The war on capital is a war on jobs, on productivity, on growth, and on wages. Taking bold actions to disincentivize productivity, investment, risk-taking, and capital formation is akin to discouraging diet and exercise for someone trying to lose weight.

Amen.

I’ve repeatedly tried to explain that it is economically self-destructive to impose high – and discriminatorytaxes on income that is saved and invested.

Which is why the right capital gains tax rate is zero.

In other words, instead of worsening the bias against capital, we should be copying nations such as Switzerland, Singapore, Luxembourg, and New Zealand by abolishing the capital gains tax.

For more on that, I recommend this video.

P.S. Don’t forget that Senator Warren also has misguided proposals on many other issues, such as Social Securitycorporate governancefederal spendingcorporate taxationWall Street, etc.

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In some cases, politicians actually understand the economics of tax policy.

It’s quite common, for instance, to hear them urging higher taxes on tobacco because they want to discourage smoking.

I don’t think it’s their job to tell people how to live their lives, but I agree with their economic analysis. The more you tax something, the less you get of it.

One of my many frustrations is that those politicians then conveniently forget that lesson when it comes to taxing things that are good, such as work, saving, production, and investment.

And some countries are more punitive than others. There’s some new research from the European Policy Information Center, Timbro, and the Tax Foundation, that estimates the “effective marginal tax rate” for successful taxpayers for 41 major countries.

And they don’t simply look at the top income tax rates. They quite properly include other taxes that contribute to “deadweight loss” by driving a wedge between pre-tax income and post-tax consumption.

The political discussion around taxing high-earners usually revolves around the income tax, but in order to get a complete picture of the tax burden high-income earners face, it is important to consider effective marginal tax rates. The effective marginal tax rate answers the question, “If a worker gets a raise such that the total cost to the employer increases by one dollar, how much of that is appropriated by the government in the form of income tax, social security contributions, and consumption taxes?” …all taxes that affect the return to work should be taken into account. …Combining data mainly from international accounting firms, the OECD, and the European Commission, we are able to calculate marginal tax rates in the 41 members of the OECD and/or EU.

The main message of this research is that you don’t want to live in Sweden, where you only keep 24 percent of any additional income you produce.

And you should also avoid Slovenia, Belgium, Portugal, Finland, France, etc.

Congratulations to Bulgaria for being the anti-class warfare nation. That’s a smart strategy for a nation trying to recover from decades of communist deprivation.

American readers will be happy to see that the United States looks reasonably good, though New Zealand is the best of the rich nations, followed by Switzerland.

Speaking of which, we need a caveat for nations with federalist systems, such as the U.S., Switzerland, and Canada. In these cases, the top income tax rate is calculated by adding the central government’s top rate with the average top rate for sub-national governments.

So successful entrepreneurs in those countries actually have the ability to reduce their tax burdens if they make wise decisions on where to live (such as Texas or Florida in the case of the United States).

Let’s now shift to some economic analysis. The report makes (what should be) an obvious point that high tax rates have negative economic effects.

Countries should be cautious about placing excessive tax burdens on high-income earners, for several reasons. In the short run, high marginal tax rates induce tax avoidance and tax evasion, and can cause high-income earners to reduce their work effort or hours.

I would add another adverse consequence. Successful taxpayers can move.

That’s especially true in Europe, where cross-border tax migration is much easier than it is in the United States.

But even though there are odious exit taxes for people leaving the United States, we’ll see an exodus if we wind up with some of the crazy tax policies being advocated by Bernie Sanders and Elizabeth Warren.

P.S. Today’s column looks at how nations rank based on the taxation of labor income. For taxation of capital income, the rankings look quite different. For instance, because of pervasive double taxation, the United States gets poor scores for over-taxing dividends, capital gains, and businesses.

P.P.S. If you want to see tax rates on middle-income workers (though it omits value-added taxes), here is some OECD data.

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In a recent interview, I was asked whether all the new spending schemes proposed by Democratic candidates would lead (as has been the case in Europe) to enormous tax increases on the middle class.

The answer is yes, of course.

But most of the candidates are not honest on this issues (with the partial exception of Crazy Bernie). They’re promising – literally – trillions of dollars in added handouts, but their proposed tax increases only cover a tiny fraction of the cost.

Elizabeth Warren may be the most extreme example of this phenomenon.

She’s embraced every possible tax on higher-income taxpayers, including a sure-to-backfire wealth tax. But all of those tax increases wouldn’t come close to financing her spending agenda – even if one makes the heroic assumption that there’s no adverse economic impact and negative revenue feedback.

The Wall Street Journal opined on her absurd approach.

Tuesday’s Democratic debate…most important news was Senator Elizabeth Warren’s determined refusal to say if her plans would require taxes to increase on the middle class. …South Bend mayor Pete Buttigieg…added, accurately, that “no plan has been laid out to explain how a multi-trillion-dollar hole in this Medicare for All plan that Senator Warren is putting forward is supposed to get filled in.” …Senator Klobuchar…said “at least Bernie’s being honest here and saying how he’s going to pay for this and that taxes are going to go up. And I’m sorry, Elizabeth, but you have not said that, and I think we owe it to the American people to tell them where we’re going to send the invoice.” …this illuminates a problem with Ms. Warren’s agenda and her political character. On Medicare for All, everyone agrees that the cost will be at least $32 trillion over 10 years. Ms. Warren could impose her wealth tax, her higher taxes on capital gains, her higher income taxes on the affluent, and she still wouldn’t come close to paying for Medicare for All. And that’s before her plans for new spending entitlements on child care, pre-K education, free college and so much more. The only way to pay for this is to raise taxes on the middle class, which is where the real money is. That’s how government health care is financed in Europe.

But it’s not just the pro-market crowd at the Wall Street Journal that is raising the issue.

Even writers at Vox find it difficult to rationalize Sen. Warren’s evasive math.

Bernie Sanders…acknowledged that…middle-class taxes would have to go up… It was a rare moment when someone running for the Democratic presidential nomination admitted that their spending ambitions would have to be paid for by taxes that touch not just the wealthiest Americans but taxpayers further down the bracket. …Trying to sell a big progessive agenda on the backs of the rich may be popular. But the admission that middle-class taxes may have to go up is an admission that there may not be enough rich people in America to pay for it all. …Warren…indicated last week that she supports…Medicare-for-All… Such a plan would overhaul the entirety of the US health care system with a single-payer system funded through general revenue and debt. Here the promise of a vast welfare state solely funded by new taxes on the rich runs aground.

It’s gotten to the point that some left-leaning economists are scrambling to help square Warren’s circle.

Here are some excerpts from a report in today’s Washington Post, including some of the horrifying tax increases that her advisers are contemplating.

Internal and external economic policy advisers are trying to help Sen. Elizabeth Warren (D-Mass.) design a way to finance a single-payer Medicare-for-all health-care system…her team faces a challenge in crafting a plan that would bring in large amounts of revenue while not scaring off voters with big middle-class tax increases. The proposal could cost more than $30 trillion over 10 years. Complicating matters, she has already committed all of the money she would raise from a new wealth tax, close to $3 trillion over 10 years, to several other ideas… Robert Pollin, a left-leaning economist at the University of Massachusetts at Amherst who has worked with the Warren and Sen. Bernie Sanders (I-Vt.) teams, …suggests…a $600 billion annual “gross receipts” tax on businesses, …a 3.75 percent sales tax on “nonnecessities” that exempts low-income households, to raise an additional $200 billion; and a 0.38 percent tax on wealth above $1 million, which he says would raise the remaining $200 billion. Robert C. Hockett, a Cornell University professor who has also advised Warren and Sanders, said he has urged Warren’s team to propose financing Medicare-for-all in part with a “public premium” that would function similarly to a tax. …Warren’s team has also received recommendations to adopt a “progressive consumption tax”… This plan would raise trillions of dollars.

Wow, a smorgasbord of French-style tax ideas.

Let’s close with a chart from Brian Riedl of the Manhattan Institute.

As you can see, even if you combine all of the class-warfare taxes, they don’t come close to paying the $30 trillion price tag of Medicare for All.

The only good news, so to speak, is that Sen. Warren is a politician. She’s first and foremost interested in winning office and probably isn’t totally serious about actually creating all sorts of new entitlement schemes (just like I don’t particularly believe Republicans who put forth election-year plans for tax reform).

But that’s hardly a comforting observation since there would be “public choice” pressures to adopt at least some bad policy if she got to the White House.

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