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Home Illinois News

The Toxic Warren Wealth Tax

Illinois Review by Illinois Review
February 22, 2019
in Illinois News
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The administrative burdens of a wealth tax would be significant. Richard Epstein writes:

The wealth of the superrich includes not only publicly trade stocks and bonds that have precise market values, but also working assets such as interests in start-ups that are not traded at all. Those business interests are typically not alienable, and their valuation can fluctuate extensively over time. Banks are reluctant to lend against assets in new ventures that have a high chance of going bust. Similar valuation problems frequently arise for people who have complex interests in legal, medical, or banking practices; their wealth, too, is not in readily taxable form. Accordingly, income tax law has made the sensible decision never to tax annually the increment (or decrement) in value of these interests. Instead, that income is taxed only when it is converted into cash or marketable assets. […]

One of the reasons why I am firmly opposed to any estate tax is that it cannot duck these valuation problems. When someone dies, it becomes necessary to attach a value to all property that passes at the time of death. At this point, the valuation problem is acute for all different asset classes. […] [I]t is necessary to untangle a web of unique financial assets—interests in partnerships and closed corporations, patents, royalties, options, leases, mortgages, and more, from which must be offset the full range of immediate and contingent liabilities. The entire process often takes years to resolve, given the high level of valuation uncertainty.

But at least the administrative costs are worth incurring, because estate tax rates quickly zoom up to 40 percent on the taxable estate. It is sheer madness, on the other hand, to incur these costs to collect 2 percent of a total, as Warren’s wealth tax would do. The administrative costs of imposing a 2 percent wealth tax on persons whose net worth is, say, $55 million would surely surpass the $100,000 the tax would generate. Yet just imagine how much it will cost the IRS to process the 75,000 returns that Saez and Zucman predict will be filed annually. Unfortunately, the government will have to cast its net even wider to determine which households have assets exceed that Warren’s $50 million exemption. […] It is a senseless use of government resources to require our ablest citizens to take valuable time supplying documents and undergoing audits and grueling examinations that carry with them the risk of civil and criminal sanctions.

[Richard A. Epstein, “The Toxic Warren Wealth Tax,” Defining Ideas, February 11]

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