What Does Warren Mean by a Wealth Tax?

Elizabeth Warren said in Tuesday night’s debate that she’s shocked, “shocked!” that anyone thinks she’s punitive. Ben Shapiro responded on Wednesday,

Elizabeth Warren (left) from debate October 15, 2019
screenshot taken from clip on the Ben Shapiro Show, episode 878

She’s shocked people think she’s punitive? She is punitive. She’s deeply punitive. And by the way, she’s not just punitive; she’s immoral. There was one point during this debate where Elizabeth Warren actually suggested, during the debate, that the rich are “not like you and me.” Elizabeth Warren is worth $10 million.

What was it she said?

So, understand, taxing income is not going to get you where you need to be, the way taxing wealth does. That the rich are not like you and me. Really really billionaires are making their money off their accumulated wealth, and it just keeps growing. We need a wealth tax in order to make investments in the next generation.

There’s a logic leap here. If wealth keeps accumulating, that means the economy is growing; it doesn’t mean a particular person keeps getting more of a finite economic pie. The more a rich person accumulates, the more gets invested—now and in the next generation.

It’s time for a lesson on economics and on government.

Let’s start with where in the Constitution the federal government is granted power to tax: Article 1, Section 8.

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.

Before we go on, let’s define terms.

Article I, Section 8 of the US Constitution, on taxes

·         Tax—a compulsory payment, usually a percentage, levied on income, property value, sales price, etc. for the support of a government

·         Duty—a payment due to the government, esp. a tax imposed on imports, exports, or manufactured goods

·         Impost—a tax, esp. a duty on imported goods

·         Excise—a tax or duty on the manufacture, sale, or consumption of various commodities within a country, as liquor, tobacco, etc.; a fee paid for a license to carry on certain occupations

There’s one other part of the Constitution granting power to tax. It’s the 16^th Amendment, ratified in 1913:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

When it was added, people were promised it would only affect the very rich, and even for the rich it would never go beyond 7%. That lasted about three years; it about doubled to 15% in 1916. Not enough, the government decided. Woodrow Wilson more than quadrupled it to 66% by 1917 and then to 77% by 1918%. (I wrote about this starting here.)

If you have made any income above the poverty rate in your lifetime, then you know it isn't just the very rich who are taxed. And obviously the government does not keep its promises. To boot, it does not limit its taxing purposes to paying debts and providing for the common defense and general welfare (i.e., things that benefit all of the states at once, such as coining money, having a postal system, or possibly infrastructure such as an interstate highway system—nothing to do with charitable giving to the poor).

As practically unlimited as the 16^th Amendment made taxing authority to the federal government, it is still limited to income or to specific circumstances—such as imports or the other things listed. Income wasn’t taxable in the original list. Government revenue had to come through tariffs (import fees) or the other listed ways.

We don’t have a state income tax in Texas, which is a boon to the economy. Governments have to get revenue from other sources, property tax being a primary source, also sales and other local taxes. Up until 1913, the federal government was similarly limited.

But the 16^th Amendment does not grant the right to tax wealth.

Let’s define another term, from the Spherical Model website:

·         Wealth is not some mystical entity endowed by either government or birthright. Nor is it something that the haves enjoy by depriving the have nots of their fair share. Wealth, simply, represents the accumulation of the results of labor.

And one more:

·         Capital is always a representation of surplus work that is invested to find ways to produce more wealth.

To summarize, wealth is the accumulation of surplus—working to create more than is needed for subsistence, and storing it (saving it) for later use. Rather than simply storing it, the wealth can be used to invest in ways that produce more wealth.

Most wealth is not stashed in a jar buried in the back yard. It is put to use. It is either spent—used to buy goods and services, which thus brings wealth to the providers of those goods and services, who then use that income to either spend or invest elsewhere. Or it is saved. One of the least productive ways would be in a low-interest savings account. This keeps it liquid—available for use at short notice—but while it sits there, it brings additional income. Where does that come from? Investing. The bank is loaning money to home buyers, businesses, and others who contract to repay with interest.

Another way wealth is invested is in stocks and bonds. These are slightly larger risks than keeping the money in a bank savings account. But they have the potential to bring in greater returns, greater income.

A more direct way would be to invest capital directly in a company with the hope of having the business become a success and bring a greater reward to the investor. Higher risk, but also higher potential returns.

You have probably heard this aphorism: what you subsidize, you get more of, and what you tax, you get less of.

So, if—as Elizabeth Warren suggests—you tax wealth, you get less of it. Obviously. You would directly confiscate money for which income tax has already been paid. So you’re essentially taxing savings. You directly diminish savings. Which means you directly diminish the uses for those savings: capital investment. Economic growth.

What gives the federal government the right to “tax” your savings? So far nothing. The Constitution does not grant that power—not even the 16^th Amendment does that.

That didn’t stop Obamacare from “taxing” us by forcing us to buy medical insurance (at exorbitant rates), which they could get away with only by insisting (at times) that the penalty for not purchasing it was a tax and not a coercion to purchase a service. What was being taxed—and thus discouraged? Breathing. Being alive. That had never been done. It isn’t accommodated for in the Constitution. But that didn’t stop the government—with the support of a wobbly Supreme Court—from asserting it as a power.

So, when we have Elizabeth Warren, Democrat candidate for president, saying she wants to “tax” wealth, let’s be very clear on what she’s saying. She is saying the federal government can come to any person in the country who holds savings and take whatever part of that savings or property that it wishes. She is saying you do not have a right to either your income or your savings or maybe any property. If she decides you have “too much,” she can take whatever portion she wants and can do with it as she—in her infinite wisdom—sees as a better use than however you were going to spend it or invest it or enjoy it.

She says it will not affect any but the very rich. Just as Woodrow Wilson said. (They both were college professors, labeling themselves progressive capitalists—but without the progress or the capitalism.)

The only legal mechanism for the government to confiscate wealth is by constitutional amendment. Except for the very limited eminent domain power, which requires just compensation, the federal government cannot confiscate real property. And there has never been a mechanism for confiscating savings.

But those who ignore the Constitution in all other things are just as likely to ignore this lack of power and reign tyrannically any chance they get.

However, they don’t actually get the money they say they will take.

Just as we know no one in their right mind ever paid the ridiculously high top income tax rates imposed by the progressives in the last century, no one in their right mind would pay the wealth-tax-only-on-the-very-wealthy that Warren “has a plan for.” 

Government gains revenue when it lowers tax rates to more reasonable levels. When they’re too high, people don’t make the income, or they move and make the income elsewhere, putting it out of reach of the government’s clutches. Similarly, if Warren were to attempt to take any chunk of wealth held by those “evil” billionaires, they would move their wealth out of the country. The US would then have less tax revenue, a more sluggish economy overall from lack of investment capital, and essentially no revenue from the “wealth tax.”

But she would have made the covetous poor feel so much better by pretending to stick it to the rich.

That’s what it’s about. Not about gaining revenue for ridiculous unconstitutional projects she has a plan for, not even for paying current debts and obligations. It’s about saying what it takes to get voters to give her power—which she is so very willing to assert the moment she gets it.

As are all of the Democrat candidates.

If we value the freedom, prosperity, and civilization guaranteed us by our brilliant Constitution, we must prevent those who trample it from ever holding the reins of power.