At least you can say Bernie Sanders is ideologically consistent. The self-proclaimed socialist unabashedly declared on Saturday that “we need a tax system which asks the billionaire class to pay its fair share of taxes and which reduces the obscene degree of wealth inequality in America.” It was particularly fitting that the speech was at an AFL-CIO convention.
Sander’s sentiment echos that of another famous socialist, French President Francois Hollande. This past December, Hollande succeeded in obtaining a ruling from the French court which allowed a tax to be levied on businesses which paid salaries exceeding one million Euros. It was noted at the time,
“President François Hollande introduced the tax as a way to force the rich to help France shrink its massive budget deficit and support the sagging economy. It had originally been created as a tax on individuals, but was eventually shifted to a tax on companies paying high annual salaries.
Hollande has said the new tax is “symbolic” and designed to make a political statement about economic fairness. The tax is not ultimately expected to be a big money-maker, with the French government estimating the tax will affect roughly 470 companies.
While some have supported Hollande’s proposal, others have been rightly concerned with the Laffer Curve effect; namely, that increasing tax rates beyond a certain point will be counterproductive for raising further tax revenue. Indeed, such a result was seen most recently in England in 2012 (roughly the same time Hollande began pushing for his superwealthy tax on the individual).
In England, as a money-grab measure, the highest tax margins were increased to a 50% tax on the wealthy. Unexpectedly, (well, only to those who implemented the tax in the first place) income tax and capital gains revenue receipts were down after the implementation of the controversial measure. As a result, England reneged its 50% rate back to 45% — though it was still up from 40% — because the 50% wealth tax ultimately raised only a third of what was expected.
We have yet to see the affect of the supertax from fellow-socialist Hollande since it was only implemented recently. But considering that England repealed part of its individual wealth tax and Hollande shifted ultimately shifted his supertax target from the wealthy individual to a business, one wonders just what Sander’s “fair share” version will be?
Over on his Senate page, Sander’s posted his proposal — “a progressive estate tax on the wealthiest Americans”:
“For those who would pay more, the tax rate on estates valued from $3.5 million to $10 million would be 40 percent. There would be a 50 percent tax on estates worth $10 million to $50 million and a 55 percent levy on estates worth more than $50 million. A 10 percent surtax would be applied on estates worth more than $1 billion, a category that today includes fewer than 500 American families. The bill also would close estate tax loopholes that have allowed the wealthy to avoid an estimated $100 billion since 2000.
His rationale? Sanders said that this is “the fairest way to reduce wealth inequality, lower the $17 trillion national debt and pay for investments in infrastructure, education and other neglected national priorities.”
Notice he said fairest — not most efficacious — way to reduce wealth inequality. Because the actual amount raised on such a tax will be negligible for any real deficit reduction, hopefully such a foolish proposal will never be implemented.
Unfortunately, with any sort of supertax, the truest and most invisible effects will be felt in the economy. The confiscatory nature of a high estate tax is among the worst offenders. “The economic incidence of the death tax is far broader, because it causes many wealthy individuals to save less, choosing instead to retire early or, as Milton Friedman put it, “dissipate their wealth on high living.” This reduction in savings means a concomitant reduction in investment, lessening the flow of capital to businesses and organizations where countless ordinary Americans are employed.”
And yet, Sanders sees nothing “obscene” about the another kind of wealth inequality: the salary and benefits of Congress, which, at $286K, is about 95% greater than what average Americans earn. Or still yet, another kind of wealth inequality: the $17 trillion government debt and spending problem that Sanders is purporting to “fix” by his punitive tax proposal.