Opinion

70 Percent Income Tax, 3 Percent Wealth Tax

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Posted: Jan 28, 2019 12:01 AM
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70 Percent Income Tax, 3 Percent Wealth Tax

Christianity v socialism: The difference between Christianity, the Christians says “What is mine, is yours” while the socialist says “What is yours is mine!”…….. Winston Churchill

Tax proposals coming from Elizabeth Warren andAlexandria Ocasio-Cortezhave quickly reached the dangerous level and need to be understood in terms of jobs, the economy and sustainability. The combination of their proposals: 70% maximum federal tax rate and a 3% wealth tax on billionaires to fund new programs is the stuff of financial disaster.

A quick glance at the fairly easy to understand situation of Jeffrey Bezos is a great starter. Mr. Bezos is believed to be worth about $150 billion with about $131.8 billion being the trading value of his Amazon stock. Focusing exclusively on his $131.8 billion of Amazon stock, he would need about $3.95 billion to pay his first year’s wealth tax. He could either have Amazon pay a dividend to obtain funds to pay the tax or sell shares.

For this example, I am going to make Mr. Bezos a California taxpayer. If he chose to have Amazon pay a dividend, to obtain $3.95 billion after his state (13%) and federal taxes (70%), he would need to receive a dividend from Amazon of $23.23 billion. The $23.23 billion dividend would result in state and federal income taxes of about $19.28 billion of state and federal taxes leaving him with $3.95 billion to pay his wealth tax. For Amazon to pay Mr. Bezos a dividend of $23.23 billion, it would have to pay all of its shareholders a dividend resulting in Amazon paying a total of $142.5 billion to its shareholders.

Cry me a river, right? Except Amazon cannot pay $142 billion in dividends while earning $4 billion per year and it does not have the cash to do so.

So, Warren and Cortez would force Mr. Bezos to sell his Amazon shares to pay his wealth tax. In selling his shares, he would pay the 85% federal income and state taxes on the gain to obtain the $3.95 wealth tax. His sales price of $23.23 billion at today’s prices would require a sale of almost 20% of his shares in Amazon. With an annual wealth tax, he would be required to annually sell 20% of his Amazon shares until he was no longer a billionaire

So, in essence, the combined Warren/Cortez plan would annually take away almost 20% of Mr. Bezos’s assets in taxes as he sold stock to pay the wealth tax.In just a few short years, the combination of the 70% income tax and the 3% wealth tax would confiscate most of his wealth.

And this brings us to Margaret Thatcher who said: “The trouble with socialism is eventually you run out of other people’s money.”

The numbers for Mr. Bezos only tell a small portion of the story. There probably is no market for that many Amazon shares annually and the price would likely collapse hurting every pension fund in the United Sates and creating pension issues for one and all. At Amazon, jobs would clearly be lost if dividends were paid as cash for employee salaries would be lost. Nightmare.

The results would be the same for every tech entrepreneur, Gates, Zuckerberg, Ellison. Ibid Buffet. The values of these companies would be severely impacted, the investors, mutual funds and pensions would be slaughtered. And after a few years, the money would dry up.

Generally, it is almost impossible to forecast the economic results of new taxes of trillions of dollars. However, in this case, it is certain that if the United States annually taxes away 20% of each billionaire’s net worth and uses those funds to create new programs, after just a few years, the billionaire’s funds will be gone, the new programs’ funding will be gone, incentive to develop new businesses will be lost and yes, we would be well under way to Venezuela status.