Elizabeth Warren vs. Donald Trump: A blow-by-blow history
Sometimes there is a perfect storm between politics, law, business and social justice.
It seems Senator Elizabeth Warren’s signature new wealth tax, not just an income tax, might be the dominant issue of the 2020 Democratic primary.
Warren is planning a new tax on wealth. Warren’s wealth tax directly assesses the market value of assets — not just income.
Americans possessing more than $50 million in assets, including stocks, mutual funds and family businesses, would pay the tax.
Households with a net worth above $50 million would pay a 2 percent annual tax. Billionaires such as Jeff Bezos and Warren Buffett would pay an extra 1 percent wealth tax.
There are many law professors, including Harvard constitutional law professor Laurence H. Tribe, who believe a wealth tax is allowable.
Surprisingly, even 50 percent of Republicans favored Warren’s 2 percent wealth tax in a survey of 1,993 voters sponsored by Morning Consult/Politico.
Ultimately, it’s a guessing game if Chief Justice John Roberts uses his swing vote to strike down a wealth tax in a future decision. So let’s stop chasing shiny objects and explore if Warren’s wealth tax is the first step toward a wealth tax for the middle class.
“While the wealth tax might pass into law, it will only happen if the Democrats are in control of the House, Senate and presidency,” says James R. Hasselback, a professor of taxation at Florida Southern College.
“The Republicans have tried for years to eliminate the estate tax. So the wealth tax would not pass if the Senate is controlled by the Republicans and would certainly be vetoed by President Trump if such a bill reached his desk.”
Starbucks founder and former CEO Howard Schultz said in an interview on NPR’s ”Morning Edition” regarding Warren’s wealth tax: “She knows for a fact that’s not something that’s ever going to be passed. This is what’s wrong.”
Schultz, who may run as an independent for president, also told NPR that he believes Warren’s signature proposal is showboating.
Hasselback explains Schultz’s argument that the wealth tax probably won’t happen, but it could “if the Democrats win everything in 2020, they will feel that they have been given the mandate to put in all of their socialism proposals.”
As far as the constitutionality of a wealth tax, Hasselback is somewhat in agreement that it likely would be constitutional.
“We already have an income tax, gift tax and estate tax,” Hasselback says. “The wealth tax would be another form of the estate tax. The lower courts would find the wealth tax constitutional.“Unfortunately, many of the lower courts base their decisions on politics rather than the rule of law.”
Should the Democrats judge shop, particularly with the Ninth Circuit, “It is possible that the Supreme Court could strike down a wealth tax, but I look at that as a long shot,” Hasselback says.
“Many people are in favor of hitting the ultra-rich, but the tax should be based on income, not the value of people’s assets,” says William Beherenfeld, a Sarasota-based tax attorney and AICPA author. “Ultimately, I don’t think, if it is challenged constitutionally, that it will pass.”
Should wealthy individuals start worrying about the wealth tax? Hasselback believes there is a real chance that the Democrats could be in full power after the 2020 election. So, yes, a wealth tax could really happen, “but people will plan around it,” Hasselback says.
Just look at how the rich are responding now to tax reform, for example.
“There already is heavy planning with the use of IRC Section 678 trusts to benefit further from the 20 percent QBI, qualified business income deduction,” Hasselback says. “Look at the number of wealthy people moving from New York, New Jersey and Connecticut to Florida and from California to Texas.
“Corporations took their tax savings and invested in their own stock because the gains are not taxable.”
So what about the middle class, are they next?
“The problem with socialism is that you eventually run out of other peoples’ money,” former British Prime Minister Margaret Thatcher once said.
Hasselback, like Thatcher, thinks many people like the idea of free and do not realize the consequences of free.
A wealth tax consequence from millionaires to the middle class could conceivably occur, for example, if the wealth tax drags the economy, causing the stock market to drop, maybe in half, and the housing market goes into another depression.
“The wealth tax would then have to tax the next category of individuals to raise the money to pay for what has already been spent on the new social programs,” Hasselback says.
“We have seen what Congresswoman Alexandria Ocasio-Cortez, and she was an economics major in college, proposal of paying for these programs by just printing money has done for Argentina. If you like the great job the government has done with the post office, veterans care and the Affordable Care Act, you will love all the new Democratic social programs.”
If a President Warren, or socialist ideal-favoring President Bernie Sanders, with a Democratic-controlled Senate and House pass a wealth tax, it would be difficult to implement.
“High-wealth individuals would have to have an appraisal of all their assets each year to determine their wealth tax liability,” Hasselback says. “The courts would be dealing with cases of fair market value for years.”
Said Beherenfield: “While I don’t see how they can do it constitutionally, a wealth tax would be a difficult thing for the IRS to administer. People would have to submit net worth statements every year.”
Jim Germer is a CPA and financial adviser at Cetera Financial Specialists, LLC, member FINRA/SIPC, located at 100 Third Ave. W., Suite 130, in Bradenton. Call 941-746-5600 or email email@example.com.