Today is everyone’s favorite day of the year. The day we all get to report our income and adjust the taxes that we paid throughout the year. You would be hardpressed to find someone who enjoys finalizing their taxes, or feels that they are paying too little. Even so, the majority of Americans—according to politico—view the Trump tax cuts unfavorably. A CBS poll found that 32% of those polled felt that their taxes went up as a result of the Trump tax cuts. In addition, there are a lot of Americans who feel that the wealthy are still not paying enough in taxes.
The war between those who feel that we need to increase taxes and those who feel that we need to decrease taxes will play a big role in the election next year. Democrats believe that the wealthy aren’t paying their “fair share” of the tax burden. The New York Times claims that, “nearly two-thirds of Democrats say it is immoral to have an economic system where some people have billions of dollars while others have very little.” The Times also conducted a poll in which they found that 62% of their respondents felt that the government should be doing more to address the “wealth-gap.”
The so-called “wealth-gap” is very different from the income gap that is generally discussed when we are talking about economic inequality. You would be entirely forgiven if you confuse the two, as are treated nearly interchangeably. In the previous paragraph, we established that two-thirds of Democrats say it’s immoral for some to have billions while others have very little. It is natural to assume that the quote was referring to income, since the majority of the time when we discuss taxes, we are discussing income tax. However, Elizabeth Warren is not talking about merely taxing the income of the wealthy, she is talking about taxing assets as well.
If you own property, you are subject to a small version of this kind of taxation. You will always be taxed on the value of your property—even if you own your home. If you fail to pay this tax, your local government can put your property up for a tax auction. If someone pays your property taxes for 3 years, they can claim the deed to your property and everything on it—including your house. Warren wants to expand this idea to nearly everything that the wealthy own, to possibly include stocks and other financial investments.
Warren suggests that a 2% tax on the assets of those who are worth $50 million or more would help to address the so-called wealth gap, by increasing tax revenue by $27.5 Billion a year. 2% sounds reasonable, if not too little if you don’t stop to consider that we are talking about a minimum of a $1,000,000 yearly tax on assets that were already taxed and paid for. Bringing that down to levels that are easier to digest, it would be like suggesting that those who own $50,000 worth of stuff should have to pay $1,000 a year for the privilege of owning said stuff.
Even if we were going to tax that assets of the wealthy, at the current rate of spending, the additional revenue would last roughly 9 and a half days before it was all spent by the government. Perhaps the question we should be asking ourselves is, “what is the government spending 2 million dollars on every minute?” Perhaps the government believes that a better use of the money is to spend $3 billion on vacations for government employees who are on administrative leave.
Perhaps a better way to deal with taxes is simply to have everyone paying taxes. According to the Tax Foundation, 1 in 3 Americans did not pay any taxes in 2016, and there has been an upward trend since about the mid-1980s. If fewer Americans are paying any taxes, are we going to be able to sustain the welfare programs that have been enacted? Will the government truly be able to reduce the wealth-gap if there are fewer taxpayers to assist in increasing the wealth of the poor? These goals seem unattainable if we don’t all pitch in a few dollars.
Speaking as the owner of a small bar, the tax burden on businesses is extremely large. On average, my six employees and I are paying roughly $10,000 a month in regular taxes. These would be payroll taxes—your employer matches what you pay—and state and local sales taxes. In addition to that, the company pays sales tax everything that it purchases. On top of that, the owners are paying capital gains taxes on any profit that was made.
A lot of people think you are rich when you say that you own a business. I ask anyone who applies to work for me three standard questions. One of these questions is, “how much profit on the dollar do you think any bar or restaurant makes?” Generally, the answer is around $0.35 to $0.50. Unfortunately, that is not the case. Speaking personally, I would kill for a 35% profit margin. Everyone around me would be rich. In fact, the average profit margin across 212 industries is 7.5%. This means that the company is making $0.07 on every dollar that it collects.
If you spend $1, the company gets to keep 7 cents after everything is said and done. I mention this because we are discussing taxing the 7 cents that owners and investors get to keep. Things become difficult, especially for small businesses, when you increase taxes. While it is easy to point at the rich and say, “They have too much” we should also consider the consequences of tax policies that could seriously adversely affect the businesses that actually create wealth.