Taps Coogan – January 24nd, 2020

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Several times in the past, we’ve looked at how much tax revenue could be generated by taxing the Top 1%’s total income. The answer is always ‘less than you think.’ Any realistic income tax on the ultra-rich is going to raise something in the ball park of the high tens to low hundreds of billions of dollars per year, a drop in the ocean when you recall that the increase in the national debt in fiscal year 2020 was $4.23 trillion and may be higher this year.

Inevitably, that leads some people to call for simply confiscating the wealth of the ultra-rich, not just taxing their income. Let’s ignore the debate about whether that is a good idea and what’s happened in countries that have tried. Let’s simply do some back-of-the-envelope math to see how much money could be raised.

The combined net worth of the ‘Top 1%’ of households is $34.69 trillion.

As mentioned above, the US national debt increased by $4.23 trillion in FY 2020 and will likely increase by a similar amount, if not more, in FY 2021. Spending priorities like the ‘Green New Deal,’ a Medicare expansion, student debt forgiveness, free college, more stimulus checks, Universal Basic Income, etc…, which are not included in the figures above, are likely to keep the deficit in the multi-trillion dollar range for the foreseeable future if implemented.

In the most direct back-of-the-envelope math scenario, confiscating the Top 1%’s net wealth ($34.69 trillion) would fund the current annual increase in the national debt (~$4.5 trillion) for barely seven years before we would completely run out of rich people’s money. At that point, the US would still have roughly $28 trillion of national debt, would still need to fund its ongoing deficits, and would have lost the tax bracket that pays 32% of the taxes in the country, more than the bottom 90% of taxpayers combined. We would also have forced the liquidation of an amount of financial assets equivalent to roughly two-thirds of the market capitalization of the entire US stock market.

Of course, the process of trying to confiscate and liquidate $34 trillion of financial assets would destroy their value long before Uncle Sam could get his hands on it. That means that the ultra-rich won’t be reporting much taxable income while their net wealth is being confiscated, so you can kiss 32% of the tax base goodbye on the first day. The inevitable decline in financial markets would cut into the other tax brackets’ taxable income and so on.

Continue with that logic and you will realize that the above example is a dramatic overestimation of how much real value could ever be extracted from the Top 1% through confiscation. Indeed, nearly every country in the developed world that has introduced wealth taxes has repealed them because, for reasons that should be increasingly obvious, they tend to lower tax revenues, destroy productive capital, and cause business and wealth to expatriate.

The punchline is that there is no remotely realistic combination of taxes on the rich that can fund the kind of deficits that we are currently running, to say nothing of proposed spending for the future.

For the second year running, we are looking at running a deficit equivalent to the peak of the World War II era, the biggest do-or-die national economic mobilization in American history. It demanded things like rationing, victory gardens, war bonds, and the total transformation of the work force.

The notion that the equally expensive efforts of today can be funded exclusively, or even primarily, by taxing the ultra-rich is a bald-faced lie.

Sooner or later, anything resembling the current spending trajectory is going to lead to significant tax increases and/or a loss of purchasing power (wealth) for everyone.

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