By Alan Joel ——Bio and Archives--September 10, 2014
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“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).
“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.
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Alan Joel has been a practicing CPA in NYC for more than 40 years. He loves liberty and writes on the politics of taxes at his popular blog, AlanJoelNY.com