Dateline: Bogota, Colombia
Over the last century, many countries have tried taxing the wealthy at higher rates. More recently, there’s been a lot of buzz about a global wealth tax. The virus has put a lot of countries in extreme debt, pushing the issue of taxing the wealthy to cover expenses to the forefront.
But wealth taxes often don’t bring the desired results. Even in countries throughout western Europe where higher tax rates are more common and expected, all but three have gotten rid of their failed wealth taxes on high-net-worth individuals.
While wealth taxes have been more successful at driving wealthy people out of their country and decreasing economic confidence than in securing more funds for the country, governments are getting more creative in how they are trying to tax the wealthy.
With the changes from the coronavirus, governments are assuming more control and power over their citizens, which often translates into higher taxes and less freedom.
It’s not a good path to be walking down, but most countries are taking it.
Most western governments are in debt. Many of these countries feel that an easy way to solve this problem is to tax the wealthy at increasingly higher and higher rates to pay for their decades of mismanaged finances.
In this article, I will discuss my main concerns with the wealth tax trend, the trouble with the direction the US and other countries are heading, and how you can act now to prepare yourself.
America’s Concerning Hatred of Wealth
My main concern with this idea of taxing the wealthy at higher rates is the attitude it creates towards wealth. It’s no longer seen as a great achievement and something to honor for someone’s hard work, but instead, it’s viewed with greater skepticism as unfair and unequal.
The majority of people now feel that the wealthy should be required to give back to their government and must watch as their hard-earned money is often used in ineffective ways.
A government often avoids coming out plainly to say they just want to rob the rich, but they’ll usually couch the tax in some do-gooder purpose. Everyone wants to fix homelessness and provide better opportunities for less fortunate children. We need to help people suffering from the effects of the Coronavirus. Those are ideas we could all get behind.
However, what concerns me most is this change in attitude that it’s acceptable and even expected to take money from the wealthy because there’s a hatred of money. People in the western world just hate wealth.
In California, three out of four people feel it’s ok to tax the wealthy at higher rates. In Canada it’s closer to 80%. It’s an easy group to pick on. It’s changed from being a sign of success and hard work to being wrong when others are suffering – thus, it’s ok to take the money the wealthy have made and give it to a government institution that will try to redistribute it in a very inefficient and ineffective manner.
If you’re a businessman who has worked to secure your funds so you can retire and live off your hard work, your bank account may be in danger. A wealth tax will deplete not just your income, but all your assets each year. The government continues to find creative ways to get at your money.
As a wealthy entrepreneur, I like to have more control over where my money goes and how it is handled. I find that there are much more effective uses for philanthropic causes than handing over almost half of my money to the government. It’s frustrating to see how badly they mishandle all that money.
Wealth Tax Proposals in the US
With Joe Biden coming to power in the US and people like Elizabeth Warren and Bernie Sanders having record-level attention within the democratic party, you will see some of these liberal policies to raise the federal tax on successful people eventually become a reality in the US.
Over the last few decades, the US has increasingly become more liberal in its view of income inequality. At the federal level, Elizabeth Warren continues to propose new ways to strike at the wealthy and bring down big businesses.
Warren’s latest proposal targets the ultra-millionaire, not for their income, but just their wealth. Anything you hold over $50 million is then subject to a 2% tax, with another percent added for anything over $1 billion. It totally turns the income tax system on its head.
If you have money, they’re going to find ways to take it.
Massachusetts, home to Senator Elizabeth Warren, has artistically called their wealth tax a Fair Share Amendment. Americans like fair. This millionaire tax was passed in the summer of 2019 and adds a 4% surtax on a person’s annual income over $1 million.
Supporters of the amendment claim it would bring in $2 billion for good causes like education and transportation. Everyone wants good education and transportation. But those who know the trouble with wealth taxes argue it will hurt the state’s economy by driving out the wealthy and discouraging investors.[embedded content] [embedded content]
As reported by CNBC, Governor Cuomo has proposed to increase the wealth tax in the state of New York from 8.82% up to 10.86%. This means residents of New York City would pay a top rate of 14.7% in state and local taxes, the highest income tax rate in the nation.
The state’s budget deficits have spiraled even further out of control during the pandemic and this is part of the governor’s plan for recovery. Just take more money from those who have managed it well in an effort to recover from terrible mismanagement.
The state of Washington has proposed several options for taxing the wealthy at higher rates in an effort to cover their pandemic spending. There are options to target billionaires, tax capital gains, and add a payroll tax for high salaries. Washington’s state constitution, like many other states, doesn’t allow for a graduated income tax, so the proposal targeting billionaires would creatively add a 1% flat tax for everyone, while just exempting everyone who makes under $1 billion.
I’ve talked extensively about California’s efforts to add a wealth tax. Assembly bill 71 calls for a tax on millionaires and billionaires to foot the bill for California’s incompetence in failing to run their state. It is also historic in that it would go back 10 years and look at wealthy people who have left the state of California and retroactively tax them.
Global Wealth Tax Proposals
This idea of taxing the wealthy at higher rates isn’t isolated to the US. It’s becoming a global idea. The Huffington Post reported that 79% of Canadians support a wealth tax on those with over $20 million – 35% of those strongly supported it. Canada is framing this wealth tax as a “profiteer” tax on businesses that did well during the pandemic.
The BBC reports that because of the virus, the UK’s government spending has reached its highest peacetime deficit. It hasn’t considered a wealth tax in over 50 years, but a recent Wealth Tax Commission found that the best way to recover from this huge deficit was to impose a 1% per year tax rate for five years on wealth of more than £1m per two-person household.
In December 2020, Argentina passed a ‘millionaires tax’ to pay for their coronavirus spending. People with assets of over 200 million pesos ($2.4 million) will have to pay a one-off tax of at least 2%. CNBC’s article points to the fact that it will only affect 0.8% of the population, again targeting a minority to correct government spending, and the majority of residents highly approve of this method.
Of course, they approved because they won’t be the ones paying.
New Zealand’s Green party is also promoting a wealth tax on not just income but assets over $1 million and 2% for net assets over $2 million. In addition, it would also like to raise the highest income tax bracket from 33% to 37%, gouging as much as it can from the wealthy.
The list could go on as country after country is turning to taxing the wealthy in order to cover government spending.
The Slippery Slope of Introducing a Wealth Tax
At the federal level, the US has not instituted a wealth tax. These new proposals would change all of that and open the door for the federal government to more easily get at ycour resources beyond your income.
My concern is that it’s a foot in the door to start a wealth tax of just 2% on over $50 million – who knows where that will stop. Over time, the percentage will continue to rise as the threshold for those qualifying for the wealth tax decreases. If you think you’re safe because you’re below $50 million, think again.
A hundred years ago, we started the first federal income tax at 3%. That was acceptable to most people. Now, look at where it is today. The top income tax bracket is at 37% and is expected to rise to almost 40% under Joe Biden. This doesn’t even include state income tax, Medicare tax, Social Security tax, corporate tax, capital gains tax, and other taxes that the US has added to its list of ways to take your money.
Any of these things are the camel’s nose under the tent. It will only get worse.
As a high-net-worth individual, you’re basically in a 50-50 business relationship with the US government where you’re giving half of your income to the government to use as they see fit. You do all the work – and they take their cut.
Politicians always point out that it will only affect the top 0.1% of the wealthy. They target a minority and point out the good cause this new tax will benefit. The problem is if you’re in that small group, everyone else is now against you. They’d love to take your money. They’re angry you became successful by building a thriving business and they want their portion of what they see as theirs.
If we look to other countries that have tried a wealth tax, we can see that it doesn’t lead to the outcome the politicians promise. Most recently France tried a super wealth tax of 75% on anything over 1 million Euros. They have since repealed it.
If you tax the wealthy at a high rate, they will leave. No one wants to pay three quarters of their earnings to the government. California’s tax rates continue to rise and their congress continues to discuss adding a wealth tax. For years I’ve urged anyone and everyone in California to leave now because, as much as taxing the wealthy brings unwanted consequences, governments continue to try it.
And it’s only going to get worse.
Why You Should Act Now
The US continues to head in a socialist direction. Biden has proposed to increase the highest tax income bracket up to almost 40% as well as increase the corporate tax rate. A move like this does little to inspire investment, development, entrepreneurs, and the economy in general.
The more you see people like Elizabeth Warren and Bernie Sanders urge the US to make moves to take from the rich, the more you will see successful entrepreneurs and businessmen leave.
The US is not the only one heading in the wealth tax direction. Worldwide attitudes are changing to where taxation of the rich at higher rates is completely acceptable. It’s no longer a sign of personal success to be applauded, but wealth is framed with a Robin Hood need to take from the rich.
You’re only going to see more expansion towards a global wealth tax.
We can see the writing on the wall. Now would be the time to make your Plan B.
Start setting up those offshore bank accounts, getting a second residence, and moving at least some of your business overseas to countries that still value what you can contribute to their economy, sans taxes. I offer more advice on how to prepare yourself for and avoid the coming global wealth tax on my website. You have options available to you…if you act now.
Many people think big changes that will affect them financially will either be years off or never happen. Wealth tax is happening though. Don’t be in a position where you aren’t prepared and you’ll have to scramble to salvage anything. Now is the time to prepare yourself.