- Oops!Something went wrong.Please try again later.
As the idea of levying higher taxes on the wealthy gains steam — even among the entrepreneurial class—billionaire private equity chief Stephen A. Schwarzman cited several reasons why he believes a wealth tax is a “terrible” idea.
The topic has surfaced in the 2020 Democratic primary race, with Senators Bernie Sanders and Elizabeth Warren among the contenders who have embraced a tax on the richest Americans to close the income gap and fund the government.
But Schwarzman, the CEO of The Blackstone Group and someone presumably affected by a wealth tax, laid out his reasoning behind why the impact would harm the economy. During an interview at Yahoo Finance’s All Markets Summit, the billionaire predicted that a wealth tax would result in an exodus of businesses.
“They would leave,” he said.
“But what's more important is people who would come here to start businesses wouldn't come, because the success would be taxed away in a wealth tax. And so what is logical is those people would find another place to go, and there would be another ecosystem developed,” Schwarzman added.
“You would have, I think, countries offering them tax-free zones to do their business. And you would basically create a huge dislocation for the United States,” the CEO said.
Since hitting a peak in the mid-1990s, the number of advanced economies with a wealth tax has declined to only four, he pointed out.“If it was such a good idea, and it was so easy to raise money, you'd have loads of them,” Schwarzman added.
Support grows for taxing the rich
A February poll by Politico and Morning Consult showed voters overwhelmingly agreed the wealthy should pay more in taxes.
With both Sanders and Warren vying for the mantle of progressive voters in the 2020 race, the Massachusetts Democrat’s "Ultra-Millionaire Tax" would collect 2% on every dollar of net worth above $50 million, and a 3% tax on every dollar of net worth above $1 billion.
Meanwhile, the Vermont Senator’s "Tax on Extreme Wealth" would apply a 1% tax to a net worth over $32 million and would increase depending on the size of one's net assets until reaching 8% for wealth over $10 billion.
Using a startup founder as an example, the billionaire told Yahoo Finance that “If you were trying to start a business and you got venture capital money, make pretend that you were successful, and your company — make it really good success — was worth $1 billion on a valuation basis. And you started it, so you had $300 million of the $1 billion.”
He went on to explain that this theoretical founder “probably had a salary of somewhere around $300,000. So, what would happen is you'd end up with $150,000 after tax. And if you had a 1% tax, you'd owe another $3 million. So how are you going to pay $3 million of taxes when you only have $150,000?” he asked.
“So this would be a terrible situation to have created something, be successful, and be hemorrhaging financially. So, that's how a wealth tax works,” Schwarzman
Schwarzman, 72, built The Blackstone Group from an upstart advisory shop that could barely raise any capital to a global behemoth with $545 billion in assets. Through its portfolio companies, Blackstone employs around half a million people. Schwarzman is listed as the 100th richest person in the world, and has an estimated fortune of $18.4 billion, according to Forbes.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.