At least three Democrats running for president want to tax the wealth of millionaires and billionaires. But only one of them would pay the tax himself.
Tom Steyer, the former hedge fund manager who’s running for president, would impose a 1% annual tax on wealth above $32 million, which is the cutoff point for the top .01% of Americans. Steyer himself falls in that category.
Forbes pegs Steyer’s net worth at $1.6 billion, while Bloomberg says it’s $3.1 billion. Whatever the number, he’d take a hit under his own wealth tax. Under the lower figure, Steyer would owe an annual surtax of around $16 million. Under the higher figure, it’d be around $31 million.
That’s more money than most people will ever see. But Steyer wouldn’t miss it. “I don't think it will affect me at all,” Steyer told Yahoo Finance in a recent interview. “I think I would go about my business in exactly the same way. It wouldn’t change my investment process, wouldn't change my thinking about anything.”
That’s an important issue, because opponents of the wealth tax say it would divert money invested in productive economic activity into government programs of dubious value. The superrich normally invest a lot of their money in businesses and other types of ventures, which helps the economy grow. The government, by contrast, mostly spends money, with some projects generating a positive return but others not so much.
Democratic presidential candidates Elizabeth Warren and Bernie Sanders both favor a wealth tax, but it’s doubtful either of them would ever have to pay it. Warren is a 1-percenter, thanks in part to several million dollars in book royalties. Sanders is a 5-percenter, for the same reason. But Warren would only tax wealth above $50 million, while Sanders’ threshold is $32 million. It takes many years of million-dollar income to build that much wealth.
Warren, Sanders and Steyer favor a wealth tax because many rich people earn very little from ordinary work, and therefore pay little through the regular income tax. With most of their income from investments, they pay tax at the lower capital-gains rate, and then only when they sell an asset for a profit. A wealth tax would draw more tax revenue from those at the top, to help fund expanded health care, free college, universal child care and other Democratic priorities.
There are problems with a wealth tax. It’s much harder to establish somebody’s wealth than their income, especially if it’s invested in privately owned companies or illiquid assets that don’t have a known market price. That’s why estimates of Tom Steyer’s wealthy vary by a factor of 2. A wealth tax could also be difficult to enforce, which is why 12 countries had a wealth tax in 1990 but only 3 do today.
Still, there’s a growing and problematic wealth gap in America, with the richest owning a large and increasing portion of the nation’s net worth. Democrats aim to fix that in various ways, including higher taxes on those who have more. At least one of the 1-percenters is fine with that.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: firstname.lastname@example.org. Encrypted communication available. Click here to get Rick’s stories by email.