Tax the rich.
Make them pay their fair share.
These seem to be the themes for most of the 2020 Democratic Presidential field, and Elizabeth Warren is among the candidates in the forefront.
“It’s time for a wealth tax in America. I have heard there are some billionaires who don’t support this plan… All we are saying is when you make it big, pitch in two cents so everyone else gets a chance to make it.” – @Elizabeth Warren (Twitter)
That’s all: put your two cents in. It sounds reasonable enough, and it’s gotten a lot of attention lately because of what Warren is promising on the campaign trail.
Warren says that a wealth tax would pay for universal child care ($700 billion over 10 years), free college, and student-debt forgiveness ($1.25 trillion), among other subsidies. Part of the revenue would also go to fund the Massachusetts Democrat’s Medicare-for-All plan.
While many of the goals Warren aspires to might be worthy, they are paid for with someone else’s net worth.
I have two problems with Warren’s proposals. I think most of the small business owners I work with every day do, as well. Firstly, an early project of the Penn Wharton Budget Model forecasts that implementation of her tax plan would reduce the growth of the U.S. economy by 0.2 percent annually. This decline would negatively impact small businesses much more so than corporate giants.
Secondly, the question is: Who exactly are “the rich”?
Warren is targeting her “wealth tax” of 2% toward Americans who have a net worth of $50 million or more. The taxed amount increases to 6% for billionaires, such as Microsoft founder Bill Gates and Amazon’s Jeff Bezos.
We all understand that people like Gates can afford higher taxes and still be able to pay the bills. In fact, Gates, one of the world’s richest men, recently told CNBC’s Robert Franks that he has paid more than $10 billion in taxes and doesn’t have a problem with it.
“I’ve paid more than anyone in taxes… If I’d have to pay $20 billion, it’s fine,” Gates said. “If you say I should pay $100 billion, then I’m starting to do a little math about what I’d have leftover.”
Warren is also planning higher taxes on unrealized capital gains. Altogether, under Warren’s proposal, Gates would pay $13 billion in taxes, and, just like he said, he will be okay. However, if Warren’s proposal goes through and “millionaires” are asked to pay more as well as the ultra-wealthy, it could sink startups and choke growth for small businesses.
For example, let’s say an entrepreneur owns multiple hotels that are worth $50 million dollars. Not all of that wealth is liquid. If the government were to add 2% levy, it would bring the annual tax bill to $1 million. There are many businesses – especially startups on the rise – that have high valuations but not so much cash on hand. If the tax collector sends a bill for $1 million, the money to pay it simply isn’t going to be there.
I know this first-hand from the work my company does with small businesses all around the country. On a daily bases, entrepreneurs come to us looking for small business loans to keep their day-to-day operations going and fuel their expansion plans. Their cash is locked up in the value of their businesses, so they need funding for here-and-now
Even the most successful businesses struggle in the early years. It took a long time for companies like Amazon and Twitter to start generating the profits that they earn today. The prospect of building a successful company and then having a significant portion of its value go to the federal government to provide free childcare, free college and relieve student loan debt might have philosophical merits. However the economic reality is that Warren’s proposals would pay for these benefits on the backs of America’s small business owners.
Thus, this tax plan would curtail risk-taking and entrepreneurship. What good is building a “$50 million” business that results in a $1 million tax bill that must be paid with cash, not stock options?
While the headline is sexy: Warren vs. the Wealthy, the reality is much more complicated. Ultimately, I believe Elizabeth Warren’s tax plan would hurt small businesses and create a strong disincentive to take the plunge into business ownership.
The 400 richest Americans currently own more wealth than all Black households and a quarter of Latino households combined… Put another way, the richest 130,000 families in America now hold nearly as much wealth as the bottom 117 million families combined.
This is not what the American economy needs to grow in the future, and by stoking the “tax the rich” flames, Warren is threatening long-term economic growth. In my view, she is Public Enemy No. 1 for small business
Small businesses generate the lion’s share of new jobs in the U.S., and their success has fueled the strong economy we have had in this country for most of the 2010s. Senator Warren openly appeals to the disenfranchised and the young, whose life experiences most often do not include starting and running a business. Many of them are enticed by the offer of free college tuition and childcare, and they want someone else – “the rich” – to pay for it all.
Defining who is rich, who is not, and how much each should pay is a lot more complicated than Elizabeth Warren would like to have voters believe. Small business owners know this, and the politicians vying for their votes should realize it as well.