If one goes to Senator Warren’s wealth tax calculator and enters Bill Gates’s name, after informing the viewer that Mr. Gates has a net worth of $107 billion, this is the information that appears on the screen:
“Now you have the opportunity to invest some of it back into our society so everyone has a chance to succeed. You’d pay $6.379 billion next year under Elizabeth’s wealth tax. This amount, which you likely won’t even feel, will help us invest in education from birth through college and help finance health care for everyone. Good news - you’ll still be extraordinarily rich! And if history is any guide, if you do nothing other than invest your wealth in the stock market, it’s likely that your wealth will continue to grow.”
Elizabeth Warren’s website gives condescending new meaning. In the dictionary, defining responsible wealthy businessperson should be a picture of Bill Gates. This is a person who has given away more than $50 billion to charity and has pledged more than 50% of his estate to charity. Along the way, he has raised billions more from his friends for charity. This is a person who has literally changed the world for the better and employs about 85,000 thousand individuals at high paying jobs.
Coach Wooden famously said: “Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are…the true test of a man's character is what he does when no one is watching.” Mr. Gates is a man of character. The Warren website essentially talks down to a man of true character.
Note that Senator Warren has reported over $10 million of income over the past 11 years and donated a whopping 4.1% to charity ($415 thousand). In 2018, Senator Warren, with a reported net worth of $12 million determined to donate four-tenths of one percent (.004%) of her $12 million to charity and propose a wealth tax that would not cost her a penny.
Missing from the tax cost of a 6% wealth tax to Mr. Gates is the reality that he would have to sell shares of Microsoft to gather the funds to pay a $6.379 billion wealth tax. Bill Gates does not have 25,516,000,000 twenty-five-cent pieces ($6.379 million) under his bed to send to the federal government. Because Bill Gates is the founder of Microsoft, every dollar of proceeds from the sale of his shares would be subject to federal income taxes. Washington has no income tax, so Mr. Gates would “only” be subject to the federal capital gains tax (20%) and the federal investment income tax (3.8%) on the sale of his stock. Bill Gates would need to sell $8.371 billion of Microsoft stock and pay $2.192 billion of federal income taxes to raise the $6.379 billion for his wealth tax.
Missing from the Warren calculator are the increases in capital gains taxes proposed by Senator Warren. She has proposed raising the capital gains taxes for all to 39.6% with an additional 14.8% percent for married individuals with income of over $500,000. This would raise the tax rate for Bill Gates on his sales of Microsoft stock from 23.8% to 58.2%. This would require a sale of Microsoft stock of $10.96 billion.
Note that retired Microsoft executive Steve Balmer is reported to be worth about half of Mr. Gates’s $107 billion. Because Mr. Balmer is a California resident, he would have to pay an additional 13.3% California income tax on his sales. He would face a current tax rate on his Microsoft stock sales of 37.1% and with the Warren increases in capital gains a full state and federal income tax rate of 71.5%.
Let’s make it easy and say the two Microsoft alumni would pay $17 billion in new federal taxes in the first year alone if a 6% wealth tax was passed and Senator Warren’s tax increases were simultaneously approved. This would put their total tax payments to a couple billion less than the entire budgets of Hawaii, Montana, New Hampshire and South Dakota. Over a half decade, these two individuals would be subject to total wealth and income taxes of about $70 billion.
Perhaps far more important than the costs to Gates and Balmer of their selling $70 billion of Microsoft stock over the first five years of a wealth tax would be the other consequences. With every other billionaire paying new taxes in the range of 10% of their wealth before income taxes (the actual Warren formula), finding U.S. buyers of trillions of dollars of stock at current prices would be virtually impossible. The natural buyers would be selling stocks to pay their wealth taxes. As a result, there are only two possible consequences: (a) foreign governments would be the buyers of major U.S. companies or (b) stock prices would plummet and U.S. individual investors along with the pension plans would get slaughtered.
As to a price drop in Microsoft stock, the required sales of 6% of Microsoft stock with funds unavailable to purchase the stock at its current price would (must) cause a reduction in price. A reduction in price from the current almost $150 per share to $135 per share (a very conservative guess) would cost the other shareholders (obviously including state and municipal pension funds) $114 billion. And of course, that is but a single stock. As to foreign buyers who would be exempt from the wealth tax, the result of a 6% wealth tax would possibly or probably result in a sale of American corporations into foreign control. Both scenarios should frighten all.
And the impact to charities? Mr. Balmer is trying to decide his philanthropic goals. Mr. Gates plans to leave most of his estate to charity. Every dollar the government takes as a result of the prosed wealth tax would be a dollar taken away from charity.
The goals of the wealth tax may be laudable, but the wealth tax proposal is a mess. Perhaps it has not been well thought out. Perhaps it has not been subject to sufficient discussion. Or perhaps as I like to say: “There can be a point where envy turns to hate.”