Opinion Editorial | |
| Tuesday, November 16, 1999 | |
Numbers Don't Add Up in Trump Wealth-Tax Plan |
Donald Trump says that the gross federal debt, now about $5.7 trillion, could be eliminated by imposing a one-time 14.25% tax on the net wealth of every American with more than $10 million. His political adviser, longtime Washington lobbyist Roger Stone, says this is something Mr. Trump feels strongly about, even though it would cost him $725 million personally. Mr. Stone notes that Mr. Trump is a graduate of the Wharton School of Business, and says the developer has thought about this proposal for some time.
His math could use a brush-up. To raise $5.7 trillion with a 14.25% tax you need a $40 trillion base of taxation. But according to the Federal Reserve, the net worth of all households and nonprofits in the U.S. was only $37.4 trillion at the end of 1998. (This includes all business assets, because they are ultimately owned entirely by individuals or nonprofit organizations.) Even if we grant that our total national net worth may have risen to $40 trillion, Mr. Trump isn't going to cover the debt just skimming off the top few.
To retire the debt this way would mean taxing the equity of every homeowner, forcing the sale of trillions of dollars worth of stock by every shareholder, and taking 14.25% out of every bank account, no matter how small. How about 14.25% of university endowments, foundation assets and church property?
Obviously, this isn't what Mr. Trump has in mind. But without the assets of nonprofit institutions and sub-$10 million households, revenues from his tax wouldn't come close to $5.7 trillion at a 14.25% rate.
NYU Economist Edward Wolff recently estimated that a wealth tax like Switzerland's 0.3% rate on net assets over $60,000 would raise only $45 billion a year. Assuming the same tax base, it would require a rate of 38% to get $5.7 trillion. Who would want to go down that road?
Regardless of the rate imposed, a plan like Mr. Trump's would lead to an enormous amount of income shifting. Presumably, someone with assets of $9,999,999.99 would pay nothing, while someone with $10 million would pay $1.425 million. That means that anyone with assets between $10 million and $11.425 million would have enormous incentive to consume or simply give away $1.425 million. Others would establish foundations, divide family assets so that no one person has more than $10 million, get their money out of the country or make work for lawyers specializing in tax shelters. The tax would also lead to sales of huge blocks of stock, driving down share prices, and the liquidation of thousands of businesses. (Mr. Trump should ask himself where he is going to get $725 million in cash to pay his share of the tax.)
Even if Mr. Trump's plan worked perfectly, the benefits would not be worth the cost. Eliminating the public debt would save $229 billion per year in federal interest expense. Most likely, the government will simply replace the net interest savings with $229 billion of new spending.
Paying off the debt may be a worthwhile goal, but it is not one worth imposing new taxes to accomplish. Trump's plan would do more harm to the economy than any conceivable benefits from making the federal government debt-free. Even at the rate he has proposed, the economic disruption would be enormous. At rates several times higher, which would be necessary to actually raise $5.7 trillion, the disruption would be devastating.
Mr. Bartlett is a senior fellow with the National Center for Policy Analysis.
The National Center for Policy Analysis is a public policy research
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