When considering a Wealth Tax, we must learn the difference between liquid, and illiquid net worth.
Democratic candidates like Bernie Sanders and Elizabeth Warren have championed an idea so bad it was ditched by nine countries in Europe, including Denmark, and Sweden. Despite claiming to push "Scandinavian style Socialism," both candidates seem to be in favor of policies even those countries thought were terrible ideas.
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Elizabeth Warren originally supported a 3% Wealth Tax on wealth over $1 billion, but has since doubled that rate to 6%. Bernie Sanders has held steady at a top Wealth Tax 8%. Both candidates website's claim that massive revenues will be reaped from these tax structures. Enough income to pay for any amount of "free" stuff the citizens can imagine. But countries such as France has shown how this tax system can be detrimental to the economy. Take this excerpt from Zero Hedge, written by "Tyler Durden" into account:
In France, 513 wealthy households left the country every year for 35 years because they were tired of paying a wealth tax – taking an estimated $175 billion of assets with them.
But when the wealthy leave, they take more than their money… they also stop investing and creating jobs.
So France also lost 400,000 jobs (adding 2% to unemployment)
Even worse, Sweden raised $500 million with their wealth tax, but lost $166 billion from capital leaving the country.
So what does Elon Musk have to do with this?
Musk is a perfect example of the flawed ideology behind a wealth tax. Even though Musk is a "billionaire" worth $26.6 billion, Musk only has about $200 million in liquid assets.
How is it that there is such a large discrepancy between net worth, and liquid assets? Easy. Most of Musk's net worth is in his ownership of SpaceX, and Tesla Motors. By most, I mean 99.2% of his net worth, or roughly $26.4 billion.
Musk demonstrates the hard truth of the rich, and their "net worth." Other examples might not be quite as extreme, but even those like Jeff Bezos and The Walton family attribute upwards of 80% of their net worth to their ownership of Amazon, and Walmart, respectively. Most of the wealth of the wealthy is in stock ownership, not just cash sitting in a bank account.
Back to Musk.
Let's imagine Elizabeth Warren's Wealth Tax has taken effect. There's now going to be a 6% tax on Elon Musk's net worth over the first billion. So now, $25.6 billion of his net worth is subject to the tax, totaling $1,5 billion in the very first year. Obviously, we've already ran into an issue since Musk only has $200 million in liquid cash. Musk would now have to sell-off $1.3 billion in company ownership to pay just the first year's tax.
This idea of Musk selling off his companies to give money to the Federal government might be preferable to those on the left, but it would have detrimental effects on the economy as a whole; including the wealthy, and the middle class. Flooding the stock market with shares would deflate the market's value overall, since the value of each share of stock is determined by the supply and demand of available stock shares.
My calculations from previous articles estimate that under Sanders' plans for employee ownership, plans for a stock market tax, and his plans for the Wealth Tax, the value of future retirement portfolios would decline by 30-50%. Check out the details behind those claims in the articles found below:
Rest assured, if there is not enough market demand for Musk's shares, I'm sure the US Government under Warren or Sanders will be more than willing to use taxpayer money to purchase shares in Amazon, Tesla, and Walmart; and maybe that's the plan.