Wealth Tax: When The Road To Hell Is Paved With Good Intentions

Upon returning to Bates in the fall of 2018, I found an email from Professor Engel sitting in my inbox. “Dear politics majors,” it read, “the department is hosting a welcome back reception in the Muskie Archives Garden. Besides getting a chance to have ice cream with us, you can meet some faculty new to the department and some faculty returning after leaves.” The promise of ice cream immediately coaxed me into attending. And while my expectations about mint chocolate chip and peanut butter caramel failed to materialize, I ended up having a fascinating conversation with a current senior about his thesis on so-called “citizenship by investment” programs around the world.

  Citizenship by Investment (CIP), an accredited practice in multiple small nations, provides for the immediate granting of citizenship in exchange for an investment or donation to local industries. Benefits are significant: from a greater freedom of movement to immunity from government policies back home. So when Sen. Elizabeth Warren began staking a claim to the 2020 presidential run by unveiling her wealth tax proposal, my mind could not help but click back to the global citizenship market and its prospective American customers. 

Described as an “ultra millionaire tax,” Warren’s plan seeks to place a 2 percent levy on households worth more than $50 million and an additional 1 percent on those with net assets north of $1 billion. According to the Morning Consult poll, close to 74 percent of Democrats and 50 percent of Republicans are “strongly” or “somewhat” in favor of the proposal. 

Like most young conservatives, I am terrified at the corrosive influence wealth inequality is having on our national psyche. Americans from all walks of life––blue-collar workers in Rust Belt towns, Sanders-admiring socialist groups on the coasts, and freshly minted college graduates embarking on a lifelong journey of loan repayment––are increasingly coming to believe that hard work is no longer the recipe for social mobility. Birth is seemingly the only reliable predictor of one’s economic wellbeing. Warren’s revolutionary proposal seeks to address that by shifting the locus of revenue collection from income to wealth. Instead of taxing, say, highly successful startup owners’ annual earnings, we would be targeting wealth that tends to migrate across generations. Are you convinced of the merits yet? I was… at least until the reality began to dawn on me. 

To put it simply, a substantial number of individuals affected by Warren’s plan would be all but guaranteed to give up their citizenship and make home in one of the world’s many tax havens. I, for one, do not feel the slightest sympathy for expatriates giving up their citizenship for tax reasons. Being an American is a privilege people cross the oceans and endanger their lives for, and if one deems a couple of millions more important than the country, they do not deserve to be here in the first place. What troubles me, however, is the purchasing power that the US would lose by shedding its wealthiest citizens to tax havens. From portfolio investments that shore up the economy to donations to non-profit organizations, it serves our fiscal interests to encourage well-to-do Americans to stay and raise their families stateside. 

Perhaps Uncle Sam could leverage his soft power to discourage tax evaders from trotting the globe. I cannot help but point out that the US does not exercise any significant influence over St. Kitts and Nevis, Dominica, and other citizenship-peddling microstates. Whatever those countries might lose in foreign aid from the State Department they would make up in having the world’s wealthiest individuals join their citizenship ranks. And once that happens, what would prevent, say, a US-born St. Kitts national from opening a bank account in Zurich? 

Senator Warren’s proposed wealth tax, albeit premised on noble ideals, is at best counterproductive and at worst likely to bring more damage than economic benefits.