Democrats in the state of Washington and elsewhere are considering a wealth tax to address their perceived lack of equality between the amount of financial assets owned by citizens.
Critics point out that almost no one believes the economy would perform better if everyone was limited to the same small income and wealth. Income taxes and wealth taxes remove the incentive for the best and brightest to continue to work hard, and would remove these individuals from the economy.
The great difficulty in valuing privately held intangible assets would lead to an nonstop gamesmanship, that would involve numerous lawyers and appraisers on each side. The drain on the economy from this would be enormous.
The economy is not a fixed amount of money, it is all based on how much hard work individual citizens are currently doing on tasks like farming, manufacturing, and providing services that make people’s lives better. Removing the incentive to work for the most successful people would dramatically shrink the total economy. Even if the poor received larger slices of the pie relative to the wealthy, those slices would be smaller than if everyone wanted to work.
Inventions which improve the lives of everyone would dramatically slow down as the incentive to make them go away.
The biggest problem for the state of Washington specifically is that people affected by the tax would simply leave the state. High net worth individuals have a very easy time moving as the costs of moving are negligible for them and they can easily travel as they please if they want to visit family and friends. As high net worth individuals leave the state, Washington’s economy will shrink precipitously. This will lead to the exempt amount dropping to try to make up for the Lost tax revenues and then even more people will leave. It will be the largest brain drain and wealth drain the United States has ever seen.
Wealthy people spend an enormous amount of money in Washington state that would leave if there was a wealth tax. Spending on sports teams, restaurants, entertainment, Non-Profits and philanthropy, medical practices and many more would shrink rapidly.
Businesses that are still started in Washington, and these will be far fewer, will see their growth constrained versus their competitors in other states. Ultimately, they will be forced to leave Washington state or go bankrupt. Washington State has had an unfair share of entrepreneurial businesses here due to the fact we do not currently have an income tax or a wealth tax. This enables new businesses to grow much quicker, and those businesses are far more likely to stay as they grow. Amazon, for example, directly pays $250,000,000 in taxes to the state of Washington and it’s 45,000 highly paid employees contribute strongly as well. Imagine if Amazon was a Florida company instead of a Washington state business.
Is it preferable to have brilliant entrepreneurs and inventors making their contributions in Washington state or living elsewhere? Or if they do live in state, wasting time fighting with appraisers and tax lawyers and being distracted by trying to value privately held assets?
Businesses will not be incorporated in Washington and entrepreneurs wanting to start new companies will start them in other more entrepreneur friendly states. The state of Washington will be left with an army of parasitic lawyers and appraisers and far less tax revenues.