Lurking in plain view is a real monster — a monster so dangerous that it puts even imaginary demons to shame. I’m talking about the repeatedly proposed wealth tax.
Early in the Biden administration, our (not) esteemed Treasury secretary, Janet Yellen, started the ball rolling by trotting out taxing unrealized capital gains. Most of the immediate criticism of this lame idea was that the asset being taxed could lose value subsequent to assessing the tax. More important, however, is that until the asset is actually sold...there are no money proceeds available with which to pay the tax.
To be clear, wealth in the form of real property has always been taxed — mostly at the local level. I suspect that even Abraham, ancestor of both Arabs and Jews, paid tax on his real estate — not necessarily all in shekels, but perhaps in goats and sheep as well.
Unlike incomes and back-alley (ahem) transactions, real estate can never be hidden away from the tax collector. Inequities are still in the mix. Back in the 1970s, California voters passed Proposition 13 to put constraints on property tax. Prior to that, people’s homes were constantly being re-assessed to reflect market appreciation...even though the owners’ incomes may have remained fairly constant, especially for retirees on fixed incomes. Needless to say, the villains who feast off of taxpayers have since tacked on various “special” assessments, mostly due to extortion on behalf of the teachers’ unions.
A pervasive stealth tax is what we call inflation. Politicians are seriously encouraged to cause inflation. Why? Because it lets them buy their re-election by throwing money at targeted constituencies, without using their own money and without obviously increasing taxes, by increasing the money supply instead, through borrowing and running the printing presses. Government, like other debtors, then gets to pay off its creditors with cheaper money.
In this age of weaponized misinformation, we are being told that reducing the rate of inflation is a reversal of the damage that has been done. In actuality, inflation is cumulative, since prices don’t go down — they just might start going up more slowly. Deflation or disinflation, where prices actually go down, is a true reversal. Deflation, however, tends to indicate extremely bad economic conditions. The Great Depression of the 1930s was a period of deflation, because consumers had so little money that prices were forced down...where possible. Where not possible, businesses failed, and unemployment soared as a result. This happened again, to a lesser degree, during the Great Recession of 2008, mostly in Europe. Just recently, Dan Bongino reminded us that government tax policy is not really about harvesting revenue in order to pay the bills. It’s about influencing behavior, AKA asserting control. If the federal government needed more funds to pay off, say, solar panel installers, they could just float a bond or order more paper and ink for the Bureau of Engraving and Printing. But taxing various aspects of consumption, such as the use of natural gas and gasoline, would likely lead to the reduction of such behavior — since it would become arbitrarily more expensive. Deficit and inflation hawks, however, hold a balanced budget as their holy grail — and they do what they can to stand in the way of such malfeasance.
Just to be clear, the U.S. dollar is still legal tender most everywhere. But it’s not because of the quality of the paper on which it is printed, but rather the well established strength and importance of the United States in comparison to the other nations of the world. We possess an immense capital investment in our military assets, which is way beyond the reach of others.
This brings to mind the often neglected importance of capital formation when discussing economic policy. During the Great Depression, corporations were compelled to distribute all of their net profits to their shareholders. This was intended to put more money into circulation and thus prop up a sagging standard of living. It, however, also inhibited corporations from investing in capital improvements, unless they used borrowed money, which would increase the cost of such projects.
Then came World War 2. Much of the consumer economy was shut down while just about the entire workforce became employed. Since there was little beyond the bare necessities to spend money on, workers were encouraged to take some of their pay in war bonds.
When the war ended, the rulers of the masses expected the Depression to start all over again — so they set up a large-scale unemployment insurance program. Things, however, did not go as expected. Not only did the consumer start catching up for lost time, but the accumulation of war bond wealth let them pay for it with cash. New technologies, such as those developed by the Seabees, allowed subdivisions to spring up like weeds. Ozzie and Harriet moved into their suburban palaces and started giving birth to a baby boom.
Had capital formation been better understood back in the early 1930s, the money collected by Social Security (the first paycheck deduction) could’ve been invested in mortgages and other secured forms of high- quality debt. Perhaps, by today, the system wouldn’t be trapped into circling the drain of insolvency. Meanwhile, the forces of evil that sort of dominate public policy are still trying to tax wealth and unrealized capital gains. Such villainy is poised to just plain murder capital formation and plunge what was once the world’s greatest economy into third-world misery.