You’ve all heard about Donald Trump’s weird obsession with Obama’s birth certificate, right? Pretty crazy, huh? You ain’t seen nothing yet. The real crazy shit will come when Trump starts explaining his policy proposals.
That’s not a prediction. It’s a memory:
November 9, 1999
Billionaire businessman Donald Trump has a plan to pay off the national debt, grant a middle class a tax cut, and keep Social Security afloat: Tax rich people like himself.
Trump, a prospective candidate for the Reform Party presidential nomination, is proposing a one-time net worth tax on individuals and trusts worth 10 million or more.
By Trumps calculations, his proposed 14.25 percent levy on such net worth would raise 5.7 trillion and wipe out the debt in one full swoop.
(That was back when we thought 5.7 trillion in debt was a lot.)
There are several kinds of crazy going on here, but I might as well start with the fact that Trump seems to think we won’t notice this:
The tax also would lead to the repeal the current federal inheritance tax which really hurts farmers and small businessman and women more than anything else, Trump said.
The federal estate tax also hurts the Trump family. A one-time 14.25% tax is a lot better for him than the 50% or so bite the estate tax was taking at the time. With Trump’s net worth estimated at $5 billion, the math works out that he would be investing about $750 million in one-time tax in order to avoid a $2.5 billion estate tax when he died, which would have been a pretty good deal for the Trump family.
Then there’s the question of how to determine someone’s net worth. Bank accounts and brokerage statements are easy, and real estate isn’t much harder. But it can be tricky to determine the value of something like out-of-the-money options, and more complex derivatives can be a nightmare. (Remember that the current financial crisis was caused because a lot of people, some of them very well informed, consistently guessed wrong about the value of real estate derivatives.) This would be a recipe for both tax injustice and tax evasion.
And when the net-worth tax bill comes due, where will people get the money to pay it? They’ll have to liquidate some of their assets and try to sell them, at a time when the nation as a whole is dumping $5.7 trillion dollars worth of assets on the market. There’s no way that won’t cause a lot of problems.
Before any of that happens, however, people will start trying to protect their assets by converting them to something that is more easily hidden, or which the government’s asset valuations are likely to underestimate. Or maybe they’ll just try to move their assets out of the country. This too will cause problems in the financial markets.
The competition to sell or move assets is likely to be something of a stampede since there will be an advantage to acting quickly, before everyone else’s actions depress the market. In fact, just the fact that a (semi-)serious candidate for president was talking about confiscating wealth was probably enough to encourage some people to liquidate their assets or take them out of the country.
In other words, Trump’s tax proposal is so bad that just talking about it can hurt the economy.