Wealth Tax and Oceans Preservation Act would cripple California economy

Panic and resentment can be a deadly combination in politics, and never do the two coincide more frequently than during a time of economic peril. Recent attacks on the IRS by an insane anarchist are a particularly extreme instance, but more dangerous are the seemingly prosaic instances of equally resentful behavior – behavior which prompted the great British journalist Malcolm Muggeridge to declare that “Eleanor Roosevelt was worse than Josef Stalin and Adolph Hitler” because while fascism and communism were discredited, Ms. Roosevelt’s less-threatening and more soft-headed version of some of the same ideas would endure for years.

And nothing embodies that seemingly unthreatening brand of enforced mediocrity than the innocuously titled “McCauley-Rosen Wealth Tax and Oceans Preservation Act.” However, unlike such veiled forms of radicalism as the California Democracy Act, McCauley-Rosen is upfront about its extreme intent. Witness the California Secretary of State’s summary,  which states that the bill “imposes one-time tax of 55% on certain real and personal property in California exceeding $15 million if single, $20 million if married, “ “imposes one-time tax of up to 54.3% on income exceeding $5 million when resident dies or leaves California. Imposes additional 17.5% tax on total incomes exceeding $150,000 if single, $250,000 if married; 35% if incomes exceed $350,000 if single, $500,000 if married” and “requires [the] State to acquire shares of specified corporations for purposes of influencing environmental practices.”

Now, with respect to these first two provisions, one could chalk the bill’s intent up to well-meaning economic illiteracy. However, the last one suggests something more sinister – that the author of the bill is perfectly aware of how economics operates, and would prefer that the State actively manipulate other peoples’ money so as to serve his/her preferred private ends. Not only is this potentially unconstitutional, but it is dangerous even on the abstract level of political theory, for power is apolitical and the same State that can invest in energy companies for the purposes of encouraging environmental protection can turn around and require companies to drill for oil if it becomes politically expedient. Either way, the power itself is undesirable and must be defeated.

Moreover, if one actually takes the time to read the text of the bill, it becomes apparent the instant one gets to the findings section that its intent was constructed from radical, unfiltered egalitarian thinking bordering on socialism. For instance, one is told that “The concentration of private wealth in the hands of the few is inconsistent with the tenets of a democratic society,” that “There has been, in recent decades, a massive shift in wealth and income from the poor and working class to the rich and wealthy,” that “Coincident with massive wealth transfers has been the ongoing destruction of the global environment, including the destruction of fisheries, oceans, glaciers, sea life, forests and the global ecosystem” and that “Massive concentrations of money power have fueled the globalization of the American economy, undermined America’s traditional manufacturing, industrial and agricultural strength and substituted a class of money changers and speculators for working men and women.”

Every single one of these assertions is highly suspect from an economic perspective and not even necessarily true from a political one. In the first place, the United States has never been a purely democratic society, but rather a constitutional Republic with democratic elements – in fact, originally, suffrage was restricted to property owners, probably so as to avoid people coming up with bills of this sort. As such, it is not clear why the voters should care what is inconsistent with a “democratic society” in the abstract, but rather what is consistent with the American system. However, even if one presumes that the concerns of a “democratic society” are relevant, is it necessarily true that large concentrations of wealth are antithetical to those concerns? Hardly. In fact, there are Nobel Prize winning economists who will argue precisely the opposite.

In the second place, the notion of a “massive shift in wealth” relies on an outdated and discredited paradigm – the notion that economics is a zero sum game. As anyone with any knowledge of economic growth will tell you, it is possible for an economy to grow such that everybody becomes wealthier, though some may become wealthier by greater increments. One is reminded of a debate when Margaret Thatcher was Prime Minister of Britain, in which Thatcher remarked, wryly, that the radicals who opposed her were more concerned with the gap between the rich and the poor than with making the poor better off. “So long as the gap is smaller,” Thatcher crowed, “they’d rather have the poor poorer! You do not create wealth and opportunity that way! You do not create a property-owning democracy that way!”

One could say even more about how questionable the notion of linking environmental degradation to massive wealth is, or about how economists from Paul Krugman on the Left to Milton Friedman and Gregory Mankiw on the Right have solidly and unanimously refuted the notion that globalization is a force which undermines particular countries’ interests. However, even if one concedes all of the erroneous premises laid forth by the bill’s preamble, one obvious question remains for which there is no good answer: Could this help the economy and, if not, why bother with it?

As the Secretary of State’s office notes, the bill’s effects include “Unknown state and local revenue reductions—potentially in the tens of billions of dollars annually—due to changes in taxpayer behavior.” In other words, to no one’s surprise, raising taxes this drastically on the people who drive the economy actually makes it more difficult to collect revenues because everybody who is hit with this tax will sooner pack up and leave than endure it further, even with the tax imposed for flight. As such, the bill is not only noxious at the level of political and economic theory, but also counterproductive to California’s economic interests, and as such, it deserves to fail.