Paul L. Caron

Tuesday, November 12, 2019

WSJ: Democratic Candidates’ Wealth Tax Plans Would Shake Up Billionaire Philanthropy; 'Red Hot Chili Peppers Tax Policy'

Wall Street Journal, Democratic Candidates’ Wealth Tax Plans Would Shake Up Billionaire Philanthropy:

The wealth taxes proposed by top Democratic presidential candidates might spark a short-term boom in billionaires’ donations to charity, as they accelerate gifts to avoid years of taxes eroding their fortunes.

Facing an annual tax that eats into returns and shrinks wealth, billionaires would have an incentive to move money out of their control—and out of the wealth-tax base. Otherwise, every year would see more of their money sent to the government for public projects and less to charities of their choosing.

“It’s a tax policy that the Red Hot Chili Peppers would love, because they want you to give it away now,” said Brian Galle, a law professor at Georgetown University.

The long-term effects of proposals by Sens. Elizabeth Warren and Bernie Sanders would be much more uncertain and dependent on individuals’ giving strategies—and on whether the tax prevents accumulations of wealth in the first place. Wealth taxes would also put pressure on rules meant to ensure that foundation money gets spent on charitable projects and prevent people from benefiting from charities they control. ...

For some, a wealth tax would create incentives for aggressive tax avoidance using nonprofits. “The gaps in these rules would become a lot more visible when you put more weight on them,” Mr. Galle said. “I’m kind of picturing a barrel with an elephant sitting on it.”

Economists Gabriel Zucman and Emmanuel Saez, who have advised both Ms. Warren and Mr. Sanders, have proposed including foundations in the wealth-tax base. Under that approach, the Bill and Melinda Gates Foundation could be considered part of the couple’s wealth.

Under the proposals from Ms. Warren and Mr. Sanders, however, only personal assets are taxed, said Mr. Zucman, who helped prepare revenue estimates for the candidates.

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Donations to charity would get them a tax deduction, true. But they could keep the whole amount by sending it (for instance) to the Cayman Islands.

Posted by: Gerald Scorse | Nov 13, 2019 11:44:20 AM