The editors of the Wall Street Journal have joined the editors of the Washington Post in opposing the imposition of a wealth tax:
The Governor is trying to walk a line between his Silicon Valley donors and his party’s ascendant left wing. The Democratic Socialists of America demonstrated its growing influence and organization last week in New York’s primaries. Mr. Newsom doesn’t want to get swept away by the socialist wave as he prepares to run for President in 2028.
This explains his endorsement on Friday of a national wealth tax—an apparent effort to blunt criticism from the left for opposing the union ballot measure. “The system America’s founders built was designed to prevent the concentration of power in a few hands, but we have allowed that concentration to happen anyway, slowly, in plain sight, over decades,” Mr. Newsom said.
There are bad reasons and worse reasons to support a tax on wealth. The bad reason is to increase revenue. It’s a form of “eating the seed corn” because it taxes accumulated productive capital rather than the income generated by that capital, reducing future investment and future tax bases. The worst reason, as I noted yesterday, is social leveling. It’s just not effective for that. Wealth taxes rarely remain confined to the nominal taxpayer. Owners attempt to shift part of the burden to customers, employees, suppliers, or shareholders where markets permit. Or they may relocate themselves or their assets to jurisdictions that impose lower taxes, reducing both the tax base and investment.
I agree that the concentration of wealth and power in a few hands presents problems but Gov. Newsom should support means suitable to the ends. Much of today’s extraordinary concentration of wealth has not arisen solely from entrepreneurship. It has also been reinforced by decades of public policy that implicitly subsidizes financial risk-taking and inflates asset prices. A good place to start would be eliminating the “Greenspan put” and, even better, the confidence that gives those buying equities that the Federal Reserve will back their speculation up.
