The Taxmageddon asset dump
CNBC reported Monday on the Great American Asset Dump, in which wealthy people sell off stocks, real estate, business assets, and other valuables in advance of Taxmageddon:
Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.
Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.
“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”
Thus far, “the most noticeable sell-off has been in stocks,” but another high-profile example cited by CNBC is George Lucas’ sale of his company, and its insanely valuable “Star Wars” property, to Disney. This move might have saved Lucas “hundreds of millions of dollars in taxes.”
The infamous “One Percent” control more than half of the stock value in the United States, so as CNBC tastefully observes, “their selling and buying can have strong ripple effects on the market.” An expert from the Tax Policy Center sized up those ripples, and found they could include depressed asset values, volatile revenue, an unpredictable business cycle, and – you guessed it – the government raising less revenue from its tax increases than it projected, particularly after the first year is behind us.
In other words, the same thing that always happens when taxes are increased. But every time the Left pushes through a big tax hike, we have to go back to pretending that revenue to the Treasury will live up to their expectations, just like we have to pretend that tax cuts always result in a directly proportionate loss of income to the government. Few mythologies have ever been more durable, and less plausible.
The great asset sell-off also illustrates a lesson that class warriors have always been slow to learn. The wealthy are not only different from middle-income Americans in terms of the money in their wallets. The more dramatic difference is that the wealthy have far more options for responding to government policies, particularly taxes and regulation, than the rest of us do. Middle-class people cannot dramatically re-arrange their lives in response to tax increases. They have to make do with less, of course, but that’s not the same thing – it’s a response to changing conditions, not a deliberate strategy chosen from among many options.
But people who own a large amount of tangible assets and stocks can take deliberate steps to minimize their exposure to tax increases. At the higher levels, and in response to the most dreadful government policies, they have realistic options for leaving the United States altogether, or at least moving their assets overseas. These avoidance strategies, as you can see right now, are less economically productive than what wealthy investors and their asset managers would prefer to do with their money. They are far better investors than the architects of the Solyndra debacle. Their expenses and investments produce more stable, healthy jobs than central government planning does.
Ironically, class warriors love to caricature the rich as greedy Scrooge McDuck types who pile up their treasure in vaults while the rest of us starve… but that is actually a more accurate description of what they do with their money when the class warriors try to take it away. Try to imagine how business managers will deal with the coming years of volatility, unpredictability, and the certainty that a ravenous central government will respond to disappointing tax revenues by jacking up the rates even further. Hint: it won’t involve expanding operations and hiring people. Hiring is a long-term investment with increasingly high government-mandated overhead costs. Human assets will be dumped right along with those stock certificates.