Economist Fear “Wealth Tax” Would Damage Stock Ownership

( The Democrats’ proposed “billionaires tax” targeting unrealized capital gains has some economists concerned about the potential damage such a tax would do to US investments.

The Democrat plan is to tax profits from stocks and real estate that haven’t actually been sold or cashed out yet.

Senator Ron Wyden (D-OR) and Senator Elizabeth Warren (D-MA) have long been pushing to tax “billionaires” on their unrealized gains. But the damage it would do to the markets would be catastrophic.

They’re trying to pass off this scheme as a “wealth tax.” But that couldn’t be further from the truth. It’s not a tax on “wealth;” it’s a tax on innovation. Who will want to invest in a new company or venture if they get hit with a tax on their investment before they sell it? Who would take that risk?

What company would choose to go public when potential investors are going to get hit with a preemptive tax on capital not yet year earned?

According to Curtis Dubay, senior economist for the US Chamber of Commerce, this “billionaires tax” would only accelerate a long-term trend away from participation in the markets.

It is also likely to put middle-class people looking to make some investments on the side at a disadvantage.

Ultimately, Dubay argues, a tax on unrealized gains would result in fewer IPOs and public companies which will only reduce the number of people who are investing in the markets.

In an op-ed at the Wall Street Journal, Harvard Law School emeritus professor Hal Scott and John Gulliver, the executive director of the Committee on Capital Markets Regulation, noted that over the past two decades, the number of public companies shrunk by about half. The “billionaires tax” would put a “quick end” to the recent small increase in listings.

The tax would treat stocks more harshly than other forms of investments. The tax on unrealized gains of public stocks would be 23.8 percent. Investments in real estate or privately-held companies would only be subject to a 1.22 percent interest tax in the Democrats’ scheme. As a result of that disparity, investors would be hesitant to invest in public stocks.

David Sacco, a practitioner in residence at the University of New Haven finance department also believes that this “billionaires tax” would make companies less likely to go public. And since public companies are required to disclose far more information than private companies, a reduction in the number of public companies will also reduce the flow of information in the markets making them less efficient.