It’s gratifying that Fred Hatfield, a former Democratic commissioner of the Commodity Futures Trading Commission, grasps that Sen. Bernie “Sanders’s Tax Would Hit Small Investors” (op-ed, Nov. 18). The levy he pans is a proposed financial transaction tax (FTT). More than half of Americans own stock and the FTT would ding their portfolios, not just those of the rich. Mr. Hatfield doesn’t note that most of the other tax-the-rich plans of Democratic candidates will cause the same trickle-down collateral damage as would the FTT.
Democrats use taxes all the time to discourage undesirable behavior, e.g., smoking. Why, then, do they think that they can tax capital and not get less capital?
Democratic candidates have floated ideas for all sorts of substantial tax increases on income and capital gains, as well as a new tax on wealth. To meet their much higher tax obligations, wealthy households will sell assets, and that will put marginal downward pressure on the price of securities. As a result, all investors will feel the pain of capital-market adjustments, directly or indirectly. To avoid capital-gains taxes, more capital will be frozen in place, with less capital available to fund better investment opportunities. In addition, unproductive time and attention will be devoted to tax avoidance.
The sugar high of college-debt forgiveness, free college tuition, a big boost in Social Security benefits and less-expensive government-run health insurance will wear off and people will demand free something else (e.g., a guaranteed annual income or government job) in short order, but the long-term tax drag on capital will dampen the economic growth needed to keep the sugar flowing.