Why is a wealth tax such a terrible idea?

Ralph
00:00:00

Are you worried about the impact of a potential wealth tax on your hard-earned savings? Many people are calling this an unrealized value tax or whatever you want to call it. Are you worried about that? Do you find yourself confused by the conflicting information in the media about this hot button issue in the 2024 presidential election? Well today, we're discussing how a wealth tax could be a terrible idea and how it might affect you regardless of your income level. I'm going to get really political today. So stay tuned as we unpack this complex topic and separate fact from fiction.

Narrator
00:00:35

Welcome to the Ask Ralph Podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:03

Well, let me thank you for joining me today. Like I said, I'm going to get a little bit more political today, but it's a topic that we need to talk about. This is a huge election hot button issue. And today I'm going to share some truth. I'm going to break it all down for you. Now, if you missed yesterday's show, we talked about the 9 riskiest places to give your social security number and we talked about how to protect your identity. And if you took away nothing else, if you missed it, go check it out. But if you did listen to it, just remember, you always ask why before giving out your social security number. That's a piece of critical information that you shouldn't share with just anybody.

Well, we've got a timely question from Doug, and Doug wrote this. He said, "Dear Ralph, I'm really concerned about all this talk of a wealth tax. I'm not wealthy by any means, but I've worked hard to save for my retirement and my kids' college funds. I'm worried that if a wealth tax is implemented, it might somehow trickle down and affect middle-class families just like mine. Can you please explain what a wealth tax really is and why there's so much controversy around it?"

Well Doug, that is a great question. I appreciate it and it's very timely. We've got an election coming up here in just a few days. And listen, this issue has a lot of people concerned. It is truly the hot political, hot button issue that we're facing right now. And it's a concern of many Americans. So today on the show, I'm going to break it down to you. I'm going to give you the truth. I'm going to dispel a bunch of rumors and then you can make your own decision. Now listen, this whole show is all about asking questions.

That's the whole point of why we call it Ask Ralph. If you've got a question just like Doug, go to justaskralph.com and maybe your question will be featured on a future episode. And don't forget, every Tuesday night now we've got Ask Ralph live. That's right. You can catch me live and answer your questions. You can join our community. That's every Tuesday night at 7:00 PM Eastern time. And you can get to it by going to askralphpodcast.com/live.

Well you know Doug; I looked in the Bible because I always like to have a Bible verse to back up our discussion. And I thought about the concept of a wealth tax.

And I found this verse, it speaks to our relationship with money and possessions. And I feel like this provides a great foundation for discussion today. And it comes at 1 Timothy 6:17-19. And it says this. "Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold a life that is truly life." I'll tell you what, that Bible verse certainly puts a debate in context. And if you think about it, what the Bible is really saying is our ultimate hope should be God, not our wealth. But let's use that for our perspective as we get into today's discussion.

Now a lot of you might be saying Ralph, a wealth tax is very simple. But that is, it's just not true. It is very complex, and it is a potentially problematic proposal. It has far-reaching consequences. You'll never hear about this in mainstream media both to our economy and to you as individuals. And see the truth is this is larger than soundbites and snapshots. You might be asking Ralph, how is a wealth tax different from our current income tax?

And that is a great question. So let me break it down for you. Our current tax works like this. You pay tax on what you earn. A wealth tax, instead of paying taxes on earnings, it charges you a tax on what you own, regardless if that's cash or not. Now proponents will claim that it's a way to reduce inequality by taxing the ultra-wealthy. And that sounds good.

That's an easy target. The ultra wealthy people who have all the cash and they pay low taxes. And that sounds great. But the reality is far more complicated and potentially damaging. They won't talk about that. Let me give you a real example of how this all plays out. Let's go back to 2008. I had a client named John. Again, I don't use real names.

So if you hear me mention the name John on the show, it's not that I've lost my mind. I just use names instead of that. Now, John was a small businessperson. On paper, his business was worth millions. Made him appear wealthy from all the measurements of people that measured wealth. But here's the problem.

The reality was this. Most of the value of John was tied up in equipment, it was tied up in inventory, and it was tied up in his business property. When I looked at his books, his actual take home pay was very modest, very reasonable. One day, he came to me, and you could see the worry etched on his face. I mean, John was upset. He had just learned about a local proposed tax on business assets.

And this is what he said. He said, Ralph, if this passes, I'll have to lay off workers and possibly even closed down because I simply don't have the cash to pay taxes on the value of my business. So what was John saying? He said he was saying to me, Ralph dude, if this passes, I have all these assets, they're tied up in inventory.

They're tied up in equipment. They're tied up in my building. And if this local government's going to charge me a tax based on the value of that, I simply don't have the cash to do it. And his situation illustrates the basic core problem with a wealth tax. Because most people don't have large amounts of liquid cash sitting around.

It's not like they can go to their home vault and pull this cash out or go to the bank. Yeah, on paper, sure, they look very wealthy. But the truth is most small businesspeople and most of these people on the cusp of what you would call ultra wealthy have their reality, the reality is they have all those assets tied up in their business.

They're tied up in real estate. Maybe they're tied up in investments. Like we talked about inventory, furniture fixtures, and equipment, all those kinds of things. And if you're forcing them to pay a percentage of that wealth, you're going to effectively force them to do some really difficult things. Maybe sell assets. Like John said, maybe he's going to have to lay off employees or even like John threatened. He said even close the business altogether. So you would think that's bad enough, right? If you're listening to this, you're going Ralph, that really is not good. But it gets worse and here's the more concerning part. Now proponents would say only the ultra-rich will be effected.

You've heard this in the news. You've heard people running for president right now who have said this. Well, it's only going to soak the rich. We're only going to go after the rich. But when you look at history choose a different reality because see, European countries have tried this. And what they found was that the threshold of what people called wealthy was gradually lowered. And what happened?

It ended up hitting the middle class and that's what's going to happen here. It just became another tax. So you got to be cautious about this. It's not just the ultra-wealthy. Think about your situation. Let's put it right in front of you. Think about your particular situation. Do you own a home in a high-cost area? Do you have a solid 401(k) plan?

Just like John, have you saved for your children's education? Well, here's the problem. You may very well be labeled wealthy under these proposals. And if that wasn't bad enough, see how it's going to impact you individually. They're going to charge you a tax on what your house is worth, even though you don't have any way to say to your house, give me some cash. They're going to charge you a tax on your 401(k) plan, which you can't even touch till your 59 and a half, and then you pay tax on it. Maybe they're going to charge you a wealth tax on what you set aside for your children's education.

Again, you invested those funds in a 529 plan or in some kind of investment plan. You're going to have to liquidate those to pay the tax. And that's the big problem because you may very well be labeled wealthy under these proposals. And here's the big step that goes next. This doesn't only affect individuals, but it could destroy the overall economy. You might be asking, “Ralph, how does that happen? “

I'm going to tell you how it happens. First thing it's going to do, it's going to discourage entrepreneurship. People aren't going to want to work to get ahead because the farther they get ahead, the more taxes they're going to pay. It's going to discourage investment because if you've got to have those cash assets ready, you're not going to want to invest in those buildings, in that property, in that furniture and equipment and inventory and building businesses. And if that doesn't happen, it's going to discourage innovation. Because the simple truth of it, people are less incentivized to build businesses if they have to have that cash based on that wealth tax. And the truth is they become less interested in investing in assets that appreciate over time.

There's no value in that because they're saying, well, every year I'm going to have to pay a tax on the value of that. If the value continues to go up, guess what? I'm paying more taxes. You might be asking Ralph, what's going to happen? What's going to lead to slower economic growth? If the economy slows, there's slower economic growth, guess what happens next? You got fewer job opportunities. And ultimately, here's the end of this. And this is not just Ralph's opinion.

When you talk to experts about this, this is the truth. Ultimately what happens with these wealth taxes. Is less prosperity for everyone. So, yeah, if you want me to answer the question and be blunt, these wealth taxes are terrible, and we need to keep people out of office who would support these things. So let's talk about some of the misinformation being circulated in the mainstream media.

And I call it mainstream media, because if you don't dig a little deeper and look for people who have some free thoughts on this, you're going to think this is great because they're going to give you this position that it's a simple solution to solve inequality. And yes, there is inequality. Listen, that's the truth. But taxing the rich, well some people love that. And I guess if you don't have anything, that's great. And if you live in your parents' basement, you don't have any investments.

You don't own your home. You don't have anything. Then who cares what a wealth tax would be. It's never going to affect you because you don't own anything. Another thing they say is it will raise trillions in revenue. But you better check the reality on that because I don't think that's going to happen. Now you might be asking, Ralph, okay. Prove what you're saying. Why do you think that can't happen? Why do you think it's not going to raise revenue? I'm going to tell you; I'm going to give you a couple of reasons why. Number one thing. Wealth is tough to measure. Many assets, you know, many people like private businesses, they have many assets.

How do you value some of these things? I mean, you can value the land. You may be out of value of the building. You may be out about valuing some of these things, but many assets are hard to value. Think about rare collectibles. We didn't even mention this yet. Let's say you have a stamp collection or a coin collection or some other kind of collectible.

How do you value that? There's not a clear market value, but a wealth tax would want to charge you that tax. Then you got to ask the question, who calls the value? Who's to determine it? Who's going to make those decisions. And that's why this thing, like I said, is tough to measure because it makes it incredibly challenging to implement this fairly and accurately.

So you want to get rid of inequality, you want to find ways to do it. And this very tax creates more inequality. Another thing. Number two on my list here. The revenue projections are often overly optimistic. Of course they want to sell it. What a great thing this is, but the thing is they don't account for behavioral changes that will happen if this gets implemented. Because here's a simple truth.

A lot of wealthy people will just move offshore. They're going to find other ways to minimize their tax liability. They're going to take their assets out of the U.S. Economy and they're going to go somewhere that they don't have to pay this wealth tax. It's that simple. See this wealth taxes are a job killer and it's an economy destroyer, and I'm not being hyperbolic in saying that. That is the honest to God truth. And lastly, why these things aren't going to work. And why they claim they're going to raise all this revenue. It's crucial to understand that wealth isn't some zero-sum game. And you're saying, Ralph, what in the world do you mean by that? Here's what I mean by that. When entrepreneurs create successful businesses, they're not taking wealth from others. It's just that simple. They're creating new wealth. And that wealth benefits society through job creation, and all the things we said it wasn't going to do if we have this wealth tax, if we don't have it, entrepreneurs will be successful. They're going to build jobs. They're going to grow job creation. They're going to find ways to build new innovative products and services and all of those things, guess what? That leads to long term economic growth. So this is a Christian show.

So I want to address something like the elephant in the room. And you might be asking Ralph, so how does this idea of a wealth tax impact our Christian faith? And that is a truly great question. Because we got this balance we have to do. We're called to be compassionate. We're called to care for those less fortunate. We're also called to be wise stewards of our resources. So one could argue, well, Ralph, wealth tax has good intentions. I don't believe that. But let's just assume for 10 seconds that they did. The problem with a wealth tax when you study it is it ends up hurting the very people it aims to help. Think about it. If you're super wealthier, what you call wealthy, this isn't going to impact you. It's going to impact people at the bottom. It's going to kill job creation. You're not going to have those jobs available because you're not going to have people willing to invest. That is going to lead to slower economic growth. And what ends up happening? Is it affects the less fortunate more than the wealthy.

That is just the truth. So I've got an idea. Maybe we need to focus on policies that encourage economic growth. Maybe you need to go fight a candidate that encourages economic growth by the policies that they represent. Let's focus on policies that create jobs, not eliminate jobs. Think about that for a second. If you want to increase the economic base of the country, you've got to create jobs.

You got to build innovative products. You need to build out things. Because then the inequality goes away because you create opportunities for all of us. As Christians, we should also emphasize financial education. We need to emphasize that. We also have to promote responsible stewardship of our resources.

And here's the best part of this. This can be done at all income levels. I don't care if you're very rich or very poor, you can always learn more about financing and learn more about your finances in general. So my key takeaway is this. You don't have to soak the rich. If you do, you will see an economy fail in this country.

So pay attention to who you're voting for and make sure that they're a candidate that is going to build the economy. Now I'm going to share some actionable steps in a few moments, but first I want to ask you a question. Are you feeling overwhelmed by your current financial situation? Are you having a hard time understanding these taxes?

Yeah. You're hearing the snapshots and sound bites. You hear it on the mainstream media. But look, for me, you might be saying Ralph dude, I'm trying to figure out how to put food on the table. I'm trying to figure out how to pay that mortgage, how to pay that car note when it comes in. You look, a lot of us, you're having those financial challenges.

Well, I've got some great news for you today. You don't have to face it alone. I'm here to help you. I can help you find that financial freedom. I can help you break free of the bondage of debt. And at the same time, as you've heard today, one of the big principles that I talk about all the time is aligning that with your Christian values. Maybe after listening to that, you're like Ralph.

I don't get it, but I feel stuck, man. I go to the grocery store, and everything costs more. I feel like I'm always trying to figure out how to solve the problem. Something broke this week. Something broke last week. And you're sitting there. You're thinking my dreams are slipping away. The American dream is slipping away. And I'm struggling with financial instability. I feel like I'm living paycheck to paycheck.

Maybe you are feeling frustrated. You're feeling hopeless. Maybe you're a small business and you're trying to balance your personal finances with your business needs. You realize you got to keep money in the business, but things have gotten so costly that you need to take it out and spend it personally. And you feel like you're taking one step forward and getting shoved three and four steps back. Well, this isn't a negative message today.

There is hope. You can break free from this. I promise you; you can break free from this. You can achieve long-term success. It all starts when you book a call with me. Go to askralph.com. You'll see a banner there. Click on book a call with Ralph. Let me sit down with you and create a personalized plan that is your unique situation and your goals. I call them your big hairy audacious goals, not some cookie cutter approach. One size fits all this nonsense you see on YouTube and TikTok and reels and Instagram, you know, get rich quick, overnight schemes and do this. You're going to get ahead. It's all nonsense. What you need is a true financial roadmap. So, listen, don't let another day go by feeling stuck or overwhelmed.

Let's create a plan. Let me help set you on a path to financial freedom and at the same time, spiritual growth. And in the meantime, I promise you, here are three actionable steps you can take right now. First thing you got to do, you got to educate yourself. I hope today was an education for you. You got to stay informed about proposed tax policies and understand their potential impacts.

Look beyond the snapshots and soundbites, because if all you hear is tax the rich, a lot of people say, that's fantastic. Let's go tax the rich. But you've got to look for reliable, non-partisan sources of information. I've laid out facts today. I've not played hyperbole games. The second thing you must do.

You got to diversify your assets. Don't keep all your eggs in one basket. That's just that simple. If you listen to my show, I talk about this all the time, because a diversified portfolio can help protect you from potential policy changes. Let's say this ridiculous, outrageous wealth tax gets approved. Well, I would hope you're working with your broker to diversify your portfolio so that it doesn't have this huge impact on you. And number three and I can't stress this one enough. There are some things we just can't control.

So what I'm going to tell you to do is focus on what you control. Focus on what you yourself can control. We can't control tax policy. But we can control our own spending. We can control what goes on in our savings and our investing habits. We can do, I've said this many times when I've been interviewed. You could control what happens under your roof.

You can control what happens in your house. You also have a big control when you go to that voting box. I'm going to encourage you right now, go and vote, go and vote your conscience. Don't let the mainstream media tell you what you've got to do. Focus on building a strong financial foundation. That's just the thing you can do.

You can't control everything, but you could control what you're doing. And that gets to be a huge thing. Now I know I've covered all complex issues today on wealth tax. A lot of people disagree. I've talked about the potential impacts on individuals. I talked about how this is going to impact our economy in general. Talk about those broader economic impacts. And here's the key takeaways. This will harm businesses. It will discourage investment. It will affect the middle-class.

And I've talked some truth today that you may not be hearing someone encourage you to do something. I don't often ask you to do this. I want you to share this with 10 people you know. Share this episode with them. Tell them about the truth that Ralph talk today in episode, and maybe share some other episodes. If you've been a loyal listener. I've got a lot of great information out there with the goal of trying to help you, because remember, as Christians our ultimate security comes not from our wealth.

It just doesn't. If you think that's the goal of being a Christian, how much is in your bank account at the end of the month? I'm sorry, but you've lost your mind. The ultimate goal is our faith in God. But at the same time, we've got to understand we're also called to be wise stewards of the resources we've been given. Along those lines, tomorrow, we're going to talk about another important topic. So I'm going to be covering what do I do if I find myself house rich and cash strapped as an older American? And trust me, this is a situation many retirees find themselves in. So be sure to tune in for some practical advice on navigating this challenge.

And like I said, do me a huge favor, share the show, share this episode. I spend it, send it to as many people as you can find, so they understand what's going on and the impact of the decisions that are being made before it's too late. Remember this. My passion is to help you achieve financial success.

I've been a little passionate today and I told you I'd get a little political, but I understand what it means to achieve that financial success. I want to see you live out your dreams. I don't want you to have that feeling that you're not going anywhere that you're stuck. And at the same time, I want to see a grow in your faith because that's the ultimate goal. And I know if we work together, we can master your finances from that Christian perspective. So as I always end this show, I want you to stay financially savvy out there, invest in understanding.

Don't just listen to the soundbites and snapshots, but dig in, listen to podcasts like mine who presents you with truth. And as I always end this show, I want to say, God bless you abundantly and live out your faith, and don't be afraid to stand up for what's right.

Narrator
00:22:49

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