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I read this article on MarketWatch where they outline Elizabeth Warren's plan to tax the wealthy:

  • 2% tax on every dollar above $50 million in assets
  • 6% tax on households crossing the $1 billion threshold

In a Twitter discussion between Mark Cuban and Jason, they suggest that the effects of these taxes will cause an annual market/asset liquidation and discuss how it may affect the overall market.

What are the mechanics they are talking about? Why would one need to liquidate their market assets because of taxes?

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    Are you asking about current state, where there are end-of-year tax loss harvesting and liquidity for estimated taxes moves; or a future state where a Warren or Sanders annual asset tax of several percent would exist (where such a tax does not currently exist)?
    – user662852
    Nov 12, 2019 at 14:48
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    both. what is the current state, and how would the potential future taxes affect this mechanics
    – KingsInnerSoul
    Nov 12, 2019 at 14:55
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    I'm voting to close this question as off-topic because it belongs on economics.stackexchange.com
    – Philipp
    Nov 14, 2019 at 15:23

1 Answer 1

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Most "billionaires" have their wealth in companies that they grew into multi-billion dollar entities that they own a significant portion of. If the government then says "you own too much - you must give us 6% of what you own", then they likely don't have enough liquid assets (cash) to pay that bill, so they will be forced to sell shares of that company (or give them to the government, which may result in state ownership which is a whole other pickle).

That amount of forced selling artificially increases liquidity and would drop the market price of the shares since the seller would be highly motivated, and buyers can be price "takers".

And that's just for public companies. With private companies, liquidity is much lower, so a forced sale could be very traumatic for private owners who might have to sell their ownership for much less that what they're truly worth (and possibly give up control in the process).

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    Alternately, the ultra-rich would be forced to pay themselves enough dividends to cover the tax, presumably timed so that the taxman has to account for the post-dividend price drop.
    – HAEM
    Nov 13, 2019 at 13:19
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    @FooBar Since this is all speculation, there's no way to know if "wealth" will be measured at enterprise value, fair market value, or something else, so it's all speculation at this point. That's another issue with the whole concept of wealth tax.
    – D Stanley
    Nov 13, 2019 at 13:25
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    Let's say I have $100 billion in Amazon stock, but no other liquid assets. How do I buy my $50 million mansion without selling or trading that stock? Am I getting a loan with stock as collateral? And if so, how do I make the mortgage payments? How is a tax bill different? (I'm being deliberately naive; I realize the obvious ways are that my $6 billion tax bill is probably my largest single bill for the year, and paying the tax bill doesn't give me an asset I can use for collateral.)
    – chepner
    Nov 13, 2019 at 15:28
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    @gormadoc Why sell your investments that make 10% when you can borrow at 4%?
    – D Stanley
    Nov 13, 2019 at 17:21
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    @chepner That $50M mansion is only 0.05% of your assets, much less than the proposed 6% tax. And if you take out a mortgage, you only have to put down about $5M in cash. Even if you have to sell shares to pay the downpayment and the mortgage, it probably won't be enough volume to impact the value of the company.
    – Barmar
    Nov 13, 2019 at 19:19

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