Congressman Dan Goldman, a Democrat from the state of New York, has introduced new legislation that takes aim at the affluent.
The ROBINHOOD Act (H.R.9298) is a proposed tax that claims to ensure the wealthy “pay their fair share,” a frequent mantra of the left. Of course, Robin Hood is a well-known mythological figure said to have robbed the rich to give to the poor, in effect glorifying socialism.
The ROBINHOOD Act would impose a 20% excise tax on loans and lines of credit backed by capital assets – like securities held in a brokerage account. Goldman claims that the new tax would generate at least $276 billion over 10 years. The current language states that a long-term capital gains tax rate of 20% would be assessed on loans and lines of credit backed by capital assets for individuals making over $400,000 a year or $450,000 for joint filers.
Currently, wealthy individuals may borrow from an account that holds securities. Interest is paid on these loans, but the rates may be lower than the effective tax rate. Typically, a loan taken in a brokerage account is used to purchase other securities, IE, margin loans, but any credit may be used for different purposes.
If an individual holds illiquid assets, these may be used to secure credit as well, providing access to funds for an individual whose wealth is tied up in these securities.
Criticism swirls around the static predictions of additional revenue, which will most certainly be wrong, as individuals impacted will adjust their behaviour.
The bill will also add a new layer of bureaucracy, which would diminish any potential new tax revenue and cost many millions or billions to hunt down possible borrowers.
There is also the question of efficient use of capital and limited resources. Taking money from the private sector, which would be used to purchase goods and services or invested, would undermine economic growth and the multiplier effect.
Providing more revenue to a government that is already a profligate spender is not necessarily the best decision in the absence of an emergency.
The left frequently calls for specific segments of society to pay their fair share in taxes, without specifying what that share is.
While this may play well in specific sectors of the electorate, the amorphous declarations tend to fail the reality test. Too frequently, programs are judged by their intent rather than what they actually accomplish.
In any event, as the Laffer Curve proves, the wealthy will adapt and adjust their behaviour as they seek tax efficiency. As for the ROBINHOOD Act, if it becomes law, it will most likely be another regulatory boondoggle that costs more than any value it creates.