What's up Catherine? Okay, we'll start, Garrett if you're ready. Sounds good. So joining us is Garrett Wilson, Senior Policy Analyst with the Tax Foundation, Garrett.
Watson. Well, that's right now. Apologies. I think I made that mistake last time as well go Would you believe then? My memory serves me right. Yeah. Apologies. Strange. Something wired in there. Okay. Thank you. Joining us is Gareth Watson, Senior Policy Analyst with the Tax Foundation Garrett, do you expect more people to move their wealth offshore if something like this unrealized tax on tax and unrealized capital gains actually comes in?
Thanks for having me, it's definitely a risk that folks who are subjected to this new proposal might be encouraged to move their their wealth offshore, or even in the extreme to expatriate and renounce their citizenship from the US. And to avoid this tax. The higher the tax, the more though the tax burden, the more that might be encouraged. But not only that, foreign high earners who are not subject to this tax are going to be advantaged relative to US residents. And that means more investment opportunities for foreign billionaires at the expense of domestic billionaires.
What does that mean for the US economy as a whole? How important is this high net wealth individuals for the economy?
Yeah, I think there's two items there. One is it's going to encourage greater investment by foreigners who are not subject to this tax. So it puts foreign savings above domestic savings, because they're not gonna be subject to this, this new tax. And the second cost is going to be administrative in nature, because folks are going to spend a lot of time trying to value their assets and work with the IRS to pay this tax. And that's a distraction and in a drain from the US economy at a time where we really need to be emphasising economic growth.
Are there alternatives to close these quote, loopholes?
I think there is there's a better path to go down. And that goes, and that comes down to taxing consumption rather than income. Rather than emphasising all the different ways in which many folks could avoid this tax through shifting their income. If we tax our consumption. It's much more visible and much more easy to administer than taxing income, and it comes down to the same conclusion higher earners can still pay more in tax for billionaires who are enjoying their yachts and private planes, we'll pay tax on that consumption. And it ensures that investment in the US is taxed appropriately and not discouraged through the tax code.
Can you give a real world example of taxing consumption?
Sure, yes. So most countries in in the West actually end up taxing consumption as a large portion of their revenue through a value added tax. That's one option that we could look at. But there are many different ways in which we could structure taxes on consumption by ensuring that savings is not subject to tax when it's saved, but rather than when you consume it, and it would require a common sense changes to our income tax code to do so. And it's much more visible, right, you can see consumption in a much more visible way than the many complex investment strategies that higher earners use to hide their income or to avoid tax under the current tax code.
I think the debate on the other side of the argument on the other side is that a lot of these very high net worth individuals, they never spend these dinner, they never use these for consumption, or maybe they take out loans against these assets rather than actually selling them. Are you saying that they would be taxed on the consumption on the money that they get from these loans and spend?
That's exactly right. So a consumption tax could be levied not just on your own money that you're earning directly, but also through loans that you're taking against other assets. And now effectively foreclose the very legitimate concern that high earners right now can borrow on their assets, consume and then pass those assets along to their, their descendants without paying any tax. And that is a you know, fairness concern that this consumption tax could address. The other thing, of course, we'd have to do is ensure that there are protections for lower income folks because they tend to consume a larger portion of their income. And there's ways in which you could do that either through rebates or exemptions to make sure that we are making the the tax code progressive and making sure that high earners do pay their fair share
of Watson Tax Foundation. Appreciate it. Thank you. Thank you. Okay, thank you, Gary. That was awesome. Appreciate it.
Great. Thank you. Appreciate it. Have a good one bye
