Opinion: Tax The Wealthiest? Not So Fast

For many years the Republican Party has had pretty much one economic message: Cut taxes.

If the question was how to increase employment or boost wages, the answer was tax cuts. If the question was how to reduce the deficit, the answer was tax cuts. If the question was who would win the Super Bowl, the answer would be tax cuts.

Now Democrats seem to be following in a similar vein – only their mantra is not tax cuts, but tax hikes that soak the rich.

Newly elected Rep. Alexandria Ocasio-Cortez, D-N.Y., is promoting a recently unveiled plan to tax income over $10 million at 70 percent, twice the current top rate. Not to be outdone, Sen. Elizabeth Warren of Massachusetts, who is seeking the Democratic presidential nomination, is pitching a new wealth tax of 2 percent each year on assets in excess of $50 million.

This growing acceptance of these plans signals that the party could go too far to the left, even as the Republican base keeps trying to pull America further and further to the right.

To be sure, wealthy individuals can and should be asked to contribute more in the name of funding government services and reducing government debt. There's a place for inheritance taxes, and a case for taxing investment income at the same rate as ordinary income.

But the proposals gaining currency would harm the economy and job creation, thereby undermining the goal of easing income inequality.

Warren's wealth tax is particularly problematic. It would go right at America's economic bright spot, its engine of technology innovation. Imagine a startup tech company that is rapidly changing the nature of e-commerce or internet communications. It might have made its owners wealthy overnight, but it does not generate much cash flow and won't until later in its evolution. Its owners would have to borrow money or sell portions of their company – exactly what they don't want to do with their venture – just to pay their taxes.

What's more, assigning a value to such a company would be a nightmare. Is it worth $50 million? $500 million? $5 billion? There are few things more complex than trying to value something not for sale. This applies to tech startups, other privately held companies and a host of other assets.

Ocasio-Cortez's plan would at least spare the government of trying to figure these things out. But at 70 percent, even imposed on the very wealthy, it is less a tax than a confiscation, particularly now that the deduction for state and local taxes has been capped.

Countries around the world, including the United States, have had taxes in this range in the past (usually with significant loopholes) and concluded that they were a disincentive to the investment needed to create jobs, except perhaps in the tax shelter industry.

Sticking it to the rich has populist appeal, but the wealthy wouldn't be the only ones getting gored.