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5 Lies Your Financial Adviser Might Tell You

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

More Americans are seeking professional help when it comes to managing their money.  

The percentage of people who used a financial adviser grew to 40 percent in 2015 from 28 percent five years earlier, according to a survey by the Certified Financial Planner Board of Standards. Those people said their decision had less to do with recent economic crises than with their desire for better financial guidance. 

However, reliable financial advisers are becoming increasingly hard to find, and more investors have grown distrustful of the profession as a whole. In the same 2015 survey, the board found that 60 percent of Americans thought their adviser valued his/her company’s interests over those of the consumer, compared with 25 percent in 2010.  

Jessica Parker, 23, is particularly wary. The first time she met with a financial adviser, she believed she was interviewing for an internship. Instead, she was given an hours-long investment pitch and left the meeting having unknowingly signed an insurance policy.  

“They made it sound so appealing,” says Parker, who works as a senior analyst for Johnson & Johnson in Raritan, N.J. “They had all of these metrics, graphs and data. They 100 percent lied about what it was going to be.” 

Whether lies are serious or more mundane, they can take a toll. Having an untrustworthy adviser can mean serious damage to your stock portfolio, your retirement plan or any number of other investments. Knowing the lies some financial planners will tell you  can help you avoid being tricked into a decision that could put your money in jeopardy. 

“Trust me, this is your best investment option.”

When speaking with your adviser, it’s important to know he or she has your wallet in mind, rather than his/her own.  

Julie Rains, 57, a writer in Winston-Salem, N.C., says she met with a financial planner who suggested an investment option that wasn’t in line with the type of portfolio she wanted. After refusing the offer and complaining to the brokerage, Rains said, she eventually discovered that the investment would have made her adviser a large amount of money.  

“His recommendation was complex and confusing, and would have resulted in a huge, unnecessary tax bill,” Rains says. “But the solution would have benefited him greatly with a large annual fee.” 

Ben Jacobs, a financial planning analyst based in Athens, Ga., says conflicts of interest are common among advisers who earn commissions for their services.  

Jacobs recommends seeking a financial planner who is registered with the National Association of Personal Financial Advisors (NAPFA), with some 3,000 members nationwide and high standards for membership. 

NAPFA members earn their money through a consistent client-paid fee instead of earning a commission from a percentage of the financial products they sell to customers, such as mutual funds, life insurance and annuities. As a result, fee-based planners have no financial incentive to sway you in any one direction, because they’ll get paid the same amount regardless.  

“Fee-only means you don’t pay me for the work.”

Still, fee-only advisers, who receive a set fee from clients and do not earn commission on the products they sell, can be just as misleading when it comes to how they’re paid. Jacobs says confusing pay structures are common in the industry, with consumers often misunderstanding how their financial planner calculates their total service charge. 

“You’d be surprised at the number of people who think they aren’t paying their financial adviser,” he says. 

The cost of working with a financial planner can vary depending on the planner’s experience and where you live. 

Vid Ponnapalli, founder of Unique Financial Advisors in Holmdel, N.J., says people should be weary of additional costs when making any agreement with a financial planner. These extra, sometimes hidden expenses can range from your adviser earning a percentage of your bond sales to 12b-1 fees — an annual marketing fee tacked onto some mutual fund agreements.  

You should read through any contract before signing, especially if you’re unsure how  your adviser is making money from your business, he says.  

“My credentials show that I’m an expert.”

Many advisers take on titles and certifications that have little to do with their actual skills.  The Consumer Financial Protection Bureau found more than 50 designations for senior-specific advisers in a 2013 study of financial problems facing senior citizens.

However, the CFPB also found that the educational and professional requirements for using those titles varied greatly, and that some could be obtained with little to no training or effort.  

The Financial Industry Regulatory Authority (FINRA) maintains a database of professional designations and the prerequisites for earning them. Some of these titles — such as Behavioral Financial AdviserDisability Income Advocate, and Retirement Plans Associate — require almost zero qualifications.  

The Securities and Exchange Commission (SEC) released a formal warning against deceitful titles in 2014, encouraging consumers to “look beyond a financial professional’s title when determining whether he or she can provide the type of financial services or products you need.”  

The titles that matter most, such as Certified Financial Planner (CFP) and Accredited Financial Counselor (AFC), involve accreditation by national standards agencies that often hold professionals to certain ethical standards. FINRA maintains a list of these designations, and you can also use the organization’s BrokerCheck tool to search for advisers who hold these titles.  

“I can help with all of your financial needs.”

Even when their credentials are legitimate, planners may try to emphasize skills they don’t have. For example, advisers may claim they’re qualified to sell you insurance despite having little knowledge of the subject.   

Rains, who runs a website called Investing to Thrive, says she thinks advisers are  attempting to seem more versatile and appeal to a large client base. 

“Certainly, some are qualified to handle a broad range of functions, but many have a specialty,” she says. “It’s good to be aware of the strengths, and limitations, of whoever you might hire to help you.” 

Even financial planners with highly respected designations can have their blind spots. For example, Jacobs says the CFP exam doesn’t include certain specialized topics—such as divorce settlement and disability planning—that advisers may need to seek separate training in order to properly cover.   

In order to ensure that he could meet the needs of prospective clients, Ponnapalli began offering free, hourlong consultations before doing business with them.  

“I can guarantee you big returns on your investments.”

Parker says it’s a bad idea to trust advisers who say they’re only concerned about making you money. Nothing is ever certain in finance, and consumers should be suspicious of planners who promise them a specific return on their investment. 

Advisers have the responsibility to set realistic expectations, and promising clients a specific payoff “can lead to huge problems,” Ponnapalli says. 

“The big myth is that we are moneymakers,” he says. “We have to explain to (clients) that money management is one small part of our job.” 

Tips for finding a reliable financial planner:

  • Look for a fiduciary. As a fiduciary, a financial adviser is required to take a formal oath stating that he or she will work in the best interests of clients. When looking for a fiduciary, start with the NAPFA, which requires each of its registered financial planners to renew the Fiduciary Oath every year. Also, MagnifyMoney has reviewed some financial planners, including online options Stash Wealth and the XY Planning Network. 
  • Compare advisers. Finding a financial planner who fits your specific needs can take time, and it may involve meeting with many in person. Rains recommends looking for substance over flash and charm. “Personally, I’d choose the smart person who’s good with money but slightly clumsy with conversation over the one who’s a smooth talker,” she says. 
  • Do your research. As important as in-person meetings are, you also need to do your homework.  According to a 2016 study at the University of Minnesota, 7 percent of financial advisers at the average firm have a record of misconduct (the figure reaches 15 percent at some of the largest firms), with almost half of these individuals keeping their jobs after they were caught or disciplined. To help with this, the SEC has an online database where you can do a background check on most registered financial planners.  
  • Don’t be afraid to ask questions. Once you pick an adviser, you need to make sure you’re both on the same page. When meeting with your planner for the first time, it’s good to come in with a long list of questions, as well as a full brief of your own financial situation. “Do your research on what type of plans they offer,” Parker says. “When you’re in there, be very clear on your intentions of what you want to do with your money, otherwise they might try to steer you another way.” 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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2019 Fed Meeting Predictions — Fewer Rate Hikes Seem Likely

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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We’re nearly three months into 2019 at this point, and the likelihood of more Fed rate hikes this year is diminishing by the day. The outlook has changed markedly from 2018, when the FOMC raised the federal funds rate four times and adjusted to the leadership of Chair Jerome H. Powell. Read on for our predictions for each Fed meeting and updates on what went down in the event.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
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Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

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Election 2020: What’s a Wealth Tax?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

With the 2020 presidential race well underway, Democratic candidates and policymakers have begun present their ideas on how to remedy what they perceive is a tax code that favors America’s wealthiest citizens. Taxing the uber-rich has long been an initiative supported by progressives, and it was amplified in the wake of last year’s sweeping tax reform, which cut taxes for the wealthy and corporations alike.

Some plans have come in the form of structured formal policy proposals (see Elizabeth Warren’s Ultra-Millionaire Tax) drafted with the help of economics professors, while others have made headlines based on comments in nationally-televised interviews (a la Alexandria Ocasio-Cortez’s 70% income tax idea). If Democrats can pull off a win in 2020, these early proposals could offer insight into what might be in store for the tax code.

All of the jargon and acronyms surrounding the subject of new taxes can obscure exactly what presidential hopefuls and pundits are proposing. Check out the table below to understand the basics of what’s currently being discussed, as well as ideas that were under consideration in the not-too-distant past.

Ultra-Millionaire Tax70% Income TaxFor the 99.8% ActPaying a Fair Share Act of 2012
Championed by: Sen. Elizabeth WarrenChampioned by: Rep. Alexandria Ocasio-CortezChampioned by: Sen. Bernie SandersChampioned by: Sen. Sheldon Whitehouse, Warren Buffett and President Barack Obama
Details: This would tax a household's net-worth between $50 million and $1 billion at 2% every year, and any net worth over $1 billion at an additional 1%.Details: Any income earned over $10 million would be taxed as much as 70%.Details: This bill introduces a progressive taxation structure to the estate tax, starting with estates valued at $3.5 million — much lower than the current $11.4 million.Details: A piece of legislation inspired by the so-called “Buffett Rule” and supported by President Obama, this act would ensure anyone earning more than $1 million would have to pay a minimum tax rate of 30%.
Status: This is only a policy proposal by the Warren campaign and hasn't been taken up by the Senate.Status: There's been no official policy proposal from Rep. Ocasio-Cortez.Status: No vote has been taken on this piece of legislation.Status: The bill was introduced in the Senate in March 2012, but failed to proceed. It has been reintroduced several times, as recently as 2017, but has not been enacted.

It’s clear that while there are many ways of skinning a cat, the basic differences between the proposals lie in what exactly is being taxed. Most Americans probably understand the basic definition of an income tax, but things get more complex when discussing taxation of net worth and wealth.

How to tax the rich: Net worth, estates or income?

When experts and politicians discuss a wealth tax, they almost always mean a tax on net worth. If you own a business and private assets worth a total of $100 million, but you also carry $75 million in liabilities (such as debt), then your net worth — aka your wealth — is $25 million.

What makes a potential wealth tax, like the one Sen. Warren has proposed, so unusual is that it targets the passive wealth of an individual. Most taxes levied in America involve some sort of transaction — whether it’s a tax on the income you earn from a job, a sales tax you pay at a point of sale, a capital gains tax on a stock sold, or even an inheritance tax you pay when you take possession of an estate. With a wealth tax, no transaction need happen for the tax to be levied. There’s no hiding from the IRS — they’ll be coming for that collection of Van Goghs, whether you sell them or not.

Simply put, wealth is any asset an individual possesses that has monetary value. Some examples include:

  • Property, like a house or land
  • Bank accounts
  • Any businesses owned
  • Stocks and bonds
  • Private assets, such as art, a Lamborghini collection, diamonds, etc.

Bernie Sanders’ proposal would tax the wealthy on their estates. Estates worth between $3.5 million and $10 million would be taxed at 45% of the estate’s value, with the tax climbing as the value of the estate grows, reaching a peak of 77% of any estate worth $1 billion or more.

To demonstrate how much money his bill would raise, Sanders assumes the net worth of Jeff Bezos at $131.9 billion and claims the Amazon CEO would have a maximum tax liability of $101.3 billion on his estate under his legislation — almost $49 billion more than Bezos would owe under the current law.

Who would have to pay a new wealth tax?

It’s impossible to predict what a hypothetical wealth tax would actually look like after surviving the legislative process needed to make the new tax law.

“In terms of what’s taxed, it’s whatever Congress wants,” said Howard Gleckman, senior fellow at the Tax Policy Center, a nonpartisan think tank based in Washington, D.C.

Even with the candidate proposals out now, there’s no certainty that their campaign proposals would actual survive a battle in Congress. Hypothetically, however, the wealth tax championed by Sen. Warren would apply to individuals with a net worth of $50 million (with an additional tax for those with a net worth of $1 billion and more). If her “Ultra-Millionaire Tax” passed as currently proposed, the results would be:

  • a 2% annual tax on household net wealth between $50 million and $1 billion
  • an additional 1% annual tax on household net wealth greater than $1 billion

An analysis of Sen. Warren’s wealth tax by Emmanuel Saez and Gabriel Zucman, both economics professors at the University of California, Berkeley, estimates it would directly affect only 75,000 households and raise $2.75 trillion over the course of 10 years.

What are the arguments for a wealth tax?

With Democratic leaders advancing ambitious and expensive new policy programs, from the New Green Deal to a national single-payer healthcare system, a wealth tax on America’s richest citizens is seen by some as necessary to raise the revenue needed to fund these sweeping initiatives.

Sen. Warren, for instance, recently unveiled a plan to help provide child care and early education for every American family. The Universal Child Care and Early Learning Act would guarantee “that every family, regardless of their income or employment, can access high-quality, affordable child care options for their children from birth to school entry” and would cost the federal government $70 billion every year, according to an analysis by Moody’s Analytics. The senator’s document states the revenue raised by her proposed wealth tax would more than cover the cost of universal child care.

Rep. Ocasio-Cortez also swings for the fences with the New Green Deal resolution she introduced to Congress, which tasks the federal government with “eliminating pollution and greenhouse gas emissions as much as technologically feasible” and “meeting 100 percent of the power demand in the United States through clean, renewable and zero-emission energy sources,” among other things. When asked about the practicalities of meeting these goals in an interview on 60 Minutes, the freshman congresswoman stated that “people are going to have to start paying their fair share in taxes.”

What are the arguments against a wealth tax?

Assessment and enforcement. One of the biggest concerns critics have of a possible wealth tax is how it can be assessed and enforced. Determining the wealth of the individual isn’t as easy as asking Alexa “How rich is Jeff Bezos?” and then sending him a bill. The IRS will have to dedicate significant resources to evaluating the value of a taxpayer’s private assets and businesses owned, a challenge Sen. Warren’s online explanation of her wealth tax proposes solving with the tightening of loopholes in the current tax code and increasing the IRS’s enforcement budget. The proposed tax also includes a one-time 40% tax on wealth above $50 million of any citizen renouncing their citizenship to flee to more tax-friendly countries.

But that kind of bureaucratic expansion runs counter to how policymakers have traditionally viewed the role of the IRS. According to Gleckman, for decades, “all of the pressure has been on reducing IRS staff and limiting its ability to do audits.”

“What’s striking about it,” he continued, “is it doesn’t seem to matter whether the Democrats are in charge or the Republicans — there’s very few politicians who are ever interested in giving more resources to the IRS.”

A drain on the job creators. Another argument that some wealth tax advance skeptics have is that wildly successful entrepreneurs won’t want to invest in their businesses (which would be considered as part of their wealth) and the economy would lose out on the new jobs that investment would create.

“The job creator argument is not entirely specious,” said Gleckman. “You have created, at least on the margin, a modest disincentive for very wealthy Americans to invest [in their businesses] and maybe created an incentive for them to invest outside of the United States.”

The bottom line on the wealth tax

The wealth tax’s current 15 minutes of fame may provide plenty of red meat for politicians and pundits to chew over as the 2020 election season ramps up, but none of the proposed ideas would affect the taxes for the vast majority of Americans. Even if you do have more than $50 million in wealth or are earning more than $10 million in income each year, it’s extremely unlikely any proposed tax under discussion would be passed by Congress and signed into law without significant additions and changes, so there’s no sense worrying about what currently amounts to a campaign talking point.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
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James Ellis is a writer at MagnifyMoney. You can email James here

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