Egged on by Emmanuel Saez and Gabriel Zucman it seems that Elizabeth Warren is proposing an annual wealth tax on the richest Americans. The response to which is that wealth taxes don’t actually work. As the two Frenchmen proposing it should know, given that France has a wealth tax and it doesn’t in fact work. That it doesn’t work is why the standard economics of taxation says that we shouldn’t be trying to tax wealth. In fact, there are perfectly good analyses of this sort of taxation which insist that even the taxation rate of the income from wealth should be zero. Possibly, even subsidised.
More than this there’s the issue of the rate which is being proposed. It’s such a high rate that it really, really, won’t work. But then that’s demagogic politics for you, isn’t it?[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] 2020 presidential hopeful Sen. Elizabeth Warren, D-Mass., is proposing a new “wealth tax” on Americans with more than $50 million in assets, as well as other measures that include a significant hike in funding for the Internal Revenue Service. “We need structural change. That’s why I’m proposing something brand new – an annual tax on the wealth of the richest Americans. I’m calling it the ‘Ultra-Millionaire Tax’ & it applies to that tippy top 0.1% – those with a net worth of over $50M,” Warren, who sits on the left of her party, tweeted Thursday afternoon. [/perfectpullquote]
That tweet is here:
It would make the ultra-rich pay their fair share & generate nearly $3 trillion over the next 10 years. A lot of rich and powerful people won’t like it – but I don’t work for them. Sign our petition if you agree: It’s time to tax the wealth of the top 0.1% https://t.co/3L5jbCCQ6x
— Elizabeth Warren (@ewarren) 24 January 2019
This is a fun little piece of obfuscation:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The wealthy would still be able to enjoy the vast majority of their wealth. Saez and Zucman estimate that the top 0.1 percent will pay 3.2 percent of their wealth in taxes in 2019, and the wealth tax proposal would only increase that to 4.3 percent. Incidentally, the bottom 99 percent pays about 7.2 percent of their wealth in taxes, because they lack savings and rely heavily on labor income.[/perfectpullquote]
We don’t to any credible level of accuracy, currently tax wealth. Thus a comparison of taxes paid to wealth is an irrelevance. We do tax income so thus we should be comparing tax rates to income.
But here’s the big practical, not theoretical, reason why this won’t work. The tax is being set at more than the likely income from the asset. Thus the assets must be liquidated in order to pay the tax. Every rich person in the country is a net seller of their assets each and every year. The value of the assets is thus what? And the wealth that is being taxed is?
Think about it a bit. The dividend yield on the S&P 500 is about 2% at present. On Microsoft 2%, Oracle 1.7%. We’ve now got a 2% tax on mere decamillionaires, 3% on billionaires, for holding such stock. And out very complaint is that these rich b’stards own everything. So, what do they have to do to pay the tax? Sell stock.
Each and every year they’ve got to liquidate assets to pay the tax bill. And none of these other rich people can pick up the slack and buy them. This is going to do what to stock prices?
Quite, we’ve just engineered the mother of all stock market crashes through taxing capital assets at more than the income from holding them. They are, in cash flow terms, now valueless to any rich person. And no, there are no capital gains for them as we’ve just insisted that prices will be falling.
Wealth taxes don’t work anyway and high wealth taxes definitely don’t work. But then Liz Warren and taxes….