Kenneth Arrow on Piketty

Here is the closing paragraph of his short but interesting piece:

We might be especially moved to consider a consumption tax if we consider that Piketty’s proposed wealth tax seems in any case to be much higher than it sounds. If we are to assume, say a 5% return on property, then a 2% per annum tax on wealth would amount to about 40% of property income. If investment is financed by property income, this implies a very considerable reduction in investment. Is this desirable? One might doubt it, especially since the effects on investment would be substantial, even apart from incentive effects, which might also be quite considerable.

I would stress that a capital gains tax — not indexed for inflation — shares many properties of a wealth tax.  In recent academic debates, this point about wealth taxes is not being made nearly enough.