True but rarely mentioned: wealth taxes and discount rates

…the value of wealth taxes depends sensitively on the interest rate…If the interest rate is 2%, then the tax rate is “only” 1/0.02 = 50%. If the interest rate is 5%, then the tax rate is 1/0.05 = 20%. I suspect these taxes were put in place in a time of higher interest ares and nobody is really thinking about the effect of lower rates.

That is from John Cochrane, with other points of interest about tax incidence at the link.

By the way, non-inflation-indexed capital gains are in part a wealth tax, so current higher interest rates are lowering the burden of that tax to some degree.


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