The politics of a wealth tax

That is the topic of my latest Bloomberg column, here is the end sequence:

Besides which — a fact that is getting too little notice — the U.S. already has what is in essence a wealth tax: Tax rates on capital gains are not indexed for inflation. With this nominal-based tax system in effect, it is harder to accumulate wealth over time, and the nominal-based tax erodes the real value of the asset base.

Whether or not you think this capital-gains policy is a good idea (I do not), it is striking how few Americans understand that it serves as a wealth tax. It is not marketed or proclaimed as such. And I don’t expect Republicans or Democrats to counter Warren by saying, “Don’t worry, we already have a wealth tax.” Isn’t this a sign that voters simply are not yearning for a wealth tax?

The other major form of wealth taxation in the U.S. is of course the property tax, which is paid by large numbers of Americans and used to finance local services, rather than being primarily directed against the wealthy. It is seen as a way of making local government accountable to those who vote and pay for it, not as an engine of wealth redistribution. If anything, by maintaining the quality of school districts in wealthy communities, its net distributive effects are anti-egalitarian. That system seems to be a permanent part of the American political landscape.

Finally, think about politics in the broadest possible terms. What Americans really want is for their lives, their jobs, and society in general to get better — an admittedly ill-defined but nonetheless instantly familiar concept. Americans also want their leaders to deliver such outcomes with the considerable resources already at their disposal. Is that so unreasonable?

Anyone promoting a wealth tax is in essence saying that there aren’t many ways of improving society within current resource constraints. That is a brand of pessimism which Americans voters have not often rewarded.

File under: the Twitter reactions are self-refuting.  But if you would like the opposing point of view, here is Eric Levitz.


Tax the billionaires. I don't have a problem with that.

So that my sons can study science and math and my grandchildren study art and music ... or some such ...

Hi Tyler - can you remind me how much capital gains tax Jeff bezos will pay on his $100billion of Amazon stock if he passes it directly to his kids and they immediately sell it? Does $0 sound about right to you?

Bezos would pay $40 billion in estate tax, doesn't that count?

Only until conservative economists get what they want and congress eliminates it. I give it about 5 years.

More to the point, how much does US capital gains tax raise annually ?

Every billionaire that ditches you for better tax treatment is a policy failure.

Let them go and if they abscond with the wealth they captured while living in the US, make their loss of citizenship and right of return to the US irrevocable.

yeet and yet
mate, you are underrating the utility of the wealth and the wealthy

You mean I should agree with Mises here:
"You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take
for granted you owe to the effort of men who are better than you." —Ludwig von Mises to Ayn Rand (1958)
The utility of the weathy is largely an illusion they pay to have bolstered & fluffed 24/7. The distortion of political and social life by these people we could do without.
“When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.”
- Keynes

yeet and yet
the wealthy are fixing riverblindess in the 3rd world
that is sorta biblical

Pretty funny linking to the Levitz headline after the pull quote. Really unaware of the irony/sarcasm being employed there? Really Just pandering to the cheap seats in the comments section now? I’d thought so much better of this blog, some years ago. Either the politics of the era are debasing everything, or maybe just pulling back the curtain.

actually we liked the column
we sorta think TC just went reverse straussian

BTW - great line.

I think Tyler your are over thinking. The point of proposing a wealth tax is not to improve society, but to advance the political careers of the ones proposing it. They believe that there is a large political contingency of people who are seething with envy over some people being much richer than them. In other words this is an appeal to people on social justice grounds, not economic logic. So pointing out that there are already wealth tax mechanisms, or that there are other better ways of raising up poor people is entirely missing the point. The good news is that the contingency for this sort of social justice thinking is fairly small and almost by definition not well organised or motivated. If they were organised and motivated then they probably would be threatened by this idea rather than interested.

This is not overthinking, it is long term thinking in this case - 'there aren’t many ways of improving society within current resource constraints.'

Oddly, the federal deficit, either in terms of current actual borrowing, or total federal borrowing, does not seem to be a topic of interest here.

However, somebody is going to be taxed to pay off those debts, starting with amount of borrowing being reduced to zero, which will certainly feel like a 'resource constraint' compared to today, and Prof. Cowen is making his best effort to ensure that the wealthy do not have to contribute one cent more than the wealthy think proper - which is 0, of course. The wealthy don't pay taxes; only the little people pay taxes.

@clockwork_prior - ordinarily your posts, albeit biased, are based on facts from what I've read, but this time you err when you say: "The wealthy don't pay taxes; only the little people pay taxes". In fact, the majority of taxes are paid by the wealthy: "The top 1 percent paid a greater share of individual income taxes (39.5 percent) than the bottom 90 percent combined (29.1 percent)" (Google).

The top 1 percent make most of their money from capital gains. It is time we treat capital gains and income the same with equal taxes. The tax code should stop treating income as the worst way to make money.

@Farrow - Fair point, I recall a proposal to tax a sort-of hedge fund managers management fee as income rather than capital gains a few years ago, which went nowhere.

In that case you would have to index for inflation

It is a lightly adapted quote, actually - 'We don't pay taxes. Only the little people pay taxes.' Leona Helmsley

You might remember her as another of those ever so unfairly maligned individuals that felt taxes should work from the bottom up, and not the other way round.

And Helmsley was in fact convicted of tax evasion, proving that the law demanded that she pay her "fair share."

The US has the most progressive tax scheme in the OECD. Occasionally Ireland squeezes in there for a year and then they go back to second place.

That, by the way, does not take into account VAT.

The top 10% pay 70% of the federal income tax. Top 20% pays 87%.

And of course the bottom half of the distribution pays no income tax.

Let’s be clear, Europe provides more government services and they do this through broad based VAT and payroll taxes. Germany collects 31.5% of their tax revenue through VAT.

VAT rate is 19%. And VAT is not functionally different from sales tax in terms of tax incidence. The consumer pays.

Democrat platform 2020: institute a 19% VAT and fund Medicare for all and non guarantees!

I certainly agree with the idea that proposing a wealth tax is to advance the political careers of those proposing it.
After all, Adolf Hitler was originally elected to power and his policies included appropriating the wealth of a wealthy minority to fund his other proposals. As the wealthy targets were a minority, the majority voted him in -- and the rest is history.
Getting rid of him was a sort of political chemotherapy - it left Europe a smoking ruin.

It may not seem like it, but in 2019 a Godwin is still a thing and the law still does apply, you know.

"Godwin's Law" was a memetic experiment, not a law that can be imposed by force. It was just an experiment, but it has had the (probably unintended) effect of discouraging warnings about Nazi ideas re-appearing in another guise.
It dates from 1990. Those interested can find more on Wikipedia.

I'm sure this combination of history lesson, introduction to the idea of wikipedia and confirmation that Godwin's Law is not actually statute, must have been useful to someone.....

gee wally
you mean godwin actually says
you lose the argument by calling a non nazi a Nazi
that actually makes a lotta sense when you think about it
this changes everything

Status is certainly a factor in human relations, and status seeking is certainly an ingrained part of human nature, but that doesn't make it the key to everything.

In this moment it may even be about something more fundamental than status, power.

Are the super rich and powerful really advancing your interests Chris? Or would you be willing to go further and consider the general welfare, that perhaps funding a rural university is better than buying another yacht? Or a great grandson, shielded from inheritance tax, idling on his superyacht?

we playin the kreutzer sonata!

Funding a new rural university would absolutely be more stupid than letting someone rich buy another yacht. Universities are destroyers of time and energy - I weep to think about all those talented clever people wasting time there, either in undergraduate studies of stuff they will never use or post graduate analysis to produce a thesis that no-one will ever read. Even worse when they go into debt to do so. And all because of a stupid status game. There are about 0.01% of people who can contribute to intellectual life - the rest of the people would be better off skipping university and going straight into the workforce, or even taking a four year holiday.

On the more general point - that overall utility would be higher if wealth was taken from rich people by the Government and used for other purposes - I am not sure that is true. I have never seen more stupidity than when someone is engaged in spending someone else's money. I think as a society we already have too much of that. Why are you so optimistic that Donald Trump for instance can spend my money and improve society better than I can? Or are you going to claim we are only going to elect Philosopher-Saints from now on?

It is nice of you to speak so clearly, and I am willing to let other readers draw from that what they will.

I guess I could also outsource to Noah on rural universities.

This boils down to whether most college education is signaling or human capital allocation.

We could find out tomorrow.

Make student loans illegal. Eliminate tax exempt status for endowments. Shit, eliminate tax exempt status for universities in general.

Make it illegal for public funds to be used for universities.

Make it illegal for universities to charge tuition or fees.

Only legal transaction is “investment” in a freshman. Could bundle them just like MBOs. Let the market figure out whether any of this shit is useful. Tax the return 2% to get rid of edge cases.

My guess is engineering remains viable. Maybe accounting?

Sorry, sometimes a copy doesn't take on this tablet. Here is the correct link:

Ever heard of motivated reasoning? Or opportunity cost?

This is always the sort of choice cited, isn't it? An allegedly irresponsible purchase by a rich person vs. an all-wise choice made by government bureaucrats in the public interest. Never any mention of federal boodogles (The Big Dig, Solyndra, subsidies to Big Agriculture ethanol produtction, etc. etc.) So first establish that government can be expected to make better spending choices than the individuals from whom govt. proposes to seize wealth. This is what is missing and why much of the public remains skeptical. If you take 90% of Jeff Bezos's wealth, will you still get next day delivery?

If we assume equal fallibility in the public and private sectors, there is room for success in both, and yes failure/bankruptcy some of the time in each.

Big things like Prohibition were considered failures, and reversed.

I gotta say, I'm impressed.

senor anon
mebbe ur right but without invoking Godwins memetic
don't you sociology fella/0s first have to accurately define failure
visa-vis prohibition
you always skip over that part

I am being impersonated by that bigbutBrazilianthiago
butt now that somebody boldly reenevisioned measles
it would be a good time for the sociology dept to recalibrate their harm/violence metrics

this aint no disco
we're not fooling around
this superbowl sunday
beat the rush
Billionaire Mike/Killer Mike 2019

Prohibition ' It is unique among the 27 amendments of the U.S. Constitution for being the only one to repeal a prior amendment, as well as being the only amendment to have been ratified by state ratifying conventions' States repealed it, the Feds fixing one of their screw ups is pretty uncommon.

The ‘envy’ argument is about as tired and lazy as it gets and you should be adult enough to know it will no longer move anyone. Can’t think of anything more tiresome.

'it serves as a wealth tax'

One can confidently predict that any tax that essentially applies only to those that one can reasonably describe as well off to extremely wealthy will be described as a wealth tax, at least by those interested in ensuring that the rich get richer.

'rather than being primarily directed against the wealthy'

See how that works?

'by maintaining the quality of school districts in wealthy communities, its net distributive effects are anti-egalitarian'

And to think the old term was segregated instead of 'anti-egalitarian.'

'That system seems to be a permanent part of the American political landscape.'

It sure does, which just might explain why a state like Virginia can have such exceedingly good school districts and such exceedingly poor ones - 'Poor districts that rely more on state funding felt the brunt of the cuts. The study said Lee County lost nearly $2,500 per student between 2009 and 2014, accounting for inflation, the most of any district in the state. Lee County is among the poorest counties in Virginia and spent approximately $12,000 per student in the 2013-2014 school year, so the losses had a sizable impact on the district’s budget. .... In Northern Virginia, Prince William County lost the most, at $630 per student, according to the report. The county, which gets about half of its funding from the state, saw class sizes skyrocket in that period and now spends the least per student of the districts in the Washington area. .... Other Northern Virginia districts — including Fairfax and Loudoun counties — actually saw modest gains in state funding. Cassidy explained that some counties hit hard during the housing crisis got boosts because the state funding formula is based partially on property values.' Just another example of how the rich getting richer seems to be a permanent part of America.

It's the students, not the spending, in each school cachement that primarily determine results.

If you doubled class size and closed the Olympic pools in the high performing districts, it wouldn't make much difference. Similarly, if you halved class size and opened Olympic pools in the low performing districts, it wouldn't make much difference.

Is this the Marginal Revolution? Using math or statistics to justify oppression of the downtrodden and powerless? Sure. Baltimore and Oakland receive much more money per student than rich areas. But they’re making up for parenting deficits and literal racism-caused chaos in the streets. You oppress minorities and then scream and wail that money doesn’t correlate perfectly to student outcomes. Libertarianism at work. Slouching towards Somalia.

HEARD OF REDLINING? Ask Corey booker about it. White cis men try to inflict violence on black bodies. Our author is now a Nytimes op-Ed columnist by the way. He taught us that every white child inflicts violence on black bodies, by their very existence. Jamie gon make you learn today.

Moderate Republicans for Warren. Sanity 2020

I guess I must have been too good today, if the game is to hyperextend my arguments.

And so it becomes a problem for the reader. See which "anonymous" arguments go not far enough, just right, or too far. could just pick a name besides a placeholder and stick to it.

I had a name. It was hijacked too.

That's why I prefer this, rather than worry what "I" am saying on a page I don't even read.

"anonymous" might be me, just as "Art Deco" might be one person or seven.

"if the game is to hyperextend my arguments." Otherwise known as double down on stupid.

OMG, you are so witty, or drunk, I can't tell.

Lowering taxes especially for the rich is also a career enhancing move while making society worse. It worked for the Clintons, the Bushes, Obama, and Trump.

@ChrisA - Your last sentence seems to clash with the rest of your paragraph. Are you overthinking?

I hope TC is right, since I am a member of the 1%. Of interest is how the prez candidate Elizabeth Warren is presently being shamed by American Indian groups for taking a DNA test to prove she's Native American (apparently being Am Indian is a state of mind). It shows me the Left is too fragmented to appeal to most Americans, especially if the economy is good. Trump should win a reelection should the US not slip into a severe recession before election time, which is a good bet. I would have voted Democratic Party had they simply said: "We are anti-Trump" without articulating any policy, akin to what is done by "national unity" opposition parties who oppose a dictator in some countries. This would have made sense to voters like me who ordinarily vote Libertarian or Republican. (note to TC: this theme is good for a future column at Bloomberg)

Small amplification with TC's post: property tax owners are not allowed to vote unless they have residence in a county; a sore point with absentee landlords like myself as well as (I've read) the real estate owners in Manhattan, who are constantly outvoted by renters who live there.

@Ray - no, I re-read the paragraph and it makes sense to me. My simple model is that the people who are organised and capable tend to be quite rich and consequently won't like a wealth tax. The people who are not organised are not rich and will favor a wealth tax on envy grounds. But organised people tend to have political power, and vote. Unorganised people do not. So a political strategy that relies on un-organised people is not likely to succeed.

I take it you're UK or European and hence prone to indirection and inference rather than talking plainly like an American (though nowadays Americans have become more PC/European, a sad trend), but even so, this sentence makes no sense: "The good news is that the contingency for this sort of social justice thinking is fairly small and almost by definition not well organised or motivated. If they were organised and motivated then they probably would be threatened by this idea rather than interested." Last sentence should read: 'If they were organized (sic) and motivated then they would be more of a threat'.
Class (rich and poor alike) dissed and dismissed...

Angry people vote. You don't need to organize. You need to piss off people. Lots of people. Then they will elect angry people who can pass their angry laws. Find any account of the Trump campaign and you will find nothing that resembles organization. More like a chaotic mess. Angry Boomer Trumpistas who feel cheated by Wall Street and lied to by the establishment plus angry Millenials who feel robbed of the markers of adulthood like owning their own homes and being saddled with student debt are a potent voting bloc who will push for Medicare for All and high taxes on the rich and cuts to the military to pay for it all. People vote for their own interests as 2016 has shown.

Re property tax resulting in accountability towards payers: that would only be true in a locality where you get multiple votes in proportion to your bill. To the best of my knowledge, no such locality exists.

Re anti egalitarian because rich school districts have more money: The trend is that rich school districts subsidize poorer school districts, and as poorer school districts have more learning disabilities, they often end up spending more per student, for example, Stuyvesant High School, has much lower spending than average for New York City.

In Oregon, even voluntary donations to a school gets redistributed, only 30% of the marginal donation stays with the target school.

Newark, DE - until last year.

This is literal pure racism.

“Oh Stuyvesant with anti-American yellow robots requires fewer public resources, so screw Blacks.”

I guess the true Koch and Trump agenda is becoming clear.

Import yellows, which have no personality or ability for thought, and use them to “prove” browns can’t succeed.

Democrats 2020: formalize the current Chinese exclusion act at Universities. These Yellow Chinese apparently think their SAT, LSAT, GPA etc matter. Democrats 2020, let’s prove these yellow goons wrong. Democrats want Jared Kushner at Harvard, he paid, he donated, and he’s white. Not some Ching Chong chinaman.

Moderate Republicans RISE UP! No Asia yellow mongoloids competing with our children. No yellow untermensch should get looked at for Harvard. We’re liberals. Those colored spaces are for blacks.

"This is literal pure racism." Referring to what has yet to come in your comment, I presume.

Of course, a Federal wealth tax is unconstitutional, because of the same clause that prohibits a Federal property tax, so anybody promoting a Federal wealth tax is merely engaging in a political stunt rather than a serious policy proposal.

Google this, it's probably wrong. The 16th Amendment took care of wealth and income taxes alike...unless you think the 16th Amendment was not properly ratified (also wrong).

Only if Roberts goes wobbly again and twists the plain meaning of the text (50-50 chance).

No, it didn't. The 16th Amendment explicitly allows taxes on income, which is not the same as wealth.

One could make the case that both capital gains taxes and estate taxes are Federal wealth taxes.

You could certainly make a very good case that the estate tax is a "wealth tax" in that it actually taxes wealth. Not so with regard to the capital gains tax for the reason(s) I give below. A good question for progressives would be why they are not content to just raise the existing integrated gift and estate tax rate (and/or eliminate some of the exemptions to it) rather than add a new wealth tax on top of it. The estate tax, while not ideal in my mind, would at least be much less economically distortive. Heirs are generally not as adept at creating wealth as their benefactor was. And, given the fact that the system is already in place, it would entail much less (additional) complexity.

They want the money now, not at some point years or decades in the future.

I suspect they all flunked the one cookie now vs. two cookies later test.

In this case it would be one cookie now and no cookies later.

did we mention that the cookie test
was mebbe supposed to be interepreted symbolically not literally1
and also in brazil2
1 methodology problems
2 home of t riberio

I am in favor of an inheritance tax, because it lets high achievers have a great billionaire life, but it also recycles, composts, seeds the next generation.

And by the next generation I mean everybody, not just fail sons.

(one of the kid's friends was given a G Wagon as his first car - I don't consider this necessary or at all healthy)

seeds the next generation.

No. The money goes to the government where it is used to pay satanics like Robert Mueller, the myriad of drones that daily arrive at palatial shrines like the Dept. of Education, Dept. of Agriculture, Dept. of Commerce, Dept. of the Interior and so on. The next generation, products of an exceptional, government-engineered educational system, will be able to take care of their own affairs, if they're able to handle the immense debt that previous generations have bequeathed to them. Using the next generation as a justification for any government policy is bogus concern in high heels and fishnet stockings.

Another classic "he said on the internet" moment.

If we’re going to be hearing more hyperventilating about the national debt then maybe we should just call it a “Patriot Tax”.

"I don't consider this necessary or at all healthy." Fortunately you have neither the standing nor the wisdom to decide for anyone other than yourself what is necessary or healthy.

I don't know, have you lived by that path? Does a kid given everything in high school develop a good work ethic?

Me and my friends were given pretty basic transportation, with the understanding that dream cars were what you bought with your money, after you graduated college and got a good job.

One could make that argument, but the case law on both goes out of the way to characterize the tax in both cases as being on income on the grounds that they'd be unconstitutional otherwise.

A plain reading of the constitution and other laws refutes this assertion.

How so exactly?

Tax rates on capital gains are not indexed for inflation. With this nominal-based tax system in effect, it is harder to accumulate wealth over time, and the nominal-based tax erodes the real value of the asset base.

This is precisely why capital gains taxes, whether indexed to inflation or not, are NOT a wealth tax.

Wealth is a stock. Capital gains and income are a CHANGE in wealth, not wealth itself. They are the delta, not the stock. Taxes on the delta and flows like capital gains, income, sales, etc. are not a tax on wealth, which is a stock.

There should be a wealth tax as a use fee charged for property rights protection. There should be no taxes on economic activity, flows, on the delta i.e. no capital gains, income, payroll, sales, etc. taxes. Currently, we have a situation where we tax economic activity, flows, the delta to subsidize the property rights protection of wealth and its increase by providing the risk-free rate of return of government debt. In other words, the stock of wealth in society parasitizes the economic activity and flows and metabolism of society to maintain and increase itself.

The most important property is the individual's property right in himself. Hence there should be a head tax paid by everyone, especially the poor.

Capital gains taxes are a de facto wealth tax inasmuch as inflation is a de facto wealth tax.

Separating wealth from the category of economic activity . . . how does that work, exactly? Just because it's a stock and not a flow? But it's not like it just sits there in a vault like artwork or in a body of water like a yacht. Sounds like the usual leftist-statist envy-talk to treat of wealth as unproductive or inactive. Why not let the wealth creators decide what to do with their wealth and knock off the whole "let's get the state involved in stuff" bad habit of thinking about the political.

It's exactly the opposite. Under a capital gains tax someone who just sits on their money doesn't pay tax, while someone who invests it productively does pay tax. Under a wealth tax, the rich would pay the same regardless of how their investments did. So, if someone truly was an idle heir/super dumb investor their capital would dwindle over time. If someone had a rate of return higher than the wealth tax (which is easy to do with proposed rates), then their capital will rise.

The argument about inflation indexing goes as follows: I start with 100 dollars in 2018. I earn 1% interest at the bank, and inflation is also 1%. In 2019 I have 101 dollars, and pay tax on my 1 dollar of profit. However, I really only have 100 2018 dollars pretax, and so the tax I pay eats into the real value of the principal. The rate of the tax is the capital gains rate (20%) time the rate of inflation (~2%), for a value of about ~0.4%. This explains why rich people are so butthurt about inflation even though a relatively small amount of their wealth is in cash/fixed rate instruments. Maybe a good policy would be to swap the implicit wealth tax for an explicit one, and get rid of some of the support for gold-buggery.

If there were no inflation a tax on capital gains would act on a tax on wealth but in the real world Taxing capital gains is just the government taking their cut for fed policies that increased the value of assets an average of 3% a year.

That's....not at all how inflation works.

Now, this is the second time in a week that Tyler has tried to lecture the ignorant on what a "wealth tax" is. However, there is a reason the examples he cites (property taxes, un-indexed capital gains taxes) are not called "wealth taxes". The reason is that they are not. A "wealth tax" is a tax on wealth, with the "net" being understood not only in the ordinary use of language and in the technical sense of a "wealth tax" but also with respect to actual experience. Certainly the latter is the case in all the European jurisdictions I have had actual experience with in the past that have actually implemented a "wealth tax" (some have subsequently learned the lesson and abandoned it). If I own a house valued at $500K and have a $600K mortgage, my "wealth" with respect to that property is not $500K (and, in most examples, my overall "wealth" would also be less) and a property tax is not a tax on my "wealth". The same is true with the capital gains example. That may be a flawed attempt to tax real "income" in the economic sense, but such a flaw does not automatically make it a "wealth tax". I'd love Liz Warren to come out and say that she proposes to tax gross assets rather than actual wealth. Not gonna happen! The public is confused enough about tax policy questions without Tyler making things worse.

I also disagree with Tyler's take on "human nature" in respect of taxes and tax policy. It is not envy of one's neighbor that generally drives attitudes toward tax policy. One's neighbor typically is in generally the same economic category. Rather, it is the very simple idea that a voter is fine with a new tax or a tax increase as long as it doesn't negatively affect him or her personally. This was certainly understood by the late Senator Russell B. Long (who had superior knowledge of both the workings of the Tax Code and politics) who famously quipped with regard to the politics of tax reform "don't tax you, , don't tax me, tax that man behind the tree". (This is related to other areas as well, for example, to the recent little story here about use of Uber and Lyft on the UCLA campus--environmentalism is fine and talk is cheap as long as one is not personally inconvenienced).

The current proposals to tax either wealth or to introduce an extremely high marginal rate on very, very high incomes is just that--a proposal to take the man behind the tree. It's good politics.

One further point. I'm accustomed to hearing from commenters here and elsewhere that lawyers and accountants are behind all the tax complexity that exists. I beg to differ and the wealth tax proposal is a good example of how things get complicated. Here we've got a proposal to tax "wealth" on top of all the other taxes we have currently. If this ever becomes a real possibility (I doubt it, thankfully, as a lawyer who loves simplicity) then the real fun will begin. One must then confront the real problem of defining "wealth" (certainly not using Tyler as an expert). What gets subtracted? What gets carved out? Annuities? IRA's?, etc, small businesses? Family farmers? How will things be valued if there is no active market? Etc. Etc. Etc. Who will bear responsibility for this additional complexity---politicians and voters or the tax bar?

" attempt to *tax* the man behind the tree" although I have to admit that the auto correction software has a wicked sense of humor and is perhaps not entirely incorrect!

Yes, wealth is net assets. And as you point out, there is a lot of deliberate obfuscation about wealth and wealth taxes. The most common one is to conflate wealth and high incomes, and to then market higher income taxes as "taxing the rich" and "wealth taxes". Thus doctors and other high income earning professionals who have lots of student and other debts and thus have little to no net assets are impeded from or slowed down in accumulating wealth i.e. net assets, while the actual wealthy, who already have lots of net assets maintain their relative position.

The worst case is the property tax, already in place everywhere, wherein one pays tax based on the total market value of the home, even if one owes more than it is worth. This might be called a wealth potential tax: someday I might pay down the debt and have this much equity.

Very true. The confusion about the rather simple concept of wealth tax here is amazing.

It has been my general observation that bloggers, especially economic bloggers, tend not to be very original. It's kind of like forwarding twitter memes. But, they've got pages to fill and deadlines to meet! Here's Matt Yglesias three months before Tyler wrote that 2013 NYT column. Does that look familiar? He could choose better people to mimic:

Very good article. I will add Americans are highly critical of how poor people spend their money. And its not clear if Americans are ambivalent about inequality because its "too abstract", or they really do understand the implications. With a wealth tax, the additional consumption of the lower brackets might not compensate for the reduced investment from the higher brackets. No one thinks a million dollars transferred from Bezos or Gates to the average lottery winner will be better spent or invested.

The taxation is not being proposed as a cash assistance benefit as far as I've heard. The revenue could be used for a wide variety of social services or basically anything that comes out of the general fund. Most of the support poorer people receive are tax benefits or are structured as non-cash services.

That said, I don't concede your main point. I'd think the majority of people believe that a less wealthy person spending Bezos' money down at the corner store or on a car payment in their communities is better than however Bezos would spend it. A certain type of economist might think it's better for Bezos to buy a warehouse robot with that money, but most regular people wouldn't.

My cash transfer example was just a thought experiment. Perhaps a $1,000 transfer would help the poor and the economy since individuals are more qualified to invest on their own behalf, but how about $10,000 or $100,000?? At some high enough dollar value, the transfer becomes a bad outcome for the economy. And for any amount, if Americans don't trust poor people with more money, they certainly trust government even less.

Regarding whether some degree of inequality leads to more optimal investment for a large economy, I think that is uncontroversial. Some people are just better at investing as others, and it would be better for the greater good if they had more access to capital to make the optimal allocations. Government has a role to play in investment, but it must have credible competition from households. Whether the current level of inequality is at the correct level, or whether the actual wealthy people are better investors is debatable, however. For elaboration, consider that without billionaires, there would be no such thing as private human space exploration. Previously only the government could be so bold with the purse, and the likelihood of scaling back ambitions to maintain some grasp on profitability would be too high without independent personal wealth. Whether private human space companies are a worthwhile investment is to be decided, but I am hopeful.

I'd suggest that most people who believe wholeheartedly in markets would at least find it plausible that a distributed mass of consumers making choices with the same volume of money, vs one Bezos, would ultimately be a more economically useful pattern of spending.

You are confusing consumption with investment. I agree with your sentiment with consumption, one million people with access to healthy food, good education and medicine is better than Jeff Bezos consuming all that himself. But investment is about creating jobs, and good ones that improve the social capital of the country, and for that Bezos is probably the top one in a million people for that category.

Hey, you're the guy who introduced the word "spend" here. But seriously, yes, this leads to a broader conversation about the role of entrepreneurs and an investment led economy against a broad based affluent consuming middle class led economy. And I have no clear answer to that.

Huh? So Jeff Bezos has solved the problems of central planning? Central planning and calculation aren't fundamentally intractable problems but just need the right man like Jeff Bezos (someone who, incidentally, could not resist the temptations of an over the hill, used up gold digging floozy and lost half his wealth in the process)? If only the USSR had had someone like Jeff Bezos as general secretary, it might still be around and thriving.

Many people confuse the word "investment" with "spend a lot of money".
Investment is placing a sum of money somewhere that may produce a return of a greater sum of money.
If a government or individual spends a lot of money on, for example, education, it is gone for ever. Of course there may be a desirable result, but the money has still gone.
As to Bezos, he didn't lose the money as in start an unsuccessful business, or simply put a bundle of dollar bills somewhere and forget where. It is in the process of being taken from him by the "occupying army" ie lawyers. The law was once supposed to be protecting people and their property from villains. Now people with assets have as much to fear from lawyers as they do from con artists and thieves.
However laws have now become so complex that legal systems may collapse, as is seen in Europe with countries trying to leave the union. Whether States will try to secede from the union in America remains to be seen.

Isn't Mr Bezos soon to be subject to a customised 50% wealth tax by a divorce court (+ legal expenses)?
What do those on this list think it will do the stock quotation of Amazon and maybe other tech companies?

"Americans also want their leaders to deliver such outcomes with the considerable resources already at their disposal. Is that so unreasonable?"

Yes, it is unreasonable (and/or a product of bad habits of thinking about the political) for a people to think of the state as a proper delivery mechanism for desirable outcomes, when the state's raison d'etre is securing freedom.

"the state's raison d'etre is securing freedom." Would that any of our legislators or political executives believed or practiced this. I haven't heard a politician say this for decades. They are all and only about accumulating personal power over others. Period.

Mere assertion, without citation.

I agree with the idea that politicians are all and only about accumulating personal power over others.
The same thing happens amongst other animals. It is perfectly natural. In humans, I suspect that the motivation of females is probably better, but the distinction between the sexes may not be that much in the cohort of people who want to be politicians.
I know a woman who wanted to become a lawyer because she wanted to help people, but found the realities of her work to be very different and retired at the earliest possible moment.

If Warren and the rest of the socialism-lite crowd wanna get really serious about this, they should tax the source of wealth, i.e., the human intellect, on a per-IQ or whatever basis.

"The segment of society most worried about the very wealthy seems to be America’s intellectual class — maybe because for them the wealthy really are a rival source of influence."

Bingo. The intellectual class openly despises the working class, then wrings their hands over why the working class won't join the intellectual class's epic battle to raise the intellectual class's status relative to that of the wealthy.

Some truly bizarre mental gymnastics in this one. Tyler, please reread this post with the distance of time.

Why would a country that has come to rely on rising asset prices for prosperity enact a wealth tax? It would make more sense to adopt policies that reduce reliance on rising asset prices. Like a wealth tax. What? What's the point of rising asset prices if the rise will be subject to a wealth tax. But what's so bad about rising asset prices? What goes up will eventually come down. And won't the Fed prevent asset prices from falling?

Mohamed A. El-Erian, chief economic adviser at the financial firm Allianz, said the Fed’s decision Wednesday “came as absolutely no surprise.” Since the global financial crisis, he said, the Fed has backed down each time investors objected to the tightening of monetary policy. “It’s watching the same movie over and over again,” he said. The question, Mr. El-Erian said, is whether the Fed should be listening to the markets. “If you believe that the market is signaling something genuine about the economy that the Fed has not yet understood, then it’s not a bad thing,” he said. “If, however, you believe that the market has gotten used to having the Fed as its rich uncle, then this is a bad thing.”

If the rich uncle never runs out of riches, I suppose asset prices can rise forever. But if the rich uncle runs out or riches . . . .

That El-Erian (a contributor to Bloomberg) even raises the issue is astonishing. But not to worry, Sumner assures us that Powell is only concerned about NGDP. See my comments and Sumner's responses: Rising asset prices is not "inflation" (the Fed's other mandate), which is convenient, and the consensus view is that the Fed should not burst asset bubbles with restrictive monetary policy. So rising asset prices it will be, thanks to the rich uncle.

Less reliance on rising asset prices will also mitigate inequality. How so? Who owns most of the assets. And as an added benefit, it just might induce owners of capital to invest in productive capital rather than in complex financial assets (Bitcoin!). The malfeasance of the economics profession is an enormous failing. The equivalent in the medical profession would be for the profession to address the outbreak of a global pandemic with assurances that the pandemic will resolve itself.

Between basis step-on on death, and being able to donate assets to a nonprofit without incurring a taxable event, and the variety of schemes whereby assets can be monetized without being sold, if capital gains tax on inflation is our wealth tax, it's a strange one that is optional for the largest personal fortunes.

Yes, it seems like everyone is ignoring the step up in basis on death

The basis step-up at death was designed to (imperfectly) offset the estate tax. If an appreciated asset is subject to the estate tax *and* carryover basis applies to the heirs (there is carryover basis for gifts), then the same thing would effectively be taxed twice when the heirs sell. There is also a liquidity issue--in many cases assets need to be sold by the estate to pay the estate tax which would bring closer to death the taxable event on capital gains. Your point is more valid with respect to the amounts not subject to estate tax because of the large exemptions today which have grown a lot since the original scheme was adopted with step-upped basis to heirs. For those "super rich" (the ones Warren is talking about), not so much. A little history on this point: When Bush II proposed abolishing the estate tax, the step-up in basis to heirs would also have been abolished. Non-profits as beneficiaries is another story, but "public intellectuals" are loathe to attack their employers!

And "As of 2018, a taxpayer does not pay gift tax until they have given away over $11.2 million in their lifetime ($5.49 million in 2017)."

Whether we should lower that a bit might depend on whether we are concerned with the rich or just the super rich.

those gates fella/os that everbody hated 20 years ago
have done more social good/$billion
than the silly selfy/socialist crowd ever will

no wealth tax
no skin care regimen
Bloomberg/Cowen 2020

or how bout 2019

too much cisgender privilege
you must replace Cowen with nicky maduro and his 20 tons of stolen
socialist gold

lets compromise with a more balanced ticket
how about if we replace nicky m. with with Killer Mike
old white guy from the north with young polite southern African American fella and q factor off the charts who
likes to f*** with old people
que es win win
mike squared -2020
or why not tonight?

Yesterday I said "Maybe a way to restate this is that I am catching a vibe, from the zeitgeist, that billionaires are bad."

As a bit of evidence I'll cite Ian Bremmer:

yes, on Twitter

I see this less about the specific mechanism of wealth taxation but rather a different and reaction to malefactors of great wealth.

Somehow that should have been "a new and different reaction." New for these times, anyway.

The Eric Levitz article is interesting, and I would love to see the studies updated to see if there has indeed been a turn in sentiment .. but I see a difference in kind between the poor, the rich, and the super rich.

I don't think it is accidental that the Democrats target the super rich. Nor is it accidental that this comes when the current president is both a bad president and a bad billionaire.

You have yet to grapple with the political externalities. Schultz's antics the past few weeks are a case in point. Once you address that, it will be easier to take you seriously.

Resentment of the working class has been a policy for four decades now, how is resentment of the wealthy not a policy? I’m guessing the title was chosen by an editor?

The reality, given our spending, is that there is a resentment for everybody outside Romney's 47%. Just the wealthy class gets to be repeated by the pundits, and can afford better tax avoidance schemes than the rest of the net contributors.

Unless we reverse, we're on the Greek course, providing loopholes to everyone (and reducing enforcement) until everybody has a way to skip.

One not very high morality contingent of modern conservatism would consider this a feature.

So why not stop it? Stop pretending that Social Security and Medicare are "earned benefits" and eliminate all payments to people with incomes or assets over a certain level -- $200,000 or $5 million, say. They still would have to pay in, duh.

Stop allowing people to resegregate school districts with exclusionary zoning that prevents the construction of apartment buildings in rich neighborhoods and sets property taxes at $20k+ per house (I'm look at NJ here) to keep out the riffraff.

Stop guaranteeing student loan levels that allow colleges to pretend that it costs $70,000 to provide classes taught mostly by adjuncts and to strafe the upper middle class for the fake ticket price.

Tax the things that amount to the flaunting of wealth -- private jets, yacht marinas, whatever -- if it makes the politicians feel virtuous.

There are not enough rich people and they don't have enough assets to pay for all the promises we have made. The people who will have to pay the bills are upper-level bureaucrats and white-collar professionals, plus plumbers and roofers who do good work.

Grandstanding politicians like to gin up class resentment instead of talking straight. It's wearying.

I’m not weary at all from talking about about, for instance, taxing capital gains as normal income. The relative silence on that for the past several decades has been deafening. Don’t like that it’s not inflation-adjusted? Fine, counter with an inflation-adjusted proposal. But this is never what happens. Instead, it is dismissed out of hand because the arguments against are not in good faith to begin with.

The new ACA tax pushed federal capital gains taxes to 23.8 percent, and if you have the misfortune to live in New Jersey, your capital gains are taxed at ordinary income rates already and your state income tax bill is based on gross income, not AGI. So, increment by increment, we're approaching your apparently preferred situation where capital gains = ordinary income.

Even at that, 40 percent of grownups in our very wealthy country report they would have to take out a loan or sell something to cover a $400 car repair, and average family assets net of real estate are $10,000. The stress of such a life sounds unbearable to me, and it is not surprising if people who face such strains are eager to see taxes raised on those who do not.

People who live paycheck to paycheck are already disinclined by FICA withholding even to work outside the (burgeoning) underground economy. If they are supposed to pony up taxes on what little interest their savings accounts yield, they're going to save even less.

I'm not rich and I truly resent the isolation of poor people into crappy neighborhoods and cities, but even I am tired of "fairness" arguments that pretend the security my family built over 20 years of frugality and long workweeks is a windfall ripe for more plucking .

I don't know how you fix any of this to raise the kind of money our government spends every year, but like you I would appreciate more good-faith arguments (and fewer chicken-in-every-pot promises) from the gasbags in Washington.

Inflation adjustments never work well, as there is no 'inflation'

Let me remind everyone, inflation means to 'get bigger' Economists have never really gotten past the 'getting bigger' definition, an absolutely worthless measure.

Since they stupidly adopted the term, they go around making up price indices for no apparent reason except to justify their past stupidity. There is no worthwhile computation one can do with an imaginary, and useless variable.

Let me be mre clear to the economists.

Inflation means the x axis generally increases from left ot right, it is a mathematical term and lnever left the realm of mathematics. The concept of some thign bigger than others allwo9s us to order things, left to right, it has nothing to do with economics, and econmists who ues the term are quite stupid.

Economist then pick an index of stuff such that measurements increase left to right, they can be ordered on an x axis. How is this all relevant to economics? It is not, has nothing do to do with economics.

Don't general prices rise? There is no general product or have a general price. Don't central banks create inflation? No, accountant account for mis pricings and enterprises or households plan to recover the losses. That is why we hire accountants, to measure and correct mis-pricings.

On and on and on, economist make up some stupid carp and folks are in awe of all the nonsense they create over the years.

Watch out that the party of wealth creation does not descend completely to the party of fail sons.

I am negatively disposed to this tax (I'll admit, because of the sort of people who are proposing it), but "People haven't asked for it, and the federal government doesn't need more money anyway" are not persuasive counterarguments.

Particularly when chronic problems with debt and underfunding are an obvious feature of the US government and there's no particular keenness to actually ever give people what they want in practice (walls and protectionism spring to mind), suggesting support of the popular will is... rather more selective than heartfelt.

The desire of some people to confiscate the property of others under the rubric of "fairness" is a religious idea so it is unlikely that rational arguments will accomplish much. The most extreme form of property confiscation, communism, flew in the face of all recorded human experience but it nevertheless took hold in a large part of the world and after collapsing some 28 years ago (from its own "internal contradictions" as the communists would have said it is making a resurgence. And that resurgence is not because a few politicians have figured out what the Russians and Chinese, not exactly stupid nations, were unable to figure out.

But most people still admire the wealthy, especially if they got that way by working hard

The majority of the truly wealthy didn't get that way by "working hard". They became immensely wealthy by infiltrating new corporations with dynamic product lines and services, engineering IPOs while retaining huge amounts of stock and receiving fantastic salaries that also included valuable stock options. This isn't the same as "working hard" as most people know it. It's doubtful that Lloyd Blankfein or David Zaslav "works harder" than the normal normal cement mason or over-the-road truck driver.

one solid metric of "who works harder" is hours/week
zardos thinks 36-40 hrs/wk is on the low end of hrs worked/wk for
highly successful people

What have lower estate tax rates done?

The estate tax fell from 70% to 55% and several years later fell further to 45%. The share of U.S. income for the bottom 95% of tax filers fell from about 80% to 63%.

A smaller and smaller share of income for 95% of consumers does not bode well for a consumer driven economy.

Can one protect the consumer income necessary to sustain a consumer driven economy?

Don’t let a billion estate happen in the first place. Tax income over $10 million at a 70% marginal rate. Next, tax the estate amount above $20 million at 77%.

High tax rates are not pretty, but neither is a dying economy.

77%? What’s the reasoning behind that rather oddly precise number?

The fed taxed estates at 77% from 1941 through 1976.

The numbers on the estate don't matter; they're completely fake. The loopholes in the estate tax code (structuring payments as insurance, use of trusts, etc) are so prevalent and well-used among the wealthy that all we are left with is a tax penalty for inadequate estate planning.

(The best way to fix inequality, if we collectively agree it's a problem needing a fix, is to close every last loophole and have an estate tax at all. The number on it would probably generate income at a lot lower numbers than those, even.

As an aside, people who rent their homes also pay property taxes.
The property owner makes the property tax payment, but the funds used to pay the property tax come from the the tenants' rent. Assuming property taxes were reduced to zero, it's theoretically possible landlords would capture some (or all) of the savings. However, since the rental real estate market is fairly efficient in most areas, it seems more likely that a significant and universal reduction in landlords' operating costs would lead to lower rents. This is true of both residential and commercial properties.

An estate tax is not a wealth tax. It is a tax on transferring assets or spending on one's heirs. Wealth is a stock. Inheritance is a flow.

yeet and yet
economists told us gentle readurs for decades
that most of our wealth is our house which is an asset
a house is not a stock

the sociologists define wealth one way when we own it
but define wealth a different way when they wanna tax it
I am what I am
that is a tautology

"That is a brand of pessimism which Americans voters have not often rewarded."

It does seem an odd strategy, this attempt by those announcing a run for the Democratic nomination to promote America is now Malais(ia).

Certainly seems to be doubling down on "The New Normal" promoted during the last Democrat administration.

Trump was about as pessimistic as you could get talking about how Obama had destroyed the country. Now the Dems are doing the same.
Trump has Made Pessimism Great Again

we know this one
there is pessimism as political theatre& this is what you are referring to
and then there are pessimistic ideologies/policies
you wanna help the middle class
11 hours
we give up
real/not real/is offerman actually a robot ?

My theory is that it is largely punishment driven, hence Coulter's backing of a 70% wealth tax on those who disagree with her about brown people moving here.

So is the opposition to a wealth tax also "punishment" by the wealthy and their spokesmen against people who disagree with them on public policy and with their disproportionate influence over public policy through their wealth?

Did Libertarian intellectuals pursue tax cuts because of similar resentments towards the poor and middle class?

Property taxes where I live (Chicago area) are notoriously susceptible to corruption -- a main engine of political graft is politicians running law firms that appeal property tax assessments. And these are property taxes, where there are usually comparables in some form.

A wealth tax, with the problems of assessment Tyler notes, is going to be even more subject to corruption.

So, if we want to employ lots more lawyers, and provide more opportunity for political corruption, a wealth tax is definitely a good way to go.

1. May we call this proposed tax on wealth a "Golden Goose" tax?

2. If one assumes one of the purposes of money is to maintain a store of value, then the failure here is not that capital gains are not indexed to inflation but inflation itself.

3. In any case, taxing capital gains with no provision for escaping this tax if one rolls over one investment into another (instead of using the gains for consumption) is an obvious market distortion, as it encourages people to keep their funds in under-performing investments.

I agree with all of this, particularly 3.

Government knows that confiscating money from people who perform certain actions tends to discourage these actions. That is why, in motoring, there are speeding fines and parking fines.

The argument seems to boil down to -people don't actively hate the rich, and -new taxes are bad politics. However, wealth taxes raise a lot of money, so what would the politics of a new wealth tax on the super-rich coupled with a middle class tax cut? A wealth tax might not be the most exciting policy, but it's probably the most exciting policy that raises revenue.

This column is a joke. The wealth tax recently polled 61-20, including support from 50% of Republicans(!).

Tyler ought to re-examine his flimsy pundit arguments. People are just envious of their neighbours, not angry at billionaires for cheating the system? Americans are against the government raising any more revenue, even for widely popular projects? Is this the best you've got?

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