I am seeing more people argue for a wealth tax, but I have yet to see them address the core issues.
Let’s put aside all of the “big picture what do you think about bigger government issues,” where I do not expect agreement to be easy, and focus on two simple matters of exposition.
First, let’s say a proponent argues for a “two percent wealth tax.” In the United States, most of that tax is likely to fall on accumulated capital gains. I then would like to know what is the implied tax rate on capital gains under such a system. Hint: you do not just add “two” to the current capital gains rate, since a given capital gain is diminished by two percent each year, not just once. The final net tax rate will depend on the rate of discount, but since marginal funds seem to be going into negative nominal yield securities, arguably that discount rate should be pretty low, shall we say zero?
I played around with a bunch of numbers, and across 20-30 year periods came up with total net capital gains tax rates in the 50 to 70 percent range, noting that the current 20 percent long-term base rate for high earners is applied to nominal not real gains.
Has any wealthy country sustained such a high net real capital gains rate?
Of course, rhetorically a “2 percent tax on wealth” sounds much better than say “a 62 percent tax rate on long-term capital gains.” Don’t be fooled!
To be clear, I am not sure I have found the right numerical range. Nonetheless I view finding the right estimates to be the responsibility of the wealth tax advocates. I am simply pointing out that the correct numerical range might be quite high.
(As a side note, what would happen to the value of a $1 million painting that is supposed to last 100 years, as indeed most paintings with that value do? Are so many arts institutions — say the auction houses — to be bankrupted overnight? Which other long-term asset values would take huge spills and what would be the social consequences of that?)
Second, do you have any argument why a higher wealth tax would be better than a higher tax on consumption? The latter also could fund the government programs you have in mind. And please make sure this discussion focuses on tax incidence, incidence, and then incidence, rather than just citing the immediate application of the tax burden.
If you see a case for a wealth tax that does not directly address those questions, ask for more! Because the case for a wealth tax has in fact not yet been attempted, much less made.