Wojciech Kopczuk on wealth taxation

His comment on Saez and Zucman is one of the best pieces of policy economics I have read in the last few years.  Many of the main arguments have been debated on Twitter, or expressed by Larry Summers, so here I will stick with a few side points that have not received full attention.

First, if you hate monopoly rents, excess IP income, and the like, you should not be in love with a wealth tax, at least not in the steady state!  A wealth tax hits the base and the safe rate of return as well.  Ideally the anti-monopoly crowd should most of all favor higher taxes on net income.  Not taxes on wealth.

Second, a wealth tax will encourage the shifting of much more production into non-profit institutions, or perhaps even into nationalizations of industry.  Lots of hospitals would switch back to the not-for-profit form, not obviously a beneficial development in my view.

As a side note, many more non-profits would hire famous musical acts to play at their donor galas.  The quality of champagne and cheese at those events will rise too.  There would be much more pressure on non-profits to create private (non-taxed) benefits for their donors.  I predict government regulation of non-profits would end up rising considerably as well, and not for the better.

Privatizing government assets such as land or spectrum would become more difficult — people would buy only at much lower prices.  So the wealth tax is a recipe for greater statism in more ways than one.

Third, under a wealth tax Jeff Bezos would have lost de facto control over Amazon some time ago.

Those are my words rather than Kopfczuk’s, do read his entire paper.

I would add one final point.  I think we are at the margin where advocacy of a wealth tax is more of a performative exercise — “we hadn’t poked rich people in the eye with this rhetorical needle yet, therefore I won’t really speak against it” — than any kind of substantive analytic debate.


First, if you hate monopoly rents, excess IP income, and the like, you should not be in love with a wealth tax, at least not in the steady state! A wealth tax hits the base and the safe rate of return as well.

The base and safe rate of return is a kind of monopoly rent to wealth subsidized by the government and taxpayers.

If a use fee i.e. a wealth tax for property rights protection to a particular stock of wealth is not charged, then those property rights are paid for by taxing income and everything else i.e. by taxing economic activity. Moreover, if the government is providing the basic "risk free" safe rate of return on that wealth via government bonds and its taxing authority, the government is subsidizing that wealth even further. It's pure parasitism on economic activity.

Property taxes are in wide use in states. So a federal property tax has precedent.

What user fees?
About a half point on a central bank account as a monopsony fee.
A Federal land tax?
A a good old fashioned staged government default to tax money itself.

Verily, a national property tax, national sales tax that excludes food and medicine, tariffs on imports, heavier fuels taxes, pollution taxes... That's the way to go...

Still, interesting to ponder that the top federal tax rate was 90% through the 1950s and 1960s even during periods when the GOP the Congress. America prospered back then quite a bit.

I think the operating manttra was, "invest it or lose it."

Congress in July 1798 imposed $2 million in new taxes on real estate and slaves, apportioned among the states according to the requirements of the Constitution. It was the first (and only) such federal tax.

I think we are at the margin where advocacy of a wealth tax is more of a performative exercise

It's the rhetorical equivalent of "Mexico will pay for the Wall!" but taken far more seriously by the chattering classes.

The wealth tax proponents, at least on the political side, have been quite forthright that the point is not to raise revenue and, by extension, not the result of "any kind of substantive analytic debate". The point is to express hatred of the wealthy --- they've actually said explicitly that it's immoral for billionaires to exist and "Every Billionaire is a Policy Failure."

Now, some left-wing academics are trying to backfill a faux-intellectual justification, just as some "national conservatives" have tried to backfill a faux-intellectual framework for Trumpism.

Why do you use the word hatred? If some governor was proposing reigning in state employee pensions, could it be he simply feels they are getting too good of a deal and not that he hates them?

You can think the rich are getting too good of a deal without hating them.

If someone said that it's immoral for people of a certain race to exist, I think that would qualify as hate. If someone said, "Every immigrant is a policy failure," I think that would qualify as xenophobic.

People who support wealth taxes mostly also support expansion of the non-profit sector, nationalizations, no privatizations, greater statism, and less power for tech moguls.

So to them your arguments against sound like arguments in favor.

Tyler's point about champagne and cheese is that non-profits will be used as a tax dodge. His point may have been made too subtly, however, for those too enamored by the term "non-profit" or, really, too antagonistic towards the term "profit".

To be more explicit, billionaires can establish non-profits to shield their wealth from the wealth tax. Then, that non-profit can fund non-taxable consumption --- "champagne and cheese" --- as well as pay "salaries" to the billionaires' family to run the non-profit. (The salaries will be taxable but not the saving/investment of the non-profit, which is what the wealth tax is supposed to attack.) These tax maneuvers will likely spawn government regulation as countermeasures, which will have the unintended effect of making it more difficult for non-profits to achieve actual philanthropic results. Presumably, those that like non-profits for philanthropic, rather than anti-profit, reasons would not welcome these consequences.

"Third, under a wealth tax Jeff Bezos would have lost de facto control over Amazon some time ago."

Unless he donated Amazon stock to the Jeff Bezos Foundation and put his trusted family and friends in charge of running that Foundation.

+1 A good description of many non profits.

IKEA is owned by the non-profit Stichting Ingka Foundation, which holds assets comparable to the Gates Foundation but donates relatively little to charitable causes.

As it happens, it was originally set up because the Swedish government got a bit too greedy, slobbering and handsy back in the glorious 70s.

However, the two foundations likely have different stated purposes so a direct comparison may not be relevant. American trusts and foundations seem to be basically slush funds.

non-profits will be used as a tax dodge

Imagine that! Next you'll tell me foundations are the same.

Can somebody remind me what society looked like when fortunes were drastically lower than they are currently, relative to median wealth? Say, circa 1960? I wasn't alive, but from all the prognostication I've read here I imagine it must have been a dystopian post-apocalyptic nightmare. Scary!

By contrast, I assume that the last time we had such a massive wealth disparity, say, at the end of the 19th century, must have been a magical time to be alive.

In 1960, technology was much cruder, and access to information far more limited. Health care was significantly more rudimentary, and environmental protection barely existed.

Ah, so it was in the past, thanks for clarifying

Well my relatives were having crosses burnt into their yards, were systematically excluded from professions and educational opportunities, and of course had this whole little thing about voting rights.

Amazingly in my ancestral town the middle class ruled the place ... and used their voting power to ensure that my relatives were kept in their place.

And what does your ancestral town look like today?

"First, if you hate monopoly rents, excess IP income, and the like, you should not be in love with a wealth tax, at least not in the steady state!  A wealth tax hits the base and the safe rate of return as well.  Ideally the anti-monopoly crowd should most of all favor higher taxes on net income.  Not taxes on wealth."

Sorry but can you (or anyone really) unpack this a bit? I don't quite understand how a wealth tax hits the base (base return? or tax base?. And why would this be different in a non-steady state?

My Modest Proposal for a Wealth Tax: Maximum Taxes on the least productive activities: 55% Corporate Tax on Corporations who live off TAXPAYER Funded Contracts;. 10% Tax on Corporations who Value & Serve Customers in the Real World/ Private Sector:. Increasing Productivity/Growth (minimizing growth disincentivs) Raising Tax Revenue...(although our Federal Govt doesn't need more) and limiting the Waste of Taxpayer Money... any problems with this Process...YES... TONS...BUT STILL Significantly Better than not doing it... similar to CHURCHILL/Others Wise Snipit....Democracy is worst form of Government...except all of the Others... something today's Snowflakes/Overage College Students won't accept....the main questtion/consideration is:. WHAT IS THE ALTERATIVE??

Cowen: "Ideally the anti-monopoly crowd should most of all favor higher taxes on net income. Not taxes on wealth." Unfortunately, the horse has left the barn: the current high level of wealth inequality is what greatly increases the risk of financial and economic instability. Higher income tax rates on high incomes might have mitigated the climb to the current high level of wealth inequality but, like I indicated, the horse has left the barn. I oppose a wealth tax for most of the reasons Cowen opposes the tax. My concern, however, is that wealth inequality will produce another crisis, and I am not as confident as Cowen (?) that we have the tools, or the political will, to deal with it. And wealth inequality will continue to grow, as rising asset prices has become the path to prosperity.

Roughly, democracy distributes power uniformly across adults, capitalism distributes power by wealth. Wealth inequality is a measure of the tension between the two. The wealth tax is a horribly flawed means of reducing that tension.
It would be great if the adults in the room could come up with a more harmonious way to restore the democracy/capitalism balance, but they are too busy arguing that inequality isn't actually a problem.

The wealth inequality already has started another crisis -- see the IMF's paper regarding $19 TRILLION of corporate debt being at risk if we have a downturn half the size of 2008. Private equity funds and corporations have lathered the debt onto the balance sheet of companies with no way of paying back the principal amount. As soon as lending to private equity begins to slow, the merry-go-round of private equity buying companies to load them with debt and then extract the debt will come to a halt.

We, good men and women, are fucked.

More of a Question:. Federal & State Spending is over 6 TRILLION Dollars: the Middle Class gets 80%+ of these "assets/incomes"....are these TRILLIONS of Guaranteed INCOMES/ASSETS calculated in all these Statements that the Top 1% Own 70% of Nations Wealth (or whatever % is thrown about)?? Middle Class ENTITLEMENTS are the nearest thing to a GUARANTEE on Planet Earth....Social Security, Medicare, Medicaid , $750 Billion Defense Budget (yes a middle Class Income Project); then add on the TRILLIONS in STATE (California , 49 other States), 80%+ Middle Class Spending/Programs:. Which Income CLASS owns all the Wealth??.

There is no reason to exclude non-profits legal persons from the wealth tax. In fact, the Swiss wealth tax includes them all. That way, it provides an incentive to have fewer layers of indirections through shell companies and you cannot circumvent it by putting your wealth into a foundation or so.

How do you know that the Switzerland wealth tax does not "lead to such results"? Also, spend a few minutes researching how the Swiss law defines wealth.

For an economist he writes uncommonly well.

Save for this: "The data that underlies the revenue and progressivity impacts of the proposal has large margins of errors." It is a case where he really should have reminded himself that "data" is plural. (I've given up denouncing the abuse of "impact": only someone with a physics education would notice it nowadays.)

Anyway, do I understand correctly that his point is essentially that there are likely to be far better ways of achieving the (assumed) desired economic ends than a wealth tax?

If I were a gazillionaire I might wonder about Squaw Warren's arithmetic. Suppose, for simplicity, that my capital is not going to grow. A 6% p.a. wealth tax will halve the capital in about 12 years. I might find it more attractive to bugger off and renounce US citizenship and just pay the corresponding 40% penalty as slowly as my lawyers could make possible.

The usage that grates on my physics educated ear is “optics”, where used to mean political or social appearance or acceptability.

I agree. Where I come from "optics" are also the little gadgets used in bars to measure out servings of spirits, so I am twice wrong-footed by the fashionable use.

The "desired economic ends" of the Warren wealth tax are made perfectly clear by her new mug, which reads: Billionaire tears. The purpose of the wealth tax is to punish the ultra-wealthy until they are no longer ultra-wealthy. And then to move on to those who take their place in the top .00001%. After all, the money flows not directly to "the poor," but first has to pass through the least efficient administrative bureaucracy on the planet, leaving essentially nothing for the poor, health care, or clean (non-nuclear) energy. Somehow I suspect Warren's household net worth of a measly 12M or so will only increase while she comes after what's left of the middle class.

I have noticed that everyone who seems to approve of the idea also seems not to have considered Consequences.

Great points, Tyler. The GOP should marshals these arguments and counter-proposes much higher taxes on income net of savings/reinvestment (a progressive consumption tax) high enough to eliminate the structural deficit.

Here is what the author favors instead:

"The tax is unlikely to fare well on administrative grounds and, in my view, the economic case for it over a mix of capital income and estate taxation is weak. A much more productive effort would be to focus on feasible and necessary fixes of the existing U.S. taxation. My short list of such changes includes the removal of step-up in basis at death; modification of tax treatment of charity (including the ability to transfer unrealized capital gains); moving away from realization and toward accrual taxation, in particular by considering mark-to-market of capital gains where feasible; and reversal of preferences for pass-through businesses introduced in 2017."

These would move the system towards progressive consumption taxation

Lots of hospitals would switch back to the not-for-profit form, not obviously a beneficial development in my view.

Over 80% are non-profit now. Why do you feel this would matter?

If there has to be a policy of envy (i.e. it is wrong that there are some very rich people) then consumption taxes are surely the way to go. A man who lived simply and spent only $50k per year and died at 75 with $100m in the bank has surely earned less envy than a man who dies at 75 with nothing in the bank but spent 100k per year.

"consumption taxes": specifically sumptuary taxes, perhaps. A 500% tax on private jets and helicopters, on any house after your second, on trophy wives, ...

Hold on, it might have to stop before that.

So an expanse of what Warren Meyer of Coyote Blog dubbed "Lifestyle Charities" back in 2016. They exist mostly to provide social "fundraising" events for wealthy donors.

"For decades I have observed an abuse of charities that I am not sure has a name. I call it the "lifestyle" charity or non-profit. These are charities more known for the glittering fundraisers than their actual charitable works, and are often typified by having only a tiny percentage of their total budget flowing to projects that actually help anyone except their administrators. "


And what, pray tell, is the Straussian take?

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