Thread by @LHSummers

Last week, I had the chance to debate Emmanuel Saez at the @PIIE. Here is a video of the discussion and a series of tweets explaining my disagreements with Saez and Zucman’s approach; and proposing alternatives to a singular focus on wealth taxation.

Lack of income growth and opportunity for middle class families is a fundamental problem in American society. So too is rising inequality.

The role of monied interests in shaping policy is also a crucial political problem. Wealth taxation is not an effective approach to any of these problems.

First, I have carefully studied the Twitter conversations regarding Saez and Zucman’s (SZ) work. I find their critics largely convincing. Some specific issues:

Since 1950 we have greatly expanded progressive social insurance largely funded by payroll levies. SZ treat this as the tax system becoming more regressive when obviously government policy has become more redistribtional if, as is proper, you include benefits.

SZ make much of a set of claims regarding the Forbes 400 and particularly the low taxes they paid in 2018. How can they know? The Forbes 400 in most cases only filed their taxes in the last week. All their claims about the Forbes 400 are made with no reference to actual tax data.

Wealth inequality is a highly problematic basis for judging a society. Consider a country that put in place super effective social insurance against retirement, disability & health expenses. Middle class people would run their “standby assets” down & wealth inequality would go up

A further issue is that when wealth goes up because of lower discount factors (eg a higher stock market PE ratio), sustainable income or spending does not change, so it's questionable whether wealth holders are better off. Those seeking to grow spending indefinitely are worse off

The argument that a wealth tax will usefully address the excess role of the rich influencing politics is very weak. To be sure, there is a very real problem, but the wealth tax will not be remotely effective in addressing it.

It costs $5 million a year at maximum to be a central player in either party. This will be easily affordable for the rich even with a wealth tax.

Very few of the problems today involve personal contributions of the wealthy. They instead involve corporate contributions or large groups: e.g., the NRA, the insurance industry, sugar producers…

Forcing the wealthy to spend could boomerang. If the wealth tax had been in place a century ago, we would have had more anti-semitism from Henry Ford and a smaller Ford Foundation today.

At our @PIIE discussion, Saez was unable to provide even a single example of a specific instance of excessive political power that the wealth tax would address.