Saez and @gabriel_zucman are also way off on how much revenue wealth taxation will deliver, a point we’ve made in the past. washingtonpost.com/opinions/2019/…
The SZ revenue estimates are overstatements by a factor of 2 or more. First, as work by Matt Smith, @omzidar, and Eric Zwick shows, SZ overstate the wealth of those with more than $50M by a wide margin.
2nd, experience w the estate tax demonstrates that this kind of tax is very hard to enforce. Wealth can be spread among family members, it can be mis-valued where there are not liquid markets, and it can be given to charity. All of this would happen if a wealth tax was introduced
3rd, it is absurd to assume, as SZ do, that the wealth tax can be immediately implemented.
They also assume, implausibly, that nominal GDP will grow at 5.5 percent mis-citing the CBO. In fact, the CBO has a much more modest 4 percent projection.
If, as is conservative, SZ overstate high-end wealth by 1/3, compliance by 1/3 (which assumes their wealth tax is far better collected than estate tax) & one corrects their errors in computing a 10-year projection, the right revenue estimate is less than half the one they provide
It is demagogic to say that a wealth tax has no incentive effects because it is only levied at a 2 or 3 percent rate. Judged as a tax on income it can easily lead to rates over 100 percent.
Think of investors that pay less than a 2-percent interest rate, or those who lose money on their investments, or those who are already paying corporate taxes, dividend taxes and capital gains on their assets.
This point is reinforced by the observation that wealth taxes do not share risk as income taxes do, in part because there is no provision for loss offsets when assets go down in value.
SZ cite the property tax on homeowners as an example of a successful wealth tax. They do not point out that the imputed rent on homes is not taxed, even though mortgage interest can be deducted, so the property tax fills a tax gap.
Nor do they acknowledge that you can get credit lines against homes; but not private businesses.
SZ treat the era of 90 percent top income tax rates as a golden age. They do not acknowledge that serious researchers think this was beyond the revenue maximizing rate......
...or that through closely-held corps, depletion allowances, other shelters, and egregious payments of non-taxable compensation this was an era of massive avoidance, which helps explain why the income distribution looks egalitarian.
Wealth taxes have the additional problem in the United States that they are likely to be found unconstitutional.
While the wealth tax currently polls fairly well, I am struck that in last half century, the economics of candidates Warren & Sanders most resembles George McGovern, who later regretted his anti-business tone and lost badly to Nixon, the past President who most resembles Trump.
