Friday, January 10, 2020

Wealth and Taxes, Part V

Wealth and Taxes Part V -- it's all about politics

(This is Part V of a series. See the overview for a summary of the other four)

So if wealth is not the answer to "how big is inequality," by any sensible measure, and if the wealth tax is not the answer to "what's the best way to raise money, or to redistribute income,"  if in fact wealth and wealth taxes are terrible answers to these questions, what is the question to which the wealth tax is the answer, and alarmist measures of wealth inequality to buttress it the pathway?

It's right there clear as day in Saez and Zucman's  Jan 22 2019 New York Times Oped
Their [high marginal tax rates] root justification is not about collecting revenue...high tax rates for sky-high incomes do not aim at funding Medicare for All. They aim at preventing an oligarchic drift that, if left unaddressed, will continue undermining the social compact and risk killing democracy.
An extreme concentration of wealth means an extreme concentration of economic and political power… Democracy or plutocracy: That is, fundamentally, what top tax rates are about. 
Well, now we have at least an honest question to which confiscatory taxation is the answer.
  • The point of the wealth tax is to destroy the supposed political power of billionaires by destroying their wealth. 
We could have saved a lot of time and effort if we had just started there and not wasted time on phony economic arguments!

Economic distortions are a feature not a bug. In optimal taxation theory we try to find taxes that raise revenue and don't kill the golden goose that lays eggs. The whole point here is to kill the golden goose.
  • The wealth tax is successful when it raises no revenue, when it destroys the wealth subject to tax.  
Even more clearly:
That few people [in the 1960s] faced the 90 percent top tax rates was not a bug; it was the feature that caused sky-high incomes to largely disappear. 
Is your jaw dropping yet?

(The quote is also a... misleading statement. 90 percent tax rates made reported incomes disappear and tax shelters explode.)

In optimal tax theory, the point is to get resources without disincentives -- to tax the rich without discouraging people from becoming rich, so they can get rich and pay the taxes. Here the point is exactly the opposite. They want to tax billionaires to the point that there are no billionaires.

  • The point of the wealth tax is to destroy the incentive to become rich. 

Why? If you view all wealth as ill-gotten, basically criminal, as perversions of democracy then you want to destroy the incentive to engage in those nefarious activities.

Well, no wonder we've been arguing and getting nowhere! As usual we're starting from different premises.

Saez and Zucman are not particularly consistent, arguing in many other places that the wealth tax will raise lots of revenue rather than just destroy wealth. They advise Senator Warren who has made big revenues a central part of her policy agenda. She wants the wealth tax precisely to fund Medicare for all, which Saez and Zucman just said is not the point. I find that sort of inconsistency very annoying, and telling of a political agenda which they're not willing to state honestly in many circles.
  • Will the real wealth tax please stand up? Is it supposed to raise a lot of revenue, or is it supposed to get rid of billionaires, after which it will raise no revenue? Make up your minds, please.  
An amusing aside
"The view that excessive income concentration corrodes the social contract has deep roots in America — a country founded, in part, in reaction against the highly unequal, aristocratic Europe of the 18th century." 
I guess I can forgive two Frenchmen for being a little foggy on American history. Our revolution had a lot to do with paying British taxes, not guillotining the aristocracy. In modern language, Americans wanted opportunity, not redistribution. The Boston Tea Party was not a demand that Britain tax its aristocrats, either to send money instead of tea, or just to tax them out of existence because "inequality" was galling the Americans.  The American Revolution was run by the wealthiest in this country, and was if anything about keeping property, including slaves.

Do billionaires really run the country?

We have left economics long ago, but does this idea make any sense? This is a mantra of the extreme left. John Cassidy, writing in the New Yorker to cheer these ideas
Meanwhile, the Citizens United ruling, the rise of super pacs, and the lurch to the right of the Republican Party and, of course, the Trump Presidency have demonstrated the growing political power of the billionaire class. 
I'm scratching my head here. Just what billionaires are they worried about? Tom Steyer? Michael Bloomberg? George Soros? Bill Gates, devoting his billions to global charities? The Business Roundtable CEOs who endorsed "stakeholder capitalism" as fast as you can say "Warren just passed Biden in the polls?" The readers of the New Yorker? (Look at their ads and the NYT Style section. They don't run ads like that on Fox News!) Pete Buttigieg's wine-cave buddies? It strikes me that the billionaires in this country are by and large achingly progressive coastal elites. (see Ryan Bourne at Cato "Has Wealth Inequality Eroded U.S. Democracy" for numbers showing political preferences of the very rich.)

That billionaires bought Trump the election is simply untrue. Chris Edwards and Ryan Bourne:
not one CEO in the Fortune 100 had donated to Trump’s election campaign by September 2016. His victory did not stem from influence by the wealthy but more from grassroots opposition to wealthy coastal elites. 
The money was on Hilary Clinton, who spent nearly double what Trump did. I perceived Clinton, famous for Goldman-Sachs speeches, as just the kind of candidate one who dislike cronyism should worry about.

Well, dark conspiracy theories are hard to disprove. But at least now you know what worldview leads, logically (at last) from its premises to a wealth tax. You can decide if you buy these premises. It has, by admission, nothing to do with revenue, and little to do with economics.

The argument goes on that billionaires have too much "economic power." Progressives are great with language, and you usually see wealth "controlled" by the 1% not just "owned," or heaven forbid "earned" by the 1%. I will leave to your imaginations just what that means.  If you have a billion dollars in treasury bills and the Vanguard index fund, just what "power" does that give you?

A wealth tax would also be a dandy way to bring billionaires in, with their tax lawyers, accountants, lobbyists, and favorite congresspeople for a once-a-year trip to the confessional, to discuss how the IRS will value various complex entities, along with their twitter accounts, charitable and campaign contributions, and just how their businesses are doing on advancing the green new deal and diversity and equity programs. As long as we are scratching our heads trying to find the question to which the wealth tax is the answer, this is a pretty good one.

Off with their heads!

The world-view is expressed even more clearly by Bernie Sanders:

or perhaps George Bernard Shaw
“The more I see of the moneyed classes, the more I understand the guillotine.”
The point really is decapitation. "Inequality"  is (Saez and Zucman) such a "crisis" that we are better off just getting rid of billionaires, even if that means throwing all their wealth and the businesses that provide their income in the ocean. While it is often pointed out that any concern with inequality means are better off if a rich person loses $100 and a poor person loses $1, this is a pretty extreme version of that view.

Ill-gotten wealth 

A second argument lies behind the wealth tax: it's all ill-gotten money, or luck. Zucman and Saez again
progressive income taxation... restrains all exorbitant incomes equally, whether they derive from exploiting monopoly power, new financial products, sheer luck or anything else…
Can you think of a few anything elses' that are missing here?

Robert Reich opines that there are only five ways to make a billion dollars
" exploit a monopoly;...get insider information unavailable to other investors,... buy off politicians,...extort big investors,...get the money from rich parents or relatives."
Just who made their iPhones, I'd like to know?

Edwards and Bourne document much more extensively a view more consistent with my reading of the facts,
Most of today’s wealthy are business people who built their fortunes by adding to economic growth, and some have created major innovations that benefit all of us. The share of the wealthy who inherited their fortunes has sharply declined in recent decades
In particular, the Piketty story of centuries old inherited wealth growing at r>g is a fable. The rich are not getting richer. All of today's rich are nouveau. At best, this generation's self-made internet gazilloinaires and hedge fund managers made more money than the last generation's Waltons and bond traders.

There is an element of truth, as in all fables. Edwards and Bourne go on,
...cronyism, which refers to insiders and businesses securing narrow tax, spending, and regulatory advantages. Cronyism is one cause of wealth inequality, and it has likely increased over time as the government has grown.
The really big billionaires -- google, Facebook, apple, etc. -- unquestionably built tremendous products, and pocketed a tiny fraction of the resulting benefit. But there is a lot of cronyism and exploiting government-granted monopolies in the US economy for sure. The epi-pen story is not isolated. Banking, courtesy of Dodd-Frank barriers to entry. Health care. We can grant that Vladimir Putin did not get wealthy from an innovative tech startup.

But to the extent that wealth is amassed by exploiting regulations, regulatory barriers to entry, special favors from the government, tax deals, is more government really the answer? How is it that the politically connected super wealthy can get massive breaks from corporate taxes (how Reich thinks the Koch brothers made their money), but they won't get, well, massive breaks from the wealth tax? If too much government is the problem, inviting cronies to lobby for government to use its power on their behalf, just how is more government the answer? Bloody Marys don't work for a hangover.

Well, at least now we know what we're talking about. If you live on the Saez, Zucman, Reich planet, and you think destroying billionaires' wealth won't ruin your business too or deny you the benefits of economic growth, and you think that their politicians can operate a confiscatory tax regime without opening the same crony Pandora's box that they claim cause the problem in the first place, you like the wealth tax.

At least they should stop the pretense this has anything to do with revenue, economics,  optimal taxation, expanding economic opportunity for the lower end of America, and so forth. As Warren advisers, they might want to inform her before the next debate, ah, this is not about raising revenue. And we should stop falling for this trap as well, and wasting our time on part I-IV arguments.

Bottom line

I want to end on  two positive notes. I started all this with a discussion of  Smith, Owen, and Zwick. As we saw in part I it cleans up some of the egregious thumbs on scale in Saez and Zucman, and taught me just how fraught the whole "capitalization" idea to measure wealth is. It's a good example of an industry of papers that quickly tore apart the Saez Zucman numbers.

But I fault Smith, Owen and Zwick, and most of their fellows, for meekly taking the questions at face value. Their paper  "builds on the pioneering work of Saez and Zucman (2016)." They "follow Saez and Zucman (2016) in defining wealth." They calculate static revenues from a wealth tax. But we just found out that this was all a red herring as the point is to destroy wealth not tax it. They offer nothing to question the idea that if this definition of "wealth" has become more unequal, "policy" should do something about it.   One can at least point to a literature, such as Edwards and Ryan, that do question the question, or Saez and Zucman's own opeds that suggest a very different set of questions.

Thus, I fault this paper, and its companions, for taking the questions at face value. You see the  agenda.  You’re being suckered into a rope-a-dope. The right response is that this is the wrong question, an utterly silly question, and one can at least say that.

This series is really about conciliation. Unlike other economists, I don't want to presume we're all asking the same question and Saez and Zucman are dummies. I want to respect that they are smart, so if they are coming to a different answer, it must be because they have a different question. In today's post, we now have a set of world views that does at last have some logic, which one can debate. In that spirit, I close with a Saez quote which which I agree completely:
"My sense is really that the public will favor more progressive taxation only if it is convinced that top income gains are detrimental to economic growth of the 99%, and that taxation can ameliorate this. In America, people do not have a strong view against inequality per se, as long as inequality is fair. And what does fair mean? As an economist, you would say fair means that individual income and wealth reflect the value of what people produce or otherwise contribute to the economic system. This is why distinguishing between the standard supply side scenario versus the rent-seeking scenario is so important." 
Amen, brother Saez. And, if rent-seeking is the problem, explain to us how an enormous wealth tax will not attract the same rent-seekers who game the obscene income, corporate, and estate taxes today.

In the end, this is all about power. Sure, let's call it "economic power" as well as political power. Saez and Zucman want to transfer power from private hands to the government, and eliminate a potential source of power, a source of competition to the incumbent government.

Whether that is a good idea depends essentially on your view of just how bad private vs. government power is. I'm a (many adjectives) libertarian, and I see even in the worst excesses of private power some discipline of competition or potential competition restraining it. I see most private power as given to the powerful by government in exchange for political support, which is really an expression of government power to suppress that competition.  The defining character of government power is lack of competition and a monopoly of force. The essence of Saez and Zucman is to reduce the competition for power faced by whoever runs the government.  Historically, I see the damage of extreme government power -- Soviet and Chinese Communism, German Nazism -- as orders of magnitude worse than even the worst caricatures of private power, especially of private power that does not derive ultimately from or require support from state power -- perhaps the Victorian dark satanic mills?

I presume Saez and Zucman agree they don't want to hand massive power to this administration, or a Republican Congress, or maybe even to the branch of the Democratic Party that handed out the cronyist goodies to billionaires they decry. So the argument must be that the "good politicians" will take over, will stay in power, will arrange never to hand the reins to a future Trump, and this time they will not misuse a monopoly of power, made ever stronger by lack of private economic or political power to challenge it.  Just put us bien-pesants in charge and all will be well.

I'm dubious of anyone making that claim, made so often in the past. I don't favor a libertarian dictatorship either.

They claim to worry about "inequality." Many government-run states -- Cuba, say, or Soviet Russia -- had much less measured income inequality. But if this is really all about "power," we should not fail to note that those states had much more inequality of power. Stalin may not have reported a lot on his income taxes, but he essentially owned a whole country.


Chris Edwards and Ryan Bourne at Cato have a nice series on inequality issues here (study, also pdf)  here (blog post). Ryan also takes on the final question that this series builds to, Has wealth inequality eroded democracy?

The Saez Summers Mankiw debate is informative.  See also Summers and Natasha Sarin on the wealth tax. If you're following politics, this really is about the soul of the Democratic Party and its economic views, Summers vs. Saez-Zucman as it is about Biden vs. Warren, Sanders, AOC.

My Hoover colleague David Henderson wrote a nice blog post on the topic, including coverage of the  debate.
"Emmanuel Saez... made his case for a tax on wealth and claimed that the wealthy have disproportionate influence on economic policy. In a segment that is beautiful to see (from about the 1:07:00 point to the 1:09:30  in this forum), Larry Summers challenged Saez to give an example where reducing wealthy people’s wealth by 20 percent would produce better political, social, or cultural decisions. Summers to Saez: “You’ve been making this argument for years. Do you have one example?” Saez didn’t. Summers went on to make the point that very wealthy people can have large influence by spending a trivial percentage of their wealth. Even heavy taxes on wealth would leave them quite wealthy."
"In his earlier presentation on the panel, Summers made another important point. He considered three activities that wealthy people engage in.  Activity A is continuing to invest it productively. Activity B is consuming it—for  example, by hiring a big jet and taking their friends to a nice resort. Activity C is donating it to causes and, if the causes are political, having even larger influence on political causes than they have now. Both B and C are ways to avoid a tax on wealth; A is not."
Interestingly, in the above oped, Saez did have examples, like the interesting claim that Russia became oligarchic and Japan did not (?) because Russia wasn't taxing enough. I would have been interested to hear Larry's response to that one.

From Nihai Krishan in the Washington Examiner
Larry Summers... has called Saez and Zucman’s estimates for the revenues generated by the wealth tax “naively high.” One possibility is that, instead of paying the tax, the ├╝ber-wealthy would strategically give their money away to charities, reducing the tax base. "It seems important to account for the fact that the wealthy (and their tax planners) will inevitably be motivated to limit tax liability," Summers and another professor argued in an opinion piece in the Washington Post
Larry and the rest of us need to read the NYT oped and understand that low revenue is the point. Of course, Saez and Zucman could be more consistent about that.

The prevalence of non-profits as a tax-avoidance device, and their increasingly political nature, is a topic worth exploring. There is a reason every billionaire and sports star has a charity, that among other things employs his or her relatives and associates.

Gerald Auten and David Spilinter's analysis is an important recent piece in the data discussion.
"Top income share estimates based only on individual tax returns, such as Piketty and Saez (2003), are biased by tax-base changes, major social changes, and missing income sources.... Our results suggest that top income shares are lower than other tax-based estimates, and since the early 1960s, increasing government transfers and tax progressivity resulted in little change in after-tax top income shares."
Chris Edwards passed along a number of good links. Like me, Chris is worried about cronyism, and has good opeds  here and here  acknowledging that "the democrats are partially right." He points to the logical fallacy though -- just because some people earned money this way does not mean that all rich people did. And, we can agree on the disease but disagree on the treatment. If a government running a complex tax system open to cronyism is the problem, it does not follow that more government running an even more complex tax system is the answer. Chris also has a nice analysis of the wealth and capital income taxes and Alan Reynolds on tax elasticities

Update: Thanks to commenters and correspondents who fixed some little errors.

A good friend passes on a lovely quip:  "If ever there was an example of policy-based evidence-making, the case for the wealth tax is it."


  1. See Richard Wrangham, The Goodness Paradox, for the evolutionary origin of this political position. The roots go deep.

  2. Your lost source:

  3. Part V and included references points out the problems and true”political” purpose of a wealth tax, which is morally, economically, and Constitutionally unsound. A system that assumes wealth at a certain level must be ill-gotten, that a tax can fairly be targeted to a small specific group, and that this new system would avoid prior problems (evasion,loopholes,cronyism etc.) seems naive and/or ideologically blinded.

  4. Am I the only one who found Saez's quote at the end and the one at the beginning as completely contradictory? In the latter, he's concerned about the types of billionaires. In the former he is agnostic about the types. Damn them all!

    It's also frightening that this has become the zeitgeist among Uber leftists. As sad as the xenophobia is among Uber rightists.

  5. Well. I read all five parts.

    I'm no senior fellow at the Hoover Institution, but here's my stab and thoughts on it all.

    In a strange twist of irony, it seems strange to formulate an economic guillotine to save capitalism from itself; after all, decapitation (pun intended) tends to be permanent.

    It's certainly a normative question: What to *do* with wealth? Wealth is both property and a resource at the same time. After some mild contemplation, wealth is necessary, but it is not inherently evil (look at Bill Gates as an example). NPR ran a piece last year having to do with philanthrocapitalism: the basic idea is that billionaires and their ilk may do charitable stuff, but it's based on their own preferences of what they would like to see happen. They use the tax laws to mitigate their tax burden, but they also have their pet projects, which may not align with certain political ideologies. Social Security and Medicare were examples cited in which public social programs have been far more “successful” than any philanthropic project funded by billionaires. (And again – Gates understands what wealth can do if it is deployed properly. I remember seeing an interview some 10 or so years ago where Gates describes what he does through the Gates Foundation dwarfs in comparison to what governments have the ability to do.)
    What I am also hearing in all of this of establishing a wealth tax is that there is some idea that Paretto Improvements are out there that can be realized if only this wealth tax fueled them. Well, sounds really optimistic, doesn’t it? Measurement is a problem as Dr. Cochrane has established with measuring wealth.
    Of course the wealthy want to protect their wealth. Disincentives can cripple economies (Central Planning, anyone?)
    I think a lot of the political trench warfare when it comes to wealth taxes points to a reality that access to opportunity is what matters in the end. Without access to health, nutrition, education, knowledge, training, skills, and people, it is very difficult to build anything resembling a “life.” Again, measurement issues. However, it’s a lot easier to get access to these things if you have resources and connections (physical, human, and social capital). Fairness, again, may be a normative construct, but it is a reality that people feel, beyond just knowing cognitively. That is why these sorts of issues that revolve around the nature of rivalry and access to resources to participate IN that rivalry can cause real problems. It’s not so much Keeping Up With The Joneses, but it’s similar in nature.
    All political failures are economic in nature and vice versa. Sure, tautological, but as Dr. Cochrane references, the War for Independence was triggered by taxes, not calling for the annihilation of the aristocracy. Why did France have its issues, hmm? Or Russia in the 1900s? Even after 100 years after the end of the Civil War, the US still had issues with guaranteeing and enforcing equal access (yep, and we still do today).
    Side Reading: “Success and Luck” by Robert Frank. It’s an interesting read how winner-take-all-markets emerge and are conquered – but Frank also calls for a consumption tax at the end of his book. But what is really hidden in there (and I think Frank takes it as a given) that the people who start and build successful businesses isn’t just a function of luck, which leads to the next read: “The Luck Factor.” Basically, people who are optimistic, friendly, and opportunistic end up being successful. Why? One, because they have more opportunities to make valuable connections, and two, because it takes people to build a business or an institution. And, no, this is not a segue way into Marx!


    1. "I think a lot of the political trench warfare when it comes to wealth taxes points to a reality that access to opportunity is what matters in the end. "

      I used to believe this, but I don't think it accurately describes the position of their most fervent, outspoken champions. I think it really is as simple as - get rid of the super rich. Where the bolsheviks felt violence was the primary tool for the job, they probably see wealth taxes and confiscation as more benign instruments for roughly the same goal. I won't lump the two groups together, but it conjures up a strange kind of savagery that I never expected to see from two trained economists. I didn't even believe it myself till he posted the quotes. They were harrowing.

    2. Hey James,

      You may be right that is that simple -- off with their heads mentality. But, no, we're not down their rabbit hole, even if they gave a glimpse of what it looks like. And, yes, the researchers had (or still have) a mild case of insouciance it seems.

      This savagery you speak of, where does it come from, hmm? My guess it's a manifestation of jealously and rage. There are those with the Avenging Angel gene and these sorts of crusades justify their existence. And, like you say, there is a soft violence that goes on, these benign instruments you mention that achieve roughly the same goals.

      This IS a good segue way into the nature of exploitation. . .

      There was an article I ran across in the MIT Technology Review:

      Check out this interesting quote from the article:

      "'We numerically and analytically demonstrate that an exploitative relationship can be achieved despite symmetric strategy dynamics and symmetric rule of games,' they say.

      And curiously, this is a stable strategy. 'This exploitative relationship is stable, even though the exploited player, who receives a lower payoff than the exploiting player, has optimized their own strategy,' they say."

      Well, that all sounds solid and such; but, it points to the reality that one can have the opportunity to exploit and be exploited, too, even if the exploitation results in an accepted lower payout for one of the parties. That all may be true, but it doesn't address the aftermath psychologically or emotionally of what happens to people, even with repeated games, of actually *being* exploited. If you've been exploited before, it's very similar to the five stages of grief, particularly the anger phase. For the exploiter, these repeated decisions in "games" (let's call them interactions), creates an insidious feedback loop via negative reinforcement in which it's OK to behave this way and it's just part of human nature.

      I'm not entirely sure a wealth tax will achieve the utopian vision these researchers have because it really doesn't address the incentive behind exploitation in the first place. It's a form of punishment. But, that assumes all the wealthy have an evil gene that gets marketed in the media, displaying the wealthy as a cadre of Bond Villains, like the consortium of Spectre.

      Businesses start from somewhere. Gates and Allen didn't start Microsoft to be evil or indulge the evil exploitation gene! (Though some may take issue with IE/MS smashing Netscape out of existence in the 1990s via dirty tricks). Jobs and Wozniak, same deal. Even Bezos started out of his garage in Seattle. Point is, these people didn't set out to be evil, to use wealth as a means to satisfy their need/desire to exploit. Inherited wealth is a whole different animal, yet it would not be fair to assume the gains were ill-gotten.

      And, yes, there are some megalomaniacal wealthy individuals out there that give wealth a bad name. Unfortunate, but real.

      Dr. Cochrane is right - this is a political agenda, to use policy to achieve a particular outcome. This is a natural thing to use policy, to correct and modify appropriately (key word here, I know). The trick is to come up with the right policies that promote the incentive to innovate, to change, and to improve life. That's a certain kind of Normative Gordian Knot that requires a sword to untangle it all with one fell swoop, leading to a reconstitution the corpus of economic thinking that has been built up over the last 300 some odd years.


  6. The Democrats sell tax increases by telling us how much money will be raised and all the good they will do with it. This pitch assumes that those paying the taxes are static - they will not change their behaviors based on the new taxes, but continue to do the same things and just pay the taxes. However, people are, instead, dynamic, and will change their behaviors to avoid the new taxes. Thus, the income estimates of new taxes are always higher than reality. At some point, the people who fall for these pitches of what new taxes will do for them, need to understand this and be wise to future such new taxes panacea stories. One can only hope.

  7. Thanks for writing this series!

    I would like to see Reich say that to Oprah's face.

  8. Both Zucman and Saez are French citizens. Saez was born in Spain, but is French. Saez is a naturalized American citizen.

  9. Roger Pielke, Jr., U. of Colorado, has documented how Michael Bloomberg, Hank Paulson, and Tom Stayer, all billionaires, have manipulated the dialog on climate change to produce a sophisticated propaganda movement replete with peer-reviewed academic journal publications turning a worst-case scenario projection into a "business-as-usual" scenario projection of the forecasted economic and social effects of climate change. Pielke, R., Jr.: “How Billionaires Tom Steyer and Michael Bloomberg Corrupted Climate Science” URL: .

    An undergraduate sociology professor that taught a course in political philosophy during the early 1970s made two points that have remained with me to this day: (1) if capitalism is the hypothesis and communism the antithesis, then the synthesis is either "cap-com" or "com-cap" depending on where the society starts from; and, (2) the most potent revolutionaries are not found amongst the poor and underprivileged, but are most often found amongst the rich and extremely wealthy elites.

    Also, Vilfrado Pareto, the Italian engineer and economist, studied population and income statistics and published various papers on the subject. He concluded that should a society confiscate the wealth of the wealthiest members of the society and redistribute it across all segments of the population, then within one or two generations the wealth will be concentrated again in a small segment of the population and the unequal distribution of wealth would be about the same as before the confiscation occured.

  10. Frank P. Ramsey published a mathematical paper titled, "A Contribution to the Theory of Taxation", 1927, that developed a theory of optimal taxation of commodities to achieve the social planner's desired level of revenue while minimizing distortionary impacts on social growth.

    The commodity having the most inelastic demand bore the greatest proportion of the tax burden. Ramsey demonstrated how the social planner could exempt some commodities from taxation while taxing other commodities to achieve the planner's revenue target. He mentions that in certain cases, instead of tax, the planner could provide a bounty (subsidy) to encourage consumption of some commodity.

    "Wealth" taxation is essentially taxation of certain commodities. Ramsey's theory may provide a theoretical basis for determining an optimal tax rate on those commodities.

    An alternative approach is to levy a one-time tax on all wealth of the nation with the proceeds paid into the Treasury. The relative distribution of wealth remains unchanged, but the absolute level of wealth is reduced more at the highest wealth percentiles. A basic exemption could be incorporated to exempt the lowest to middle wealth percentiles from the tax. Such a tax is unlikely to meet a constitutional challenge, however.

    1. It still faces a thorny implementation issue. We don't even know how to appropriately value wealth. It's one of those things that gets abstracted and then taken for granted.

  11. I probably agree with the bulk of this excellent five-part series.

    That said, I believe John Cochrane with his experience and fine mind could write a compelling and convincing five-part series on the insanity of payroll and wage taxes.

    Which leads to an interesting question: should productive behavior ever be taxed, whether it is working or investing?

    My own recommendation is that we tax property, consumption, pollution, perhaps Pigou taxes, and imports.

    An interesting side question is who should pay for America's enormous and global military apparatus and related benefit packages. I read about US interests in the Mideast or Latin America or Asia but I can never tell what they are. I assume it is some sort of business interests or trade interests. Shouldn't people interested in global trade pay for their own guard services? A fee-for-service arrangement?

  12. "Our revolution had a lot to do with paying British taxes, not guillotining the aristocracy. [...] The Boston Tea Party was not a demand that Britain tax its aristocrats, either to send money instead of tea, or just to tax them out of existence because "inequality" was galling the Americans."

    This seems a terrible oversimplification, at best. It ignores the Classical republican language used by the revolutionaries, the attacks on not just taxes but monopolies like the East India Company, and the general sweep of "radical" movements that sprang up during and after the revolution, including manumission in some states. The op-ed statement is very vague but it doesn't seem ridiculous at all to say Americans were disgusted by perceived corruption in the English government, even if they didn't think it should be abolished entirely.

  13. Why are the uber rich lefty leaning voters? My father is reasonably rich and openly hates Republicans, but that's because he believes they are secretly white supremacists pushing a nefarious agenda, but that was born from his days as an immigrant to this country. Why would white coastal elite rich vote this way?

  14. I was directed here by a professor. I'm a public finance student. This is the "correct" question you seek.


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