The right, of course, is screaming that the Warren wealth tax is the first step to Venezuela. Are they right? Here is my analysis:
- REDUCED INCENTIVES: The tax only applies to a very small number of people. You would have to assume that the average person could somehow calibrate his willingness to work to a very high income threshold. That doesn’t seem very plausible–or significant.
- REDUCED INVESTMENT: The very wealthy can’t possibly consume all of their income, so the rest is obviously invested. Is their investment exceptionally productive? Sure, some of them made their money as entrepreneurs, but is it likely that the majority of them continue to put their fortunes at risk? I haven’t made a study of this, but I doubt that the average plutocrat takes many chances with his money. On the other hand, the tax proceeds might, or might not, be used for productive investments in infrastructure, education, and the like. The bottom line here is that the relative value of plutocrat and public expenditures depends on how each party spends the money; you can’t say categorically that one approach is better than the other.
- REDUCED PHILANTHROPY: There is no doubt that the Warren tax would reduce philanthropy. Would that matter much to the average American? As far as I can tell, a disproportionate amount of plutocrat philanthropy either goes to high culture vanity projects or to improve the lot of suffering people in Africa. The latter is admirable, but you can understand why American working people are not overly impressed.
The better arguments against the wealth tax are the legal and administrative concerns that I discussed in my last post. The economic case against the tax is unproven.