Neil Irwin has an interesting piece about that concept. Basically, if you confiscate people’s wealth to pay for government freebies today, that wealth won’t be there anymore when you want to do the same thing tomorrow.

As Irwin writes, Warren’s 6 percent wealth tax on billionaires would quickly eat away at wealth held in assets that don’t grow in value much over time (such as real estate and just generic stuff like yachts); even her 2 percent tax on those with more than $50 million could entirely cancel out returns from safe investments. More aggressive investments could continue to grow against a 6 percent tax . . . but Warren wants other taxes on these folks as well, such as a more aggressive approach to capital gains.

He continues:

Moreover, the existence of these taxes would increase the incentive for a rich person to take steps to avoid taxes, many of which would have the similar effect of reducing their wealth. If you are a billionaire planning to give much of your fortune to charity after your death, why not do so immediately to avoid spending decades paying a 6 percent annual tax to the government? Or, perhaps less nobly, why not spend it on leasing yachts or chartering private jets for fantastic vacations? . . . [A] president seeking to pay for a policy agenda with taxes on extreme wealth might want to think ahead to what should be done if those taxes result in a lot less extreme wealth to tax.

Another big aspect to this, which Irwin doesn’t really address, is how quickly the American economy would generate new zillionaires whose fortunes would be newly subject to the tax.

For whatever it’s worth, The Triumph of Injustice, the new book by Warren advisers Emmanuel Saez and Gabriel Zucman, features this chart illustrating what would have happened to the Forbes 400 if a wealth tax had been in place since the 1980s:



The “moderate” tax is 2 percent above $50 million and 3 percent above $1 billion; the “radical” one has a top rate of 10 percent. (Warren recently shifted her own top rate to 6 percent.) In this estimation, neither of these taxes would have outright reduced the share of the nation’s wealth held by the Forbes 400 — they would just have counteracted the underlying trend of growing wealth up there, holding the share steady or only allowing it to double, rather than triple as it did. This seems to suggest that the government could continue to collect a tax like this indefinitely, though of course revenue would fluctuate over time.

But! As Irwin writes, Warren and Sanders want other taxes on these folks too. And I’ve written before about the sleight of hand Saez and Zucman employed elsewhere in their book, so I wouldn’t take this run of the numbers as definitive.

If we’re really thinking about taxing people for the simple act of owning wealth, I would like to see a serious debate about how these various phenomena — a wealth tax, fortunes growing through investment income, new fortunes being made — would balance out. If a wealth tax eats its own base, it will only create the need for huge middle-class tax hikes in the future.