Senator Bernie Sanders and Representative Ro Khanna just introduced a bill proposing a permanent national 5% wealth tax on billionaires, along with an ambitious spending program for the results.
Hmmm… what would that make the effective tax rate on 10 year Treasury Note holdings? Let’s see- 35 percent plus Medicare tax on the 4.6 pct interest and then a 5 percent tax on principal.
Sure, it’s just a stunt or a conversation starter - but they’re giving a trained, barking seal a run for its money.
I’ve,often disagreed with Professor Cochran. Mostly when he wanders off economics. But he is right here. What the proponents don’t want to look at is,what a wealth tax does to actual tax rates
The only way your position might resonate with the electorate is if it's translated into tangible and immediate losses for the electorate, starting with unemployment and inflation, followed by corporate failures, lost retirement savings, and stagnation. The harder the better.
Talking about billionaires only helps the average voter frame the issue the way Sanders & Khanna want. Even terms like equilibrium and capital flight are meaningless. Frame it in terms of the direct pain from killing the golden goose and we might have a chance.
actually, I think most people get it on a visceral level. That's why most people don't like estate taxes. The fact that we don't have a wealth tax says something about the electorate.
I tend to think the opposite. Indeed, some people get it on some level. But I think the vast majority have no clue. They hear "billionaire" and assume it was unjust gain achieved by oppressing or cheating someone. It's assumed that billionaires and millionaires have huge bank accounts and money to burn, like Scrooge McDuck diving into piles of gold coins, not realizing that their wealth is actually mostly spent on forklifts, warehouses, office buildings, computers, vehicles, and a host of other things that provide jobs for people. Someone has to own these things, and it usually ends up being the people who started the business, and shareholders.
--- Different topic. Elon Musk investing $500 billion in business is far better for the "common good" than to have government confiscate that wealth and waste it on things where there is nothing to show for it tomorrow.
Just a silly question from an old hermit, but when is Congress going to make an attempt at balancing the budget? The Federal government spends money like a drunken sailor. (As a retired sailor, I know how a drunken sailor can spend money. Hope I haven't upset anyone. )
HAhahaahahahaha, the govt attempt to balance the budget?!! Bwahahaha. It shouldn't be a laughing matter, but it is because most politicians are a joke.
Balance the budget? How about actually writing, debating, amending and passing the 12 appropriations bills that make up the federal budget before the October 1st start of the governments fiscal year? The last time congress passed a budget on time was in 1996 - 30 YEARS ago! It’s hard to even conceive of balancing the budget when congress cannot even pass a budget on time. Meanwhile both the house & senate are in recess - they need to be in session 24/7 until they pass a real budget (not some stopgap continuing resolution).
I've said often that Congress either passes a budget on time, OR they should have their pay docked 5% every day past the deadline. Somehow I think they'd manage to get something passed. And even better they should never raise the debt ceiling again until they have a balanced budget. And after that the debt ceiling should be a manageable amount that can't change except for inflation adjustments, and for emergency. And then we need to define emergency, since many don't know the meaning of words such as "woman", or "tax" vs "penalty", or for Clinton and friends, the word "is"
Congress goes into session October 1st 24/7, no recess, no junkets, no meetings with lobbyists, no B.S. press conferences. Live on the floor, sleep on the floor until the 12 appropriations bills are drafted, debated, amended, passed & signed by the president. This gives them a year to figure it out and a lot of personal discomfort to help motivate them to move it along. Too many are millionaires, cutting pay is just a minor annoyance. And get rid of the debt limit, it’s just political theater - think of it as a couple arguing over the credit card bill rather than cutting up the cards. Congress has already spent the $$, the debt limit prevents treasury from paying the bills when they come due.
The deficit is a sizable portion of our GDP at this point, eliminating it overnight would probably trigger a severe recession that would tank federal revenue leading to a depression. The deficit has to be brought down over time, possibly by holding spending flat and let inflation gradually close the gap. The wildcard is interest on the debt, which is now 15% of federal spending and is dependent on global interest rates. May global interest rates would fall if the U.S. exhibited some degree of fiscal discipline?
Actually, I think I agree with you 100%. I agree that debt limit is actually theater, especially when they can just vote to change it. What a joke. Anyone who is responsible with their budget doesn't need a debt limit. And agree that a major economic upheaval would happen if we abruptly made drastic changes. People have made plans based on the operation of our dysfunctional govt, so there usually needs to be a phase in period. But I do have a suggestion. If docking pay is merely a minor inconvenience, then how about a Congressional "wealth tax" of 5% per day the budget is overdue. Hahaha, the irony for those who think wealth tax is a great idea (Bernie, Warren, etc). Maybe when they have to take out a 2nd mortgage on their homes to pay the tax, they'd realize how nutty it is.
Congress doesn't balance the budget because congressional candidates who promise to balance the budget can't win an election. Collectively, we get what we vote for.
When either the US Treasury 30 Year Bond reaches double digits in rate or the dollar is at Zero like the Iranian Rial is today at 2,000,000 to The Dollar.
I'm against the wealth tax, and agree with your conclusions.
But I don't think it's like a 50% tax on dividends. The impact on the margins will be complicated. You pay the 5% whether you are earning 3% or 30%.
The impact on people who might create something great (worth billions) could be big (that tax would turn me off) or small (because (a) many people do many things for the challenge and (b) many great ideas may appear to have big payoffs, and correctly so, but it's not so easy to calibrate and make them medium ideas and keep your pay off at the $999 million level.
I was wondering why a wealth tax desincetivises risk taking rather than the opposite.
A wealth tax is levied on the stock, at a flat rate, regardless of what return the asset earns. So the effective tax rate on the return is much higher for a low-yielding safe asset than a high-yielding risky one.
Wouldn't this mechanims increase risk taking. What am I missing?
I should have been clearer. Progressive taxes disincentivize risk. So, the billionaire tax matters if you have an investment that might cross the billion dollar threshold.
A few years ago, I summed up some XXX Top 500 list of billionaires. It was surprising how little it was, compared to how much the government spends. It wouldn't have paid even one year's deficit.
And it's not cash, it's businesses. They'd have to sell some to pay the tax, but who's going to buy? Not the other rich people; they're looking to sell too. Prices racing to the bottom.
Politicians are the most willfully ignorant people on Earth.
And the sad thing is they want to take their wealth tax and blow the proceeds on more social spending rather than address the $40 trillion deficit. So the 50% or so who vote for their money will eat it up. Meanwhile there will be a massive effort to hold one’s taxable assets below the $1 billion (or wherever the line ends up) threshold. And these efforts will tend to put a damper on economic activity which hurts those who vote for these policies the most. So in the end the spending will be real (because congress is really good at this) while revenues will come up short (capital flight, avoidance measures, reduced economic activity) and the deficit will blow through $60 trillion.
A wealth tax is looking at this problem from the wrong end of the telescope. It may feel good, but we’d be far better off to eliminate/reduce a whole host of current deductions and exemptions in order to broaden the range of income that is subject to taxation. How about if we also tax capital gains and carried interest as ordinary income, and maybe limit the step in basis at death?
Or VAT, or progressive consumption taxes, or close loop holes. There are so many simpler, saner, and also more politically feasible things that could be discussed instead.
But this shit is about ragebait. I've started calling Saez et al ragebait economists, because their style of "analysis" has so much more in common with social media style engagement slop than it does anything academic. I suspect that is one of the keys to their success, frankly, as their rise mirrors the rise of social media almost perfectly; and why no one much listens to other authors in the same areas who invariably find less sensational results than Saez et al.
1) Give lip service to “socialist” (but not actually socialist) Nordic countries. Especially Denmark. Go hard in the paint on Denmark. Redefine socialist if you need to. (You will need to.)
2) Propose policies that are way less Denmark and way more France. But nobody wants to be France, so keep giving lip service to Denmark anyway.
3) Pretend like your candidates are not completely insane with a history of saying things that are completely insane.
Very well-argued and thoughtful. Definitely a good read. At the same time, I wonder if tacking into the wind for many who are on the left might be more effective, at least in political messaging.
It may satisfy a measure of “outrage culture” by explaining and highlighting Cantillon effects. Americans are indeed experiencing growing income and wealth inequality—and that redistribution of wealth happens before we even talk about attempting to redistribute wealth through taxation.
My own, modest attempt at this, below. Curious for your thoughts—and would enjoy reading your point of view on this, John!
What a misplaced, idiotic rant! Bernie's Bill is about converting Savings into Consumption. Billionaires have the highest MPS (marginal propensity to save).Increase consumption increases AD and society gets better off. Keynes knew this nearly a century ago!!
Hmmm… what would that make the effective tax rate on 10 year Treasury Note holdings? Let’s see- 35 percent plus Medicare tax on the 4.6 pct interest and then a 5 percent tax on principal.
Sure, it’s just a stunt or a conversation starter - but they’re giving a trained, barking seal a run for its money.
"Nobody has any intention of building a wall."
--Walter Ulbricht, June 15,1961
I’ve,often disagreed with Professor Cochran. Mostly when he wanders off economics. But he is right here. What the proponents don’t want to look at is,what a wealth tax does to actual tax rates
John:
The only way your position might resonate with the electorate is if it's translated into tangible and immediate losses for the electorate, starting with unemployment and inflation, followed by corporate failures, lost retirement savings, and stagnation. The harder the better.
Talking about billionaires only helps the average voter frame the issue the way Sanders & Khanna want. Even terms like equilibrium and capital flight are meaningless. Frame it in terms of the direct pain from killing the golden goose and we might have a chance.
actually, I think most people get it on a visceral level. That's why most people don't like estate taxes. The fact that we don't have a wealth tax says something about the electorate.
I tend to think the opposite. Indeed, some people get it on some level. But I think the vast majority have no clue. They hear "billionaire" and assume it was unjust gain achieved by oppressing or cheating someone. It's assumed that billionaires and millionaires have huge bank accounts and money to burn, like Scrooge McDuck diving into piles of gold coins, not realizing that their wealth is actually mostly spent on forklifts, warehouses, office buildings, computers, vehicles, and a host of other things that provide jobs for people. Someone has to own these things, and it usually ends up being the people who started the business, and shareholders.
--- Different topic. Elon Musk investing $500 billion in business is far better for the "common good" than to have government confiscate that wealth and waste it on things where there is nothing to show for it tomorrow.
AOC, Bernie and the rest of the useless Democrat Party can use the $500 billion so much more wisely than Elon. They actually think that.
Just a silly question from an old hermit, but when is Congress going to make an attempt at balancing the budget? The Federal government spends money like a drunken sailor. (As a retired sailor, I know how a drunken sailor can spend money. Hope I haven't upset anyone. )
HAhahaahahahaha, the govt attempt to balance the budget?!! Bwahahaha. It shouldn't be a laughing matter, but it is because most politicians are a joke.
Balance the budget? How about actually writing, debating, amending and passing the 12 appropriations bills that make up the federal budget before the October 1st start of the governments fiscal year? The last time congress passed a budget on time was in 1996 - 30 YEARS ago! It’s hard to even conceive of balancing the budget when congress cannot even pass a budget on time. Meanwhile both the house & senate are in recess - they need to be in session 24/7 until they pass a real budget (not some stopgap continuing resolution).
I'd rather they were in session as little as possible, and that the President had to take simultaneous vacations.
I've said often that Congress either passes a budget on time, OR they should have their pay docked 5% every day past the deadline. Somehow I think they'd manage to get something passed. And even better they should never raise the debt ceiling again until they have a balanced budget. And after that the debt ceiling should be a manageable amount that can't change except for inflation adjustments, and for emergency. And then we need to define emergency, since many don't know the meaning of words such as "woman", or "tax" vs "penalty", or for Clinton and friends, the word "is"
Congress goes into session October 1st 24/7, no recess, no junkets, no meetings with lobbyists, no B.S. press conferences. Live on the floor, sleep on the floor until the 12 appropriations bills are drafted, debated, amended, passed & signed by the president. This gives them a year to figure it out and a lot of personal discomfort to help motivate them to move it along. Too many are millionaires, cutting pay is just a minor annoyance. And get rid of the debt limit, it’s just political theater - think of it as a couple arguing over the credit card bill rather than cutting up the cards. Congress has already spent the $$, the debt limit prevents treasury from paying the bills when they come due.
The deficit is a sizable portion of our GDP at this point, eliminating it overnight would probably trigger a severe recession that would tank federal revenue leading to a depression. The deficit has to be brought down over time, possibly by holding spending flat and let inflation gradually close the gap. The wildcard is interest on the debt, which is now 15% of federal spending and is dependent on global interest rates. May global interest rates would fall if the U.S. exhibited some degree of fiscal discipline?
Actually, I think I agree with you 100%. I agree that debt limit is actually theater, especially when they can just vote to change it. What a joke. Anyone who is responsible with their budget doesn't need a debt limit. And agree that a major economic upheaval would happen if we abruptly made drastic changes. People have made plans based on the operation of our dysfunctional govt, so there usually needs to be a phase in period. But I do have a suggestion. If docking pay is merely a minor inconvenience, then how about a Congressional "wealth tax" of 5% per day the budget is overdue. Hahaha, the irony for those who think wealth tax is a great idea (Bernie, Warren, etc). Maybe when they have to take out a 2nd mortgage on their homes to pay the tax, they'd realize how nutty it is.
Congress doesn't balance the budget because congressional candidates who promise to balance the budget can't win an election. Collectively, we get what we vote for.
When either the US Treasury 30 Year Bond reaches double digits in rate or the dollar is at Zero like the Iranian Rial is today at 2,000,000 to The Dollar.
I'm against the wealth tax, and agree with your conclusions.
But I don't think it's like a 50% tax on dividends. The impact on the margins will be complicated. You pay the 5% whether you are earning 3% or 30%.
The impact on people who might create something great (worth billions) could be big (that tax would turn me off) or small (because (a) many people do many things for the challenge and (b) many great ideas may appear to have big payoffs, and correctly so, but it's not so easy to calibrate and make them medium ideas and keep your pay off at the $999 million level.
Great post!
I was wondering why a wealth tax desincetivises risk taking rather than the opposite.
A wealth tax is levied on the stock, at a flat rate, regardless of what return the asset earns. So the effective tax rate on the return is much higher for a low-yielding safe asset than a high-yielding risky one.
Wouldn't this mechanims increase risk taking. What am I missing?
Thanks!
I should have been clearer. Progressive taxes disincentivize risk. So, the billionaire tax matters if you have an investment that might cross the billion dollar threshold.
Will the billionaires have to sell stakes in their businesses each year to raise the money? Who’ll buy them? The Chinese? Great plan.
A few years ago, I summed up some XXX Top 500 list of billionaires. It was surprising how little it was, compared to how much the government spends. It wouldn't have paid even one year's deficit.
And it's not cash, it's businesses. They'd have to sell some to pay the tax, but who's going to buy? Not the other rich people; they're looking to sell too. Prices racing to the bottom.
Politicians are the most willfully ignorant people on Earth.
And the sad thing is they want to take their wealth tax and blow the proceeds on more social spending rather than address the $40 trillion deficit. So the 50% or so who vote for their money will eat it up. Meanwhile there will be a massive effort to hold one’s taxable assets below the $1 billion (or wherever the line ends up) threshold. And these efforts will tend to put a damper on economic activity which hurts those who vote for these policies the most. So in the end the spending will be real (because congress is really good at this) while revenues will come up short (capital flight, avoidance measures, reduced economic activity) and the deficit will blow through $60 trillion.
A wealth tax is looking at this problem from the wrong end of the telescope. It may feel good, but we’d be far better off to eliminate/reduce a whole host of current deductions and exemptions in order to broaden the range of income that is subject to taxation. How about if we also tax capital gains and carried interest as ordinary income, and maybe limit the step in basis at death?
Or VAT, or progressive consumption taxes, or close loop holes. There are so many simpler, saner, and also more politically feasible things that could be discussed instead.
But this shit is about ragebait. I've started calling Saez et al ragebait economists, because their style of "analysis" has so much more in common with social media style engagement slop than it does anything academic. I suspect that is one of the keys to their success, frankly, as their rise mirrors the rise of social media almost perfectly; and why no one much listens to other authors in the same areas who invariably find less sensational results than Saez et al.
The proposed bill "includes 'a $3,000 direct payment to every man, woman and child living in a household making $150,000 or less.'"
In other words, theft, plain and simple. The bill doesn't even try to pretend otherwise.
Few things in Life are as stupid as Marxism. Yet, like street opioids, people continue to try it thinking it won't hurt them.
Democratic Socialists of America Playbook:
1) Give lip service to “socialist” (but not actually socialist) Nordic countries. Especially Denmark. Go hard in the paint on Denmark. Redefine socialist if you need to. (You will need to.)
2) Propose policies that are way less Denmark and way more France. But nobody wants to be France, so keep giving lip service to Denmark anyway.
3) Pretend like your candidates are not completely insane with a history of saying things that are completely insane.
4) Flood social media feeds with 1-3.
A brilliant piece of economic understanding and explanation, Well said!
Very well-argued and thoughtful. Definitely a good read. At the same time, I wonder if tacking into the wind for many who are on the left might be more effective, at least in political messaging.
It may satisfy a measure of “outrage culture” by explaining and highlighting Cantillon effects. Americans are indeed experiencing growing income and wealth inequality—and that redistribution of wealth happens before we even talk about attempting to redistribute wealth through taxation.
My own, modest attempt at this, below. Curious for your thoughts—and would enjoy reading your point of view on this, John!
https://thecommonwealthperspective.substack.com/p/cantillon-effect-cantillons-ghost-would-like-a-word-wealth-inequality
What a misplaced, idiotic rant! Bernie's Bill is about converting Savings into Consumption. Billionaires have the highest MPS (marginal propensity to save).Increase consumption increases AD and society gets better off. Keynes knew this nearly a century ago!!
Karl Marx has spoken - pay attention Kulaks.