Suppose John Doe, the founder of a large technology company, sees his wealth increase from $1 billion to $1.25 billion in 2021, and then to $1.5 billion in 2022. He would owe a cumulative $119 million under the plan. Jane Smith, the CEO of a competing company, sees her wealth increase from $1 billion to $1.5 billion this year, but then fall to $750 million the next.

Because of annual write-off limits, Jane would owe roughly the same amount as John despite the blow to her net worth. And both could be forced to liquidate assets to come up with the cash to pay the IRS, eroding their alignment with shareholders. Otherwise, they might take measures to artificially reduce the value of their firms at year-end.

The volatile tax bills would create an incentive for the wealthy to move capital into illiquid assets not subject to the annual tax, such as private equity, real estate, and art. Entrepreneurs would think twice about taking their companies public in a system where private ownership confers tax benefits. The “billionaire tax,” therefore, would move money into alternative assets — accessible only to wealthy, accredited investors — and reduce investment opportunities for the middle class.