Wealth taxes are increasingly popular. Across Europe, wealth tax proposals are par for the course in economic policy debate. In the U.S., recent proposals include Sen. Elizabeth Warren’s Ultra-Millionaire Tax Act and the 2025 Billionaires Income Tax Act. While it sounds appealing to “tax the rich”, the U.S. should resist the apparent quick-fix of taking money from the wealthy to plug gaps in public finances.
With rising wealth inequality and governments struggling to fund their programs, politicians and voters want the wealthiest to provide a larger share to the public. The wealthy are less excited, with people like Bernard Arnault, France’s richest man, warning against it. One criticism is that wealth taxes would make some billionaires leave – something proponents consider acceptable.
However, the bigger problem may not be billionaires leaving. Wealth taxes would see Western states destroy wealth for the sake of consumption. A lot of wealth is not liquid, but held in assets such as stocks or real estate. To pay taxes, the wealthy may have to turn some of these into liquid funds, selling stocks or houses. Supporters of a wealth tax might not care, but they should. If someone has to liquidate wealth in order to pay taxes, it could mean that next year, there is less wealth for the state to tax. The tax erodes its own base.
For friends of such a tax, this may still be acceptable. After all, the state can convert private into public wealth. It could use the new funds to build roads, schools or hospitals. It could fund research or expand the production of renewable energy. But the issue is Western governments seem unwilling to do that. Instead, they are more interested in subsidizing the consumption of some groups.
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