The notion of a wealth tax is not new.  In fact, a form of wealth taxation is in place in much of the United States today: the property taxes paid on real estate.  Proponents note that shifting the tax burden away from incomes helps workers keep more of what they earn.  If additional revenue is needed to keep Federal debt from spiraling out of control, it might be necessary to tap a different source.

From a social perspective, income and wealth inequality have been identified as root causes of the populism that has spread across countries during the past several years.  According to a survey from FiveThirtyEight.com, more than 60% of Americans think that the wealthy pay too little in federal taxes.  Proponents of wealth taxes suggest that remedying this situation will improve political stability.

But wealth taxes suffer from conceptual and practical challenges.  Wealth is created by investing and entrepreneurship, things an economy needs to grow.  Taxing wealth would theoretically reduce the incentives to do both of these things.  More broadly, taxing wealth is often tied to redistribution regimes that slice the pie differently but do little to help it grow.

There are also challenges to administering a wealth tax.  Measuring value is easy for marketable securities; but the value of small and medium-sized companies is more difficult to assess, and their owners may not have sufficient liquidity to pay the tax.  Past applications of wealth taxes have prompted a range of avoidance actions that ultimately reduce effectiveness; a prime example is that businesses and people may simply move away.  The experience of Europe during the 2000s is instructive on this front.

Candidates who favor wealth taxes have tried to design them to be minimally disruptive, targeting them at the upper reaches of the distribution and exempting certain assets from assessment.  But monies raised from the levies would not necessarily be used for deficit control. Some proposals call for them to be forwarded to an expansion of federal spending on areas such as health care and education.  Those may be worthy endeavors, but would do little to correct the country’s dangerous fiscal trajectory.

Having just passed a tax reduction two years ago, it seems unlikely that Congress will reverse course. For the near future, wealth taxes are likely to remain on the sidelines.  But they will likely remain a hot topic of conversation on the campaign trail.

I very much hope that this narrative has been helpful in illustrating one of the key economic issues surrounding the 2020 election.  And with that, I will not be saying anything further on the balloting until next September.

Slippery Oil Prices

Ryan reports on the resilience of the world oil supply.

As I was running errands on Saturday, September 14, a news alert appeared on my phone: “Saudi Arabian oil refinery attacked.”  Amid other worries about geopolitical tensions and the safety of those on the ground, my frugality kicked in.  Expecting a price shock, I made a stop to fill my car’s gasoline tank.