Elizabeth Warren’s wealth tax is, among her many proposals, one of the more likely to draw opposition. A bit of an analytical sketch in Excel can shed light on the tax’s likely major effect.
Methods: I used Warren’s Billionaire Tax Calculator as well as descriptions of her method of calculation* , entered into Excel, to game out what might happen to our hypothetical multimillionaire under her wealth tax, starting at Year 0 with $50 million and assuming a really stupid and weak 3% annual growth from investments. Since 3% is barely better than a savings account, we can assume that real billionaires will do much better.
Analysis: What we see is that while the wealth tax does not prevent the accumulation of assets, it cuts the rate of accumulation fairly significantly, providing an incentive to invest rather than hoard, assuming that tax advantages can be had for productive investment.
Of course, the wealth tax as proposed wouldn’t stop anyone in any way from achieving the American Dream of being a $50 millionaire. All things considered, a bunch of $50 millionaires are better than a few billionaires.
Viewing this from a systems perspective, what we have here is a countercurrent, pumping wealth back out into the economy at large instead of allowing it to accumulate in relatively unproductive large sinks at the top.
* “Households would pay an annual 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion. ” --Warren’s Ultramillionaire Tax
This is a rather simpleminded calculation. It ignores other taxation and indirect effects.
I always welcome correction and commentary..