Despite decreasing absolute poverty, wealth inequality is generally derided as bad. Relative poverty sounds bad too, but it’s a moving goalpost. It might induce jealousy that your neighbor drives a Maserati while you drive a Toyota—and there are indeed valid reasons why jealousy is bad among neighbors. But the somewhat cliché statement that your standard of living is higher than 18th-century royalty still applies. If you were in absolute poverty such that your water was cut off, you wouldn’t care what kind of car your neighbor drives. With relative poverty, that feeling wells up inside of you that something is “not fair”. There is a difference between these two poverties, no matter how unfair things feel.
But let’s put all that aside and pretend the term “fair” has an objective definition. And let’s make the assumption that right now, things are “not fair”.
The logical thing to do then is to make things fair by taking money from the ultra-rich and giving it to everyone else. Who is ulta-rich? Billionaires, obviously.
I have created a list of the 61 richest Americans. Their combined net worth is $2.3T. Last year the feds spent $6.8T against revenue of $3.8T and a deficit of $3.0T. If the feds had successfully taken every penny from them they would still have run a deficit last year.
But now the well is dry so you can’t do it again next year. Or the next. Or the next. These fortunes took decades to build and will take decades to replenish.
So what happens if you tap it slowly with a 5% wealth tax?
You raise 115B. This is not even 4% of the deficit.
And you are still draining the well. Most billionaires’ wealth is represented by public equities (paper wealth). While this wealth is quite liquid, these companies do not reliably grow by 5% every single year. To keep replenishing the well, they need to gain back their 5% with capital appreciation which does not happen every year. Also—if you drop by 5%, you now need to go back up by 5.2% to get back to your original amount (going from 100 to 95 is a 5% drop, but going from 95 to 100 is a 5.3% gain).
If you do this every year then there is a very real chance you will slowly deplete the well.
And as you drain the well, then there will be far less capital gains to collect later. In fact, Elon Musk paid a $15B tax bill in 2021 from capital gains tax alone—representing nearly 1/2 a percent of the entire federal revenue (but less than 1/4 a percent of spending).
Finally—I would like to point out that we already have a wealth tax. It is paid by most, not just the rich. And in many states and municipalities it does indeed approach Elizabeth Warren’s proposed 2%. It represents 12% of the taxes raised. We call it “property tax”.
Do we want to fund the country or prove a point?
Tax is a divisive issue and it always has been. This is because many of us care deeply about the fundamental question of
Am I getting richer or poorer?
The answer to this question is heavily dependent on tax. Many of us would be far richer were it not for positive effective tax rates—and many of us would be far poorer were it not for negative effective tax rates. Desire to receive, but not give, a free lunch is human nature.
Tax is divisive but now you actually have the tools to understand it better. It’s not as simple as “tax the rich” unless proving a point is more important to you than sustainably funding our country.
Tax is a tool to make things better for all of us by funding projects whose scale is too great for any private individual to take on. Let’s stop using it to piss people off—that helps nobody.
Let’s instead ask ourselves which tax proposals will sustainably provide enough revenue to make things better.
PS
I stopped at 61 because the Forbes live billionaire list does not have a download CSV option and I no longer have Bloomberg (which of course has a dedicated command for this).
The raw data
name,worth
elon musk,237.6
jeff bezos,140.1
bill gates,126.1
warren buffett,112.7
larry ellison,99.4
larry page,98.4
sergey brin,94.6
steve ballmer,88.1
michael bloomberg,82.0
mark zuckerberg,70.3
jim walton,68.7
alice walton,67.7
rob walton,67.4
charles koch,61.6
julia koch,61.6
michael dell,50.1
phil knight,43.1
john mars,33.0
jaqueline mars,33.0
mackenzie scott,32.0
stephen schwarzman,30.5
len blavatnik,29.0
jim simons,28.6
ken griffin,25.7
miriam adelson,25.1
sam bankman-fried,24.0
ray dalio,22.0
leonard lauder,20.5
eric schmidt,20.0
rupert murdoch,18.5
thomas peterffy,18.0
steve cohen,17.4
hank meijer,17.3
daniel gilbert,17.1
lukas walton,17.0
david tepper,16.7
jensen huang,16.3
carl icahn,16.2
donald bren,16.2
hardold hamm,16.2
laurene powell jobs,15.8
john menard jr,15.2
robert pera,13.2
donald newhouse,12.9
diane hendricks,12.0
jeff yass,12.0
jerry jones,11.5
israel englander,11.5
dustin moskovitz,11.1
stanley kroenke,10.7
philip anschutz,10.7
david duffield,10.6
john doerr,10.4
charles schwab,10.4
chase coleman iii,10.3
george kaiser,10.0
carl cook,10.0
tom and judy love,9.9
david geffen,9.9
pierre omidyar,9.9
jan koum,9.8