Whenever I've seen anyone suggesting a wealth tax, it is specifically to address the very wealthy who pay an effective 0% tax rate, because they use the "buy, borrow, die" strategy. These are not wage earners, working a regular job, these are folks who own enough assets that they can borrow their way through life, living lavishly, never contributing meaningfully to the common good, the roads they are chauffeured over, the infrastructure and laws they benefit mightily from, the police who protect their assets, etc.

Since a lot of billionaires pay practically nothing in taxes, relative to their wealth, a wealth tax that equates to a 20% income tax would be entirely reasonable, and they'd still pay a much smaller percentage than the taxes I pay from my wages. It closes a loophole, it doesn't punish the very rich. And, nobody is suggesting the average 401k or Robinhood portfolio should be subject to a wealth tax.

How about instead of trying to take earnings from those who work or assets from those who earned them, we reduce government size and spending?

I think the post is correct in a one-period sense, though I’m not sure the equivalence survives once you model long-term compounding, additional capital gains taxation and liquidity constraints.

This seems to be willfully eliding that proposed wealth taxes tend to either be taxes on wealth above a certain amount, or (such as California’s) a one-time tax on people with wealth over a certain amount. If I were a mere millionaire -- technically, I am, with a net worth of just over $1.1M, but this would be true if that were $5M or $10M or even $50M -- then under any proposal I’ve seen, my wealth tax would be $0. (Note that if someone were to have $50M, then under Graham’s risk-free rate of return of 5%, they would literally have to do nothing to pay themselves an “income” of $2.5M annually.)

If I were an actual billionaire -- say, my net worth was $2B -- then my one-time tax under California’s proposal would be $100M, leaving me with a net worth of $1.9B. Under that 5% risk-free rate of return, I would recover that amount of money within one year even if my income were $0, which seems exceedingly unlikely.

One can argue about the specifics of various proposals -- the Tax Foundation, for example, thinks California’s proposal has “aggressive design choices and possible drafting errors” that could lead to somewhat bonkers results, although I haven’t seen any critiques of their analysis yet -- but a wealth tax cannot be converted to income tax in a reasonable manner any more than a VAT could be converted to property tax. They’re both taxes, but they’re simply not the same kind of tax. And while I don’t mean to cap on Paul here, there’s a distinct “woe, pity the poor billionaires who will surely be driven to bankruptcy” subtext I find to be risible nonsense.

This blog post is incredibly tasteless. Really Paul should take it down and get the butler to wipe the egg off his face

You are always so progressive up to the point you meet a progressive tax

Paul doesn't mention that these aren't exclusive. The California "Billionaires Tax" (which will likely soon become a "Millionaires Tax" after all the Billionaires exit the state), is levied on top of the regular state income tax.

The argument is plausible - that you can treat wealth taxes as equivalent to income taxes if you treat wealth taxes as a tax on the ostensible income generation of the wealth.

Of course there's more complexity than this, but that aspect is a plausible reductive lens.

But the conclusion is silly. We all know the extremely wealthy who'd be subject to a wealth tax basically don't pay taxes and that a 20% tax is totally right around what the typical overall tax burden is for the middle class or median households. The 1% example equating to 20% is basically saying the wealth tax would be in line with a flat tax, not even with a progressive rate tax. The wealthy have turned the tax system into one that's functionally regressive for the most wealthy and then PG complains that a proposal that makes it more like a flat tax is "not understood" by lawmakers?

It sounds ridiculous to me.

Or maybe I'm missing something.

I appreciate PG's writing as always.

I'm skeptical that the super-rich are only generating 5% on their money. My anecdotal experience is that it's usually north of 15%. They have access to investments that main-street does not.

If we plug in 15% instead of 5% in PG's reasoning, the effective income tax increase is quite a bit lower.