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Perhaps something hasn't been made clear. I'm not sure why you seem to have adopted a condescending tone. A wealth tax is typically a periodic (monthly/quarter
by leot 13y ago
Perhaps something hasn't been made clear. I'm not sure why you seem to have adopted a condescending tone.
A wealth tax is typically a periodic (monthly/quarterly/yearly) tax on total net worth. This tax often ranges between 0 and 3% yearly, often with with highest rates only applying to wealth above a certain amount.
What I think might have been left out from your example is the fact that the person isn't choosing just between spending and not spending. They are choosing between spending and saving/investing.
The arithmetic is simple. If I can generate a 7% return on my assets, and I'm being taxed yearly at 1% of my assets, then the way for me to make the most money is to have the most assets. The return I get yearly is 7% - 1% = 6%. If one year I have $120 and I spend $20 of it, then I make $6 that year. If don't spend any, I make $7.20 that year.
EDIT: Re "... discouraging productive investments". This statement might be true for capital gains taxation, but it isn't so for wealth taxation. If I invest extremely conservatively (e.g. in precious metals) then I might only manage a 3% return. A 1% wealth tax would then amount to a 33% capital gains tax. If I invest aggressively and successfully, then I might earn 10% that year. Then the 1% would be equivalent to only a 10% capital gains tax. As such, a wealth tax is the only tax that actually encourages productive investment and discourages hoarding.
- yummyfajitas 13y agoAn investment is socially useful if it has a positive rate of return, since it creates wealth. An investment will only be made if the investor can capture a positive rate of return. If the rate of return is R and the wealth tax is T, then the investor can capture only R-T. Thus, productive investments for which 0 < R < T are not made. Unless you want to assert that there are no investment opportunities in the world with 0 < R < T, the wealth tax clearly discourages some productive investments.
- leot 13y agoIf this claim is true, it's highly non-obvious. For one, it seems you would need to conclude that inflation should also be zero (or negative!?) lest certain productive investments go unmade. Sure, it may discourage some very low-yield productive investments. This is the cost of encouraging some more productive ones. At present, we live in a world where there's lots of wealth that's poorly (too conservatively) allocated. So such a trade-off seems entirely reasonable.
- yummyfajitas 13y agoA wealth tax discourages all investment and savings. There is no trade-off here. The rate of return (and hence the incentive to save) is lowered on all investments. Your analogy to inflation is nonsensical. Inflating away the value of cash does not reduce the incentive to invest in shares of GOOG or a pizza shop. Regardless of the inflation rate, the pizza shop will still produce the same # of pizzas one year from now.
- leot 13y agoThis may be true of a wealth tax in the absence of a VAT. If you have any good sources on this, I'd be very curious to see them (though I'll look them up myself, too). Regardless, too much consumption (and too little saving) has never been a problem for the group that would be subject to a wealth tax. By exempting the first $100k - $300k (or so) of wealth, most people would experience no such disincentive. In any case, the larger point isn't whether or not it discourages investment. The real question is whether this kind of policy would be better or worse than what we've currently got. Capital gains taxes also discourage investment. Income taxes discourage work. Those impose real costs too. The claim I'm making is that any discouragement of investment or savings (among the already by-definition-wealthy) imposes far less of an economic cost than the current discouragements of by capital gains and income taxes.