Elizabeth Warren is planning to pay for various things with a 6% wealth tax on those with fortunes in excess of $1B USD. Now, right or wrong, this seems to be an awfully big annual scoop from a bucket that one intends to be scooping from in perpetuity. If the bucket gets low, then we'll have to find other as-yet-unknown sources of income to fund these various projects. Is the bucket filling up at a rate large enough to sustain such a 6% tax?

In other words, is the rate of wealth increase of Billionaires at least 6% on average?

  • $\begingroup$ Any data would probably come from Forbes magazine estimates. A chart on Wikipedia (worldwide not just US) suggests strong growth rates in total billionaires' assets, including those of new billionaires, growing much faster than 6% though with a sharp dip in 2009 $\endgroup$ – Henry Nov 2 at 13:46
  • $\begingroup$ Note that if the net effect of government expenditures creates a wealthier population (e.g., more millionaires) to make up for the lack of billionaire portion of the revenue, then it can be considered sustainable in a different sense. Imo being reliant on a few winners for tax revenue is something we want to avoid anyways. $\endgroup$ – Kent Shikama Nov 2 at 20:44
  • $\begingroup$ @Henry, I wonder what percent of that is growth in the assets of individual billionaires, and what percent is growth in the number of billionaires. Might make a difference from a sustainability standpoint. $\endgroup$ – Scott Nov 2 at 22:23
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    $\begingroup$ @Scott - Forbes lists the richest people, so presumably it is possible to track them. Wikipedia has lists of the top 10 each year and links to the top 100 $\endgroup$ – Henry Nov 2 at 23:22
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    $\begingroup$ I think the big unknown here is how much they'll start to dissimulate and/or offshore their wealth. See en.wikipedia.org/wiki/Wealth_tax#Criticisms $\endgroup$ – Fizz Nov 4 at 6:58

I think the big unknown here is how much they'll start to dissimulate and/or offshore their (new) wealth.

According to one paper:

A recent study by Brülhart et al. (2017) gives support to the plausible assumption that the effect of net wealth taxes on reported wealth is the more pronounced the more integrated the regions involved are. According to the authors’ estimations, the semi-elasticity of reported wealth with respect to the net wealth tax rate amounts to 35% in aggregate, i.e. a rise in wealth taxation by one percentage point decreases reported wealth by 35%. Moreover, Brülhart et al. (2017) find that financial assets seem to be more responsive to taxation than non-financial assets. They also interpret their results as suggesting that wealth holders primarily respond by reducing their wealth holdings, not by moving to jurisdictions with lower tax rates.

So if that is true, then >3% wealth tax will result in "over" 100% dissimulation of new wealth. But caveat emptor, that's based on the fairly secretive Swiss:

It must be noted, however, that these analyses do not uncover the channels via which wealth holdings are lowered. As indicated above, reported wealth holdings may be reduced by real responses (i.e. by lowering accumulation of wealth) or by decreasing reported wealth through hiding it from tax authorities. Which of these mechanisms is working in the Swiss case cannot be determined without further analysis, e.g. by exploring whether there is some relationship between the savings rate and the taxation of net wealth.

The biggest issue with extrapolating much from the Swiss case is that

Wealth taxes are cantonal and municipal; there is no federal taxation of wealth.

It's basically unknown how big that semi-elasticity would be if a whole country (like the US) had a wealth tax. France apparently had one, but it looks like they don't have a clear figure of the aforementioned elasticity, despite the fact that the rate changed a few times. It is known however that for about a decade there was a net outflow of around 300-500 people (per year) who would have qualified for the wealth tax, although they could have left for other reasons (including other parts of the tax code). France being in the EU also offers some special circumstances to migrate to neighboring countries but still (partly) invest in France.

If we ignore the potential flight or dissimulation, there's still the issue that billionaire wealth might decrease even in not so bad times, e.g.

Billionaires around the world saw their total wealth decline by 7% from 2017 to 2018, according to Wealth X’s Billionaire Census 2019. At the same time, the number of these ultra-high-net-worth individuals fell from 2,754 to 2,064.

American billionaires had an easier time.

The U.S. was one of the few countries that saw its UHNW population grow from 2017 to 2018, per the report, and America’s richest people lost only around 5% of their total wealth, far less than their peers did in most other regions. [...] Total U.S. billionaire wealth fell from \$3.2 trillion to \$3.013 trillion.

So, before we talk of sustainability, we'd need to decide on some time frame. Clearly their (total) wealth can go down year-to-year even with no wealth tax, although the trade war was apparently blamed for the recent downward trend. From 2015 to 2016 it actually went up 15%.

In 2016, US billionaires saw their wealth increase from USD 2.4 trillion to USD 2.8 trillion

So it looks like US billionaire wealth is more volatile than the US economy as a whole.


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