The Wealth Tax Is Weaponized Envy
Monday, August 24, 2020
Venture capitalist Paul Graham makes short work of explaining the economic impact of the wealth tax, an idea that has been popping up on the left a lot lately.
After quickly laying out what the tax is and how to compute it, he considers a case -- innocuous-sounding to nearly anyone, I would guess -- of a two percent wealth tax being levied against the founder of a successful small company:
It may at first seem surprising that such apparently small tax rates produce such dramatic effects. A 2% wealth tax with a $50 million threshold takes about two thirds of a successful founder's stock.
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| Who knew envy, weaponized by the welfare state, could be so dangerous? (Image by Richard Prisinzano, via Wikimedia Commons, license.) |
Graham's short analysis is well worth passing along. Any poor Americans who, as the saying goes, "see themselves ... as temporarily embarrassed millionaires," will oppose the whole idea as soon as they learn this. Moreover, many (if not most) Americans will understand what a deterrent this would be to innovation and investment.
And yet the idea doesn't drown in gales of laughter.
The innovator and the capitalist -- often the same person -- benefited many individuals, as attested by the willingness of so many to exchange hard-earned money for the products or services offered by the business. The whole idea of taking their money because of this success, year after year after year, is so unjust as to be ridiculous.
That it doesn't sound ridiculous is in large part because we have become so inured to the idea that it is okay for the government to confiscate money. To practically everyone, this proposal will register as just another tax, perhaps rating a ho-hum if it rates a thought at all.
Pass along Graham's analysis, yes, but don't call compounding the problem with the wealth tax. The real problem is the injustice -- foisted on us by envious intellectuals -- of penalizing success and the widespread, unthinking acceptance of the idea that taking money is a proper role of government.
-- CAV
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6 comments:
A point made by George Reisman relates to your point that "we have become so inured to the idea that it is okay for the government to confiscate money," Gus. I'll post in two parts, given the character limit here:
From "Money and Banking" (55 minutes) by George Reisman (My transcript and errors if any.):
[A]n enormous difference between gold money and irredeemable paper money which Mises identified is the radical difference between them with respect to the relationship they engender between the citizens and the government. Gold money makes the government financially dependent on the citizens. Irredeemable paper money makes the government financially independent of the citizens and makes the citizens financially dependent on the government.
Under gold money, whatever funds the government may possess at any given time leave its possession and enter into the pockets of the citizens who produce everything the government buys. To continue its operations, the government must regularly come to the citizens for fresh money. It cannot obtain the gold it needs from any other source except the citizens. It is financially dependent on them. And the result is that every act of government spending is easily perceived as a corresponding burden on the citizens. Every proposal for increased government spending in such circumstances represents an equivalent threat of increased taxes, with the further result that each… that such proposals encounter a strong resistance and are likely to fail.
A policy of budget deficits under a gold standard is not an option. Every year of deficits increases the government's interests burden while doing nothing to increase its revenue. Indeed, a mounting public debt under a gold standard brings with it the specter of default and results in the withdrawal of capital and of gold from the country and in a reduction in the volume of spending and revenues in that country, including of course the government's tax revenues. To avoid such dire consequences, all but the most recklessly irresponsible governments are compelled to operate with balanced budgets, which places them under the necessity of providing for all government expenditures out of current tax revenues.
Look like three parts, if that's okay with you:
A policy of budget deficits under a gold standard is not an option. Every year of deficits increases the government's interests burden while doing nothing to increase its revenue. Indeed, a mounting public debt under a gold standard brings with it the specter of default and results in the withdrawal of capital and of gold from the country and in a reduction in the volume of spending and revenues in that country, including of course the government's tax revenues. To avoid such dire consequences, all but the most recklessly irresponsible governments are compelled to operate with balanced budgets, which places them under the necessity of providing for all government expenditures out of current tax revenues.
But under irredeemable paper money conditions are entirely different. The ability to create such money gives the government a source of funds that does not depend on the citizens. The government now has its own independent source of funds: the printing press, or indeed simple ledger entrees on the books of its central bank that enlarge its checking balance.
In these circumstances, increased government spending does not appear as constituting any threat of increased taxes. The government is perceived as standing outside the economic system, free of the financial constraints that still apply to all the individual citizens. It can finance additional spending without raising taxes for it now has its own independent source of money.
Thus, as a fairly recent example, our President Bush can appear to give the people a prescription drug benefit as though it were a gift paid for out of his own pocket and something for which we should all be grateful. That's how he thought of it, and his advisors, and that's how most people thought of it.
. . .
Well, this transforms the character of political debate and results in an unchecked increase in government spending and government activity. The cost of new government programs no longer appears as a reason for rejecting them because the connection between their costs and higher taxes has been broken. Political debate now proceeds with the supporters of the programs enumerating their benefits to this or that group and the opponents appearing to have no basis to their opposition other than some form of inherent naysaying or misanthropy. In just this way, the so-called liberals, i.e., the interventionists and socialists, appear as the enlightened friends of mankind while their conservative opponents are made to appear as the heartless enemies of human well-being.
Indeed, things go even further. The nature of the radically changed monetary conditions drives the citizens to the conclusion that instead of them having to support the government, the government can support them, for in fact it is the government to whom they now obtain their money. The government's ability to create money appears as a magical bottomless purse from which the government is able to shower benefits upon the people, not only providing free benefits to the beneficiaries of its programs but also enriching everyone else, everyone who receives the additional money... the additional revenue and income generated by the continuing expenditure of the new and additional money. It is the mentality of the free lunch carried to the point of believing in a free breakfast and dinner for those who provide the free lunch. Its essence is expressed in Keynesianism and its doctrine of the government's spending multiplier.
An important manifestation of this belief is that "Washington," a city devoid of practically all actual production, a city populated primarily by bureaucrats living on goods produced elsewhere while doing almost everything in their power to hamper economic activity everywhere, can somehow bail out other economically far more important cities such as Detroit, Cleveland, St. Louis or New York, indeed, bailout entire states and regions and the entire rest of the country. What permits this delusion is that Washington is where the irredeemable paper money originates.
— George Reisman, "Money and Banking" (2007)
Thanks, John.
You're welcome, Gus. And thank you — I regularly read your blog as a morning treat. I'm grateful for that and for you, for what has become a regular source of interesting and helpful information and often entertaining and wonderful stories about your children and your life as a parent.
I think it's a profoundly important point that Reisman makes. We live in a distortion that inevitably is seen as just the way it is . . . because it is just the way it is. Wishful thinking will not change it. Changing the course of a mixed economy, welfare state is not an easy task.
(I see now that I included the same paragraph twice. My mistake.)
Thanks for the kind kind words.
I think one of the most damaging effects of the welfare state is the way it limits the imagination. There are so many things the government does that it shouldn't AND that most people could not imagine it not doing.
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