Here's Jerry Z. Muller, at Foreign Affairs, "The Neosocialist Delusion: Wealth Is Not the Problem":
Still more.
The movement’s signature policy proposal is a wealth tax, an annual levy on household assets. Touted by economists such as Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, all associated with the Paris School of Economics, the concept has been embraced by both Sanders and Elizabeth Warren, U.S. senators from Vermont and Massachusetts, respectively, who are running for the Democratic presidential nomination. At first, Warren advocated a two percent tax on households worth more than $50 million and a three percent tax on billionaires. Later, pressed on how she would pay for her proposed universal health insurance, she doubled the billionaire tax to six percent. Sanders’s plan starts at taxing $16 million in assets at one percent and tops out at an eight percent tax for assets exceeding $10 billion.
The radicalism of this approach is often underestimated. Many people conflate wealth taxes with higher income taxes or see them as mere extensions of a similar concept. But wealth taxes are fundamentally different instruments with much broader ramifications for economic dynamism and individual liberty.
The main effect of a wealth tax would be to discourage wealthy individuals from holding demonstrable assets. Any individual or household within shouting distance of the threshold would have to get its assets valued annually, imposing costs and creating a permanent jobs program for tax lawyers and accountants, whose chief responsibility would be to figure out ways around the law, including moving assets abroad.
A wealth tax would dramatically curtail private investment. The higher people rise on the economic ladder, the more of their resources go to investment instead of consumption. Those investments, in turn, often fuel innovative, risky ventures, which get funded in the hopes that they will eventually produce still greater gains. A wealth tax would upend the incentive structure for rich people, causing many to stop funding productive economic activity and focus instead on reducing their tax exposure and hiding their assets.
Warren contends that calculating one’s wealth tax would be as easy as calculating one’s property tax, but that is ridiculous. Take a firm that has a market value but no income—a frequent situation for startups but also common for established firms in various situations, such as a turnaround. Rich investors in such firms would have to sell their shares to pay the wealth tax or force the companies to disburse cash rather than invest in the future. Either way, the tax would discourage investment, reduce innovation, and encourage short-term thinking.
A wealth tax, finally, would force everyone whose assets were near its minimal threshold to give the government a full accounting of all those assets every year: homes, furniture, vehicles, heirlooms, bank accounts, investments and liabilities, and more. The result would be a huge expansion of the reach of government into citizens’ lives, a corresponding reduction in citizens’ privacy, and the accumulation and storage of vast amounts of highly sensitive data with few safeguards to prevent their misuse.
It is not only successful individuals who draw the neosocialists’ ire; it is also successful companies. If a firm grows big enough to become famous, it becomes a potential target of vilification; if it grows too big, it becomes a target for destruction. Sanders, Warren, and Ocasio-Cortez, a Democratic representative from New York, accordingly, have all pledged to break up Amazon, Facebook, and Google.
Here they can draw on a venerable antimonopoly tradition in American political culture from the trustbusters on, rooted in the assumption that the further away you move from Smith’s ideal of perfect competition among many small firms, the more the public is hurt. The economist Joseph Schumpeter, however, argued that Smith had greatly underestimated both the dynamism of capitalism and the role of entrepreneurs in driving it. Capitalism’s manifold benefits didn’t just happen; they were created, by a relatively small group of people responsible for introducing new products, services, and business methods. Entrepreneurs sought the big profits associated with temporary monopolies and so were driven to create whole new industries they could dominate.
Large companies, Schumpeter realized, acted as engines of innovation, plowing back some of their profits into research and development and encouraging others to do the same in the hopes of becoming an acquisition target. He would have been delighted with Silicon Valley, viewing technology giants such as Apple, Facebook, Google, and Microsoft as poster children for the enormous benefits to consumers that entrepreneurs generate.
Companies such as Amazon and Walmart, meanwhile, maintain their position through furious competition in service and price, contributing to the virtual elimination of inflation in the American economy. And yet it is precisely these dynamic, successful, customer-oriented companies that the neosocialists want to tax heavily, burden with regulations, and cut up for parts.
Image Credit: The People's Cube, "Chiquita Khrushchev: 'We will bury you!'."
