Why we don’t believe Gabriel Zucman about wealth
So the latest proposal is that:
One mechanism for achieving this goal is a wealth tax on the ultra-wealthy. The Tax Policy Center recently released an analysis of a new policy called the Five & Dime tax. This proposal would impose a 5% tax on household wealth exceeding $50m and a 10% tax on household wealth over $250m. The Five & Dime tax would raise $6.8tn over 10 years, slow the rate at which the US mints new billionaires, and reduce the billionaires’ share of total US wealth from 4% to 3%.
The argument in favour of this is nothing more than - and we kid you not, it really is nothing more than - “Wah, Wah, they’ve got lots!” Absolutely zero attention is paid to the effects upon incentives, all that Nobel winning stuff from Mirrlees about not taxing wealth and capital itself and so on. Just they’ve got lots and shouldn’t.
Sure, sure, politically popular at the mouthbreathing end of the economic spectrum. But this is one reason why we don’t believe a word of it. From the grand Saez and Zucman paper on the wealth distribution:
Let us first define the concept of wealth that we consider in this paper. Wealth is the current market value of all the assets owned by households net of all their debts. Following international standards codified in the System of National Accounts (United Nations 2009), assets include all the non-financial and financial assets over which ownership rights can be enforced and that provide economic benefits to their owners.
Our definition of wealth includes all pension wealth— whether held in individual retirement accounts, or through pension funds and life insurance companies—with the exception of Social Security and unfunded defined benefit pensions. Although Social Security matters for saving decisions, the same is true for all promises of future government transfers. Including Social Security in wealth would thus call for including the present value of future Medicare benefits, future government education spending for one’s children, etc., net of future taxes. It is not clear where to stop, and such computations are inherently fragile because of the lack of observable market prices for these types of assets. Unfunded defined benefit pensions are promises of future payments that are not backed by actual wealth. The vast majority (94% in 2013) of unfunded pension entitlements are for government employees (federal and local), thus are conceptually similar to promises of future government transfers, and just like those are better excluded from wealth.
That is, everything that is already done to smooth out the wealth distribution is explicitly excluded from the argument in favour of wealth redistribution. As we’ve noted more than once, and is becoming more salient these days, a below market rent for life is a form of wealth. One that in Westminster has a capital value of perhaps £1 million (using the same capitalisation method as in the Saez and Zucman paper that is - Hah!). So is the NHS wealth, so is free education for the kiddies wealth, so is the very existence of social insurance wealth.
Look, they even exclude the old age pension from their calculation of pension wealth.
This is Worstall’s Fallacy - demanding what is to be done without accounting for what is already done.
No, really, think on it a bit. The cash should be spent upon:
Lawmakers could opt for high-return public investments like debt-free college, helping working families afford childcare, expanding affordable housing, rebuilding crumbling infrastructure, and strengthening climate initiatives.
But by the system of measurement in use none of those things add an iota, penny or red cent to the wealth of the recipients.
Sorry, we don’t believe anything people are saying about the wealth distribution nor the varied insistences on brutal taxation regimes. Simply because no one is counting wealth properly. Now, whether we think they refuse to count so as to be able to push the brutality or because they’re just not very good at counting is another thing. But we do think that discussions of public policy should start from reality. We’re picky that way.
Tim Worstall