Margaret Thatcher famously said that leftists “would rather that the poor were poorer, provided that the rich were less rich.” French economist and inequality researcher Thomas Piketty, author of best-selling Capital in the Twenty-First Century, would put that exact plan into action, all in an effort to reduce the gap between the one percent and everybody else. The Tax Foundation has gone ahead and attempted to model his plan to slap a wealth tax on the rich. And here is what it found:
The basic version of Piketty’s wealth tax would impose a tax rate of 1 percent on net worth of $1.3 million and $6.5 million and 2 percent on net worth above $6.5 million. Piketty also contemplates additional tax brackets, including a bracket of 0.5 percent starting at about $260,000.
– Piketty’s basic tax would depress the capital stock by 13.3 percent, decrease wages by 4.2 percent, eliminate 886,400 jobs, and reduce GDP by 4.9 percent, or about $800 billion, all for a revenue gain of less than $20 billion.
– The addition of a tax beginning at a net worth of about $260,000 would reduce capital formation by 16.5 percent, decrease wages by 5.2 percent, eliminate 1.1 million jobs, and reduce GDP by 6.1 percent (about $1 trillion annually in terms of today’s GDP), all for a revenue gain of only $62.6 billion.
– All income groups would be worse off under a wealth tax due to decreased economic activity; in the second scenario, the after-tax income loss for the top quintile would exceed 10 percent, but the losses for all lower quintiles would be in the 7 to 9 percent range.
The rich would be less rich, but so would everybody else. Piketty’s analysis leaves much to be desired, obviously, but one big thing he misses is that every rich person isn’t a layabout heir or heiress living off the family fortune. America isn’t, say, France. Indeed, the U.S. has one of the highest shares of entrepreneur billionaires per million people of any advanced economy (only Hong Kong and Israel have more), while France has one of the lowest. And those billionaire entrepreneurs and the firms they create are pretty important in supplying the U.S. economy with innovative new products and services and good jobs. Maybe instead of dragging the top down, we should figure out how to encourage more of this dynamic entrepreneurship — even if the result is more of those terrible billionaires.