Senator Elizabeth Warren was on that great forum of political philosophy, The View, talking up her plan to confiscate the total assets of certain well-off Americans at a rate of 2 percent annually. She argues that this tax can pay for . . . almost everything: writing off college loans, paying for raises for certain workers, etc. She did not go so far as to claim that it turns a sandwich into a banquet, but she’s well into huckster territory.
Harvard’s Professor Lawrence Summers estimates that the Warren wealth-confiscation scheme would raise somewhere between 12.5 percent and 40 percent of what Warren claims. Her estimates are, amusingly enough, partly based on some old-school self-financing voodoo, for example claiming that the taxes would help to pay for themselves by encouraging certain kinds of additional economic activity by supplementing the incomes of favored Democratic constituencies. (The Republican superstition of self-financing tax cuts is the GOP version of the same wishful thinking.)
A 2 percent tax on the wealth of wealthy people may not sound like very much. But what it amounts to is a very high income tax on investment. The inflation-adjusted long-term return on the S&P 500 runs about 7 percent. Taking 2 percent annually of an asset growing at 7 percent effectively amounts to an additional income tax of 30.6 percent on top of the existing taxes on capital gains and corporate income.
If you think that is not going to change investor behavior, you have another think coming.