Increasingly, economists are arguing that wealth taxes need not slow growth
ago Thomas Piketty’s “Capital in the Twenty-First Century”, a weighty analysis of rising inequality, flew off shelves and ignited fiery debate. Fans and detractors alike tended to agree on one thing, at least: its proposal to fix inequality—a tax on wealth—was a dud. A half-decade later the mood has shifted.
Other economists are warming to the idea. In a new paper* published by the National Bureau of Economic Research, a team of five economists aims squarely at the standard economic argument against wealth taxes. Today’s wealth is yesterday’s income, that reasoning goes, so wealth taxes are bad because they discourage income-generating activities, such as work and investment. Taxes on capital in particular should be spared, because investment is an input into future growth.
The authors’ use-it-or-lose-it approach to wealth taxation has some similarities with arguments for taxes on land values . Henry George, a 19th-century American journalist, became the Thomas Piketty of his day by campaigning for such levies. The rents earned by wealthy landowners derive in part from improvements they make to the land, he argued, but also from land’s scarcity.
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