The Center for Freedom & Prosperity (CF&P) Foundation has published a new paper titled, “The Economic Effects of Wealth Taxes.” Authored by John Diamond and George Zodrow of Rice University, the paper considers the significant economic damage that would occur if lawmakers adopted a wealth tax of between 2 percent-6 percent. Such a plan, modelled after the proposal from Senator Elizabeth Warren, is likely to be part of next year’s post-election tax agenda.
Key findings from the paper:
A 2 percent annual tax on household wealth above $50 million and a 6 percent tax on household wealth over $1 billion would have the following effect on economic outcomes:
- Long-run GDP decline of roughly 2.7 percent (relative to a steady state with no wealth tax) because of a decline in the capital stock of roughly 3.7 percent;
- An immediate loss in hours worked of 1.1 percent, equating to approximately 1.8 million jobs, and a long-run loss in hours worked of 1.5 percent;
- Initial decline in average annual household real wage income of about $2,500;
- Explosive welfare state growth as transfers relative to GDP (excluding SS) increase by 70.1 percent;
- Per-household wealth held by the top 0.25 falls by $3.7 million, and from lower-middle to upper-middle households, declines in lifetime wealth range from $440 to $49,660.
- It projects the lowest three lifetime income deciles to be the beneficiaries of more redistribution spending, so they wouldn’t be net losers (other than increased dependency on government).
CF&P Chairman Dan Mitchell commented, “A wealth tax would shrink GDP, reduce annual household incomes and result in lost wages and American jobs. It would be very bad news for our economy and for families in all economic tiers.”
The Center for Freedom and Prosperity (CF&P) Foundation is a non-profit organization created in October 2000 to advance market liberalization. The CF&P Foundation seeks to promote economic prosperity by educating the American people and elected representatives using original research and outreach.