What can look like a very small tax is not at all small when applied repeatedly (annually).
As an example a popular “Just two cents” plan takes a third of the value of a taxed base in 20 years and by 35 years, the government has received over half.
Assuming no change to taxed wealth value is a huge assumption. A better baseline assumption would be a conservative mix of index funds, IMO, which would result in 3-4% return IIRC.
Okay, this is interesting. Let's play out a scenario.
Take a 45-year-old who's worked hard and gotten very lucky. They've earned $50 million from an IPO and are retiring early. How much money can they spend per year, before and after the wealth tax?
Just to keep it interesting, I'm proposing this scenario before running the numbers.
Assumptions:
1. Death at 90, no money left over.
2. Money invested very conservatively with 3.5% return.
3. No income, so no income tax or capital gains tax [1].
4. Inflation is 1.76% (average of last 10 years [2]).
5. Wealth tax is 0.4% applied to wealth in excess of $30mm.
With the wealth tax, our lucky devil can spend $1,509,000 every year. That's inflation adjusted, so when they turn 90, they're spending $3.3mm per year.
Without the wealth tax, they can spend $45K more: $1,554,000 per year (inflation adjusted).
I don't know about you, but if I had $1.51mm in spending money per year, I wouldn't be sweating the extra $0.05mm. It seems like a reasonable cost to me, and very low compared what you'd pay in income tax.
Good math. Note that this scenario is using the 80% lower CA wealth tax proposal, not the "just two cents" wealth tax that was proposed during the DNC primary race earlier this year that I was using (as openly/clearly disclosed).
Sorry, I missed that. I think it's a bit disingenuous to use a year-old proposal from a failed primary candidate, though, rather than the actual wealth tax under discussion.
However, if we were to use Warren's proposal, our lucky millionaire would be unaffected, because it doesn't kick in until $50mm. (A happy coincidence.)
If I run the numbers again, using a very lucky millionaire with $100mm in assets, it comes out as follows:
1. Warren wealth tax: $2,613,000 yearly spending power
2. CA wealth tax: $2,939,000 yearly spending power
3. No wealth tax: $3,104,000 yearly spending power
Warren's proposal is much more aggressive about leveling wealth inequality, especially considering that it jumps to 6% for billionaires. I'm not convinced it was a serious proposal, though, given that it was part of Warren's campaign rhetoric. I think she's serious about a wealth tax, but I suspect the specific proposal was a starting point in the bargaining process—an attempt to shift the Overton window, if you will—not the expected outcome.
Your wealth is not decreasing in this scenario. You have ~30% more apples.
What people (wealth tax supporters) are really trying to do is tax unrealized gains that compound because there are no transactions to tax. Dubious legally for the U.S. but not onerous if structured right.
As an example a popular “Just two cents” plan takes a third of the value of a taxed base in 20 years and by 35 years, the government has received over half.