Wealth Tax Simulation

Wealth taxes are on the table in this election cycle. To use the previous post, they are in the Overton Window in a way they did not used to be.

So, if politicians are interested in this bit of economics, you’d think they’d ask economists about the effects. Here’s the results of a simulation of what Elizabeth Warren was proposing about a year ago:

… Under the assumption that all revenues are used to increase income transfers (excluding Social Security payments) that accrue primarily to lower income groups. Our simulation of the Warren wealth tax estimates in the long run GDP falls by roughly 2.7 percent, as a result of decline in the capital stock of roughly 3.7 percent and in total hours worked of 1.5 percent, and aggregate consumption falls by 1.4 percent. Initially hours worked decline by 1.1 percent in a full employment economy; …the changes in real wages and the decline in hours worked imply that annual household real wage income on average across all wealth cohorts … Per-household  wealth held by the top lifetime income group (the top 0.25 percent) falls …  [italics are in the source]

Perhaps everyone ends up poorer because you should tax what you already taxed.