The idea of a wealth tax refuses to die, despite all the criticisms aimed at it over the years and in various nations.

Democrat lawmakers have unveiled a plan to hit billionaires with a wealth tax as politicians continue to wrangle over President Joe Biden’s huge infrastructure proposals.

The “Billionaires Income Tax” would affect about 800 US citizens and force them to hand over each year about a quarter of the gains made in shares, even if they hadn’t been sold. Super-rich figures such as Tesla/Space-X tycoon Elon Musk and Amazon’s Jeff Bezos, would be in the firing line.

Musk, who has criticized attempts to tax his shares in Tesla (Daily Telegraph, October 28), was quoted as saying: “Eventually they run out of other people’s money and then they come for you.” (His quote has echoes of Margaret Thatcher’s oft-quoted maxim that “socialists always run out of other people’s money.”)

Senator Elizabeth Warren, a senior Democrat, has in the past campaigned for a wealth tax. The idea is controversial. A number of European countries, such as France and Sweden, enacted them in the past, before later repealing them. Three European countries still levy a net wealth tax: Norway, Spain, and Switzerland. The latter example might come as a surprise because Switzerland was previously used as an offshore financial location by wealthy US citizens, until its bank secrecy laws were changed almost a decade ago.

Critics say that wealth taxes produce relatively low revenue, are costly to collect, and are assaults on private property rights. It has even been claimed that such taxes violate the US Constitution.

At a time when there has been widespread coverage of the immense fortunes enjoyed by Big Tech entrepreneurs, for example - contrasting with the plight of people amidst lockdowns - the political traction for the idea has grown.

Democrats in Capitol Hill are trying to agree on how to finance Biden’s infrastructure spending plans costing up to $2 trillion. Biden is reportedly keen to tie up the deal before attending the COP26 climate conference in Glasgow, UK, at the weekend. Biden’s preferred option of taxing the wealthiest Americans and hiking corporate tax rates have been opposed by more centrist Democrats such as Joe Manchin of West Virginia. 

A wealth tax would apply for three straight years to people with either $1 billion in assets or $100 million in annual income and would raise about $200 billion, media reports said (Daily Telegraph, other). 

Critics say that taxes on capital will reduce growth and hit jobs. In a paper by John Diamond and George Zodrow of Rice University, the authors predicted that a wealth tax on Senator Warren’s earlier outline could weaken gross domestic product by around 2.7 per cent (relative to a steady state with no wealth tax) due to a decline in the capital stock of roughly 3.7 per cent (source: Center For Freedom and Prosperity, a US free market think tank, August 12, 2020).