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Isn’t a Wealth Tax Common Sense?

The wealth-tax proposals being advanced by Democratic US presidential primary contenders clearly meets the public-finance standard for an ideal form of revenue generation. So why have these plans drawn such vehement criticism from so many who should be supporting them?

BERKELEY – I was not surprised when leading Democratic primary contenders began endorsing a “wealth tax” along the lines of what has been proposed by my University of California, Berkeley, colleagues Gabriel Zucman and Emmanuel Saez. What has surprised me is the level of pushback these candidates have received, particularly from those who should be in favor of anything that moves the United States toward a more progressive tax system. 

When I first began studying public finance, I was taught that there were three principles of taxation, all stemming from the seventeenth-century French politician Jean-Baptiste Colbert’s dictum to “so [pluck] the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

The first principle is always to broaden the tax base, so that you can hit your revenue target with the lowest possible (the least hiss-inducing) tax rates. The second is to tax items with inelastic demand, in order to minimize the tax system’s distortive effects on broader patterns of economic activity. Finally, the actors who should be taxed the most are those for whom the utility costs of paying taxes are the least – that is, the rich.

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