I’ve shared multiple studies about the harmful impact of wealth taxes (see here, here, here, here, and here).

Today, let’s add to the body of evidence.

I’ll start by calling attention to a column I wrote in 2019 that warned how wealth taxes mean very high – even confiscatory – taxes on saving and investment.

Here’s a table that echoes my argument.

The above table comes from a new study by Adam Michel and Chris Edwards.

They explain why seemingly low tax rates on wealth are akin to extraordinarily high tax rates on income.

…low-rate wealth taxes are similar in economic effect to very high-rate income taxes. Wealth tax bills must be paid from annual income or cash flow. Suppose a person receives a pretax return of 8 percent on their family business. An annual wealth tax of 3 percent would effectively reduce that return to 5 percent, which would be like imposing a burdensome 38 percent marginal income tax rate. That 38 percent rate would be applied on top of the current federal and state individual income tax rates, which have top combined marginal rates ranging from 40.8 percent to 55.2 percent, depending on the state. …At California’s proposed wealth tax rate of 5 percent, any asset earning less than a 5 percent annual pretax return would face marginal effective income tax rates above 100 percent, even before paying other taxes. People with the lowest returns would perversely get hit with the highest tax rates. People losing money would face infinite marginal tax rates.

At the risk of stating the obvious, high marginal tax rates on productive behavior – especially saving and investment – are very misguided (for more information, peruse my four-part series on the topic, which is available here, here, here, and here).

The damage of wealth taxes applies whether the levy is imposed at the state level, the national level, or even if imposed globally.

Speaking of which, a new study by EY estimates the economic impact of a proposed global wealth tax.

There are two things from that study that deserve close attention. First, the study correctly notes that the main economic effect of wealth taxation is a smaller economy and lower wages.

Why? Because increasing the tax bias against capital is bad news for workers.

Implementing a 2% coordinated minimum tax on billionaire wealth would increase the effective tax rate (ETR) on capital held by billionaires. This raises the user cost of capital…, reducing the after-tax return on investment. A higher cost of capital discourages new investment and slows capital accumulation, reducing the capital stock available to workers over time. Lower capital per worker decreases labor productivity, which in turn reduces wages and employment. These effects compound over time as reduced investment leads to persistently lower capital stocks, generating sustained reductions in gross domestic product (GDP), wages, and employment.

Here are EY’s economic estimates.

I think the numbers are too low, but set that issue aside because what’s remarkable is that the study show that the tax does more damage when there is more compliance.

Indeed, the economic damage is nearly twice as high in the “low avoidance” scenario.

Which makes sense, of course, since a more effective wealth tax means more capital being diverted from the productive sector of the economy to government.

P.S. Here’s an entertaining explanation of why wealth taxation is a bad idea, and here’s the world’s most hypocritical supporter of wealth taxation.

P.P.S. As you might predict, bureaucrats at the European Commission and United Nations support wealth taxation.

P.P.P.S. I fretted in 2014 that wealth taxation was a growing threat and there’s now a nightmare scenario of how it could happen.