This ignores the fact that everywhere (including countries where wealth taxes are implemented today), there is a floor below which the tax does not kick in.
Very much. The numbers politicians have thrown around have had floors from 100 million to a billion. If Graham is speaking to the interests of future 100 millionaires I think most of them should be far more concerned about the country they live in when they almost assuredly never get anywhere close to that ceiling. For the few who do, who can shed tears when someone with 100s of millions is thwarted by government policy from reaching levels already so far beyond that which would compromise the happiness of an extremely privileged person. Nobody realistically suggesting something that is going to blunt startup Johnny's adventure to make enough money to buy a huge condo in SF, a Rolls Royce, a yaht, and a private waitstaff, if that is what Graham is raising alarms over. Johnny can keep dreaming.
This. What all of these taxes accomplish is preventing people from becoming wealthy. In this way it benefits the people that are already wealthy by making it that much harder to climb the wealth ladder. Many of the tax increases on the "rich" really just tax the upper middle class and do nothing to tax people that are actually wealthy.
If you want to tax the wealthy, then simplify the tax code and remove loopholes and deductions. Leave rates alone.
No, but they also wouldn't be that effective at taxing wealthy people that would structure their wealth to avoid the tax. That's the issue. You either lower the limit to the point where you capture the upper middle class, or you don't get any revenue because wealthy people can avoid the tax entirely.
Yeah, exactly: The floor is not going to be "100 million" for very long before they have to drop it to "100 thousand" because the people with "100 million" can change the way they structure their wealth faster than the regulators, because of regulatory capture and they'll need that money from somewhere. The upper-middle class carries almost the entire tax burden of the U.S. It's hard to boo-hoo about when you've got 2 cars, a single family home, etc. but it has an enormous negative impact on the economy to punish one tier of the economic ladder so hard.
All breakpoints in tax systems contribute to market inefficiency, because they incentivize manipulating your finances to stay below breakpoints instead of maximizing efficiency. It would be better to apply a flat wealth tax and correct for the regressive effect of decreasing marginal utility of money with UBI.
That doesn't make sense. Once you hit a threshold, usually the amount of money below the threshold is taxed at 0% or a lower percentage, then anything earned on top is taxed at a higher rate. You still earn more money by earning above the threshold.
That's still a discontinuity in the marginal value of income. You don't need the slope of the post-tax income:pre-tax income graph to go negative for there to be inefficiency. Any sharp change in the curve is enough.
Where's the incentive to fiddle your taxes? Yes you can donate your money to bring yourself into a lower tax band but you will still never have more in your bank account by doing so. e.g if there is a system where tax is 10% then it goes up to 20% at a $100 income. If I earn 99 then my take home is 89.1 (99 * 0.9) if I earn 101 then my take home is 90.8 (100 * 0.9 + 1 * 0.8). Yes, the effective tax rate is higher but I can never take home more by deliberately earning less money.
Note: I am note defending any previous arguments, just trying to make a fact clearer.
Your calculations was right in that idealistic tax system, but the real world is really messy with lots of exceptions, Tax credits, Benefits, and such.
Building on your example, I will add a little Child Benefit to make a slightly less ideal idealistic-scenario.
I chose this example because I remember vividly a story about a family in the UK that avoided getting promoted because their take-home would decrease. Of course it have to be a very small promotion in order to not be worth it. I don't know if cases like this is rare in the US, but it is generally a thing.
You're forgetting benefit cliffs which are a large chunk of the discontinuity problems. Any benefit that does not have a gradual phase-out (like subsidized health care plans) will lead to these discontinuity problems.
if you make $100,000,001 under a 100 million wealth tax at 1%, you pay $.01, not $1,000,000.01 so there is no point trying to stay under 100 million.
Further, a flat wealth tax has immense inefficiency in that it forces people with $100s or $1000s of dollars to their name to calculate their wealth for a $1-$100 payout to the government rather than do something productive with their time.
