Here’s a letter to the New York Times:
Calling for a one-time tax of five percent on each American’s net wealth in excess of $2.5 million, Daniel Markovits writes that “[t]he very richest tend to store much of their wealth not in publicly traded securities but in private businesses, art and other difficult-to-value forms” (“A Wealth Tax Is the Logical Way to Support Coronavirus Relief,” April 22). This claim, as used, is misleading.
Yes, the super-rich do keep the single largest portion of their wealth in private businesses. In fact, billionaires keep most of their wealth in this form. But this reality works against rather than for Prof. Markovits’s proposal.
Wealth kept in such businesses, contrary to the false impression conveyed by lumping it in with art, is not sitting idly to gratify its owners’ consumption whims. Instead, wealth kept in businesses is invested in activities that produce outputs valued by the general public – outputs, by the way, that are produced by workers employed by these firms. Indeed, the only reason these assets constitute wealth for their owners is that they are used productively. If these businesses used resources wastefully the value of these investments would soon turn negative and their owners would no longer be super-rich.
Prof. Markovits’s proposed tax, therefore, would likely draw down not super-rich people’s consumption but, rather, their investments in businesses. In doing so, this tax would remove from the economy a large chunk of productive capital that employs workers and helps to supply ordinary people with the goods and services that make possible our modern standard of living. This tax, in short, would over time make us all less prosperous than we would otherwise be.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030