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1 Michael Schuyler, The Impact of Piketty's Wealth Tax on the Poor, the Rich, and the Middle Class 1 (2014)

handle is hein.taxfoundation/impkwt0001 and id is 1 raw text is: TAX@                     The Impact of Piketty's Wealth
FOUNDATION               Tax on the Poor, the Rich, and the
SPECIAL                   Middle Class
REPORT
Oct. 2014                B\, Michael Sch lIler
No. 225                  Fellow
Executive Summary
In his bestseller Capital in the Twenty-First Century, Thomas Piketty recommends a
wealth tax as a remedy to inequality. The basic version of Piketty's wealth tax would
impose a tax rate of 1 percent on net worth of $1.3 million and $6.5 million and 2
percent on net worth above $6.5 million. Piketty contemplates additional tax brackets,
including a bracket of 0.5 percent starting at about $260,000.
We used the Tax Foundation's Taxes and Growth (TAG) model, augmented with
wealth data from the University of Michigan's Panel Study of Income Dynamics, to
estimate how the U.S. economy would respond to Piketty's wealth taxes.
Key Findings
A wealth tax in the United States would reduce investment, wages, employment,
incomes, and output.
Piketty's basic tax would depress the capital stock by 13.3 percent, decrease
wages by 4.2 percent, eliminate 886,400 jobs, and reduce GDP by 4.9 percent, or
about $800 billion, all for a revenue gain of less than $20 billion.
The addition of a tax beginning at a net worth of about $260,000 would reduce
capital formation by 16.5 percent, decrease wages by 5.2 percent, eliminate 1.1
million jobs, and reduce GDP by 6.1 percent (about $1 trillion annually in terms of
today's GDP), all for a revenue gain of only $62.6 billion.
All income groups would be worse off under a wealth tax due to decreased
economic activity; in the second scenario, the after-tax income loss for the top
quintile would exceed 10 percent, but the losses for all lower quintiles would be in
the 7 to 9 percent range.
Unless one is willing to fight income and wealth inequality by making everyone
poorer, any distributional gains from the wealth tax would come at too great a
cost.
Because of daunting administrative and enforcement problems, Piketty's wealth
tax would also be wildly impractical.

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