I'm coming around to the opinion that taxes on income are a bad idea. Income flows to people as they're trying to accumulate wealth, trying to climb from lower to middle to upper class. Higher taxes on income, especially highly progressive taxes, make it harder for people to move between social classes.

The focus on income tax creates a situation where the person who makes $200k/yr but has a net worth of $0 gets taxed far more than the person whose investments bring them $100k/yr and they have a net worth of $2,500,000.

Oh, and their lifestyle might be about the same despite the disparity in income, because one of them needs to work for a living so they'll need to live somewhere close to jobs, pay more for transportation, etc.

Higher income tax is great, if you're already wealthy. If I was wealthy, I'd be very happy people if stay focused on that. But I think taxing accumulated wealth is a much better way of leveling the playing field over time and also making sure capital stays in productive use. France already has something like a 0.5-1% "solidarity tax" on wealth, and it's a progressive tax.

According to Piketty, the return on capital has historically been around 5% per year, and returns are better at scale. For multi-billion dollar funds, the rates are around 9-10%. The "Financial Independence/ Retire Early" people who plan for pessimistic scenarios say to expect 4% return. Let's say it's reliable to expect 2-3%.

At $10M a person can expect about $200-300k in income. If we have a wealth tax of 1% their investment income after taxes reduces to $100-200k. If they want to maintain their previous standard of living, they need to make about $100k per year.

At $100M let's say economies of scale start to happen and even in a pessimistic scenario you can expect a 4% return. If we have a 2% wealth tax at this point, the person can still expect an investment-only income of $2M per year.

You can see where this is going. At $1B with a 5% pessimistic return, 3% wealth tax, $20M investment income. At $10B with a 6% pessimistic return, 4% wealth tax, $200M investment income.

The nice side effect of this is that the mere scale of capital doesn't provide competitive advantage. The wealth tax should be designed to even out the advantage of scale so that larger accumulations of capital need to be put to best use.

Putting some numbers on the napkin... The US has an aggregate net worth of $85 trillion dollars. The federal budget is $4 trillion. Assuming a power law distribution of net worth, let's guesstimate an average 2% tax on that $85 trillion, which comes out to $1.7 trillion. We could roughly cut income taxes in half or eliminate them except at very high levels ($1M+) if we used a wealth tax instead.

The important thing to note here is that the wealth tax still leaves about 2% investment income, it doesn't reduce the total over time. I think it's great that people can accumulate wealth and then live on it, or pass it on to the next generation. But it would be great if we can keep the income at around 1-2% so that the nearly guaranteed increase in accumulated wealth is the same or less than the growth rate of the economy, meaning that people who build businesses today have the ability to reach the same heights as those who built businesses yesterday, without extraordinary luck or blunders by those with wealth.