Modeling a Wealth Tax

August 2020

Some politicians are proposing to introduce wealth taxes in addition
to income and capital gains taxes. Let's try modeling the effects of various levels
of wealth tax to see what they would mean in practice for a startup
founder.

Suppose you start a successful startup in your twenties, and then
live for another 60 years. How much of your stock will a wealth tax
consume?

If the wealth tax applies to all your assets, it's easy to
calculate its effect. A wealth tax of 1% means you get to keep
99% of your stock each year. After 60 years the proportion
of stock you'll have left will be .99^60, or .547. So a
straight 1% wealth tax means the government will over the
course of your life take 45% of your stock.

(Losing shares does not, obviously, mean becoming net
poorer unless the value per share is increasing by less than the
wealth tax rate.)

Here's how much stock the government would take over 60
years at various levels of wealth tax:

wealth taxgovernment takes
0.1%