How Should We Tax Wealth?
Why Taxing Income and Taxing Wealth Are Completely Different Problems
Most wealthy people pay a lower effective tax rate than their assistants — and it's not because of loopholes, it's because of how the tax system was designed from the start.
The Idea
There's a distinction that gets lost in most arguments about taxation: the difference between taxing what you earn and taxing what you own. Income taxes capture the flow of money — wages, salaries, bonuses. Wealth taxes target the stock — the accumulated pile of assets sitting in property, shares, trusts, and private businesses. These are not just two versions of the same thing. They operate on entirely different economic logic, and conflating them is why so many tax debates produce more heat than light. The case for redistributive wealth taxation rests on a simple observation: wealth compounds. Once a fortune reaches a certain scale, it tends to grow faster than the economy itself — not because its owner is working harder, but because capital generates returns on capital. The economist Thomas Piketty framed this as r > g: when the return on capital (r) consistently exceeds economic growth (g), inequality widens structurally, not because anyone is cheating, but because the system is working exactly as designed. This matters because extreme concentrations of wealth don't just cause envy — they reshape political power, distort markets, and narrow the opportunities available to everyone else. The redistributive argument isn't primarily moral outrage; it's a structural claim. When too much wealth pools at the top and sits in appreciating assets rather than circulating, it can drag on the broader economy. Redistribution, in this framing, is less about punishment and more about keeping the engine of opportunity running.
In the World
In 2021, investigative journalists at ProPublica obtained a trove of IRS data covering some of the wealthiest people in the United States. What they found was striking not because of fraud, but because of perfectly legal arithmetic. Between 2014 and 2018, the twenty-five richest individuals saw their combined wealth grow by roughly 401 billion — yet the income taxes they paid amounted to a fraction of what a middle-income household pays as a share of earnings. How? Wealth stored in unrealised capital gains — shares that have risen in value but haven't been sold — is not taxable income in most systems. So someone whose net worth grows by hundreds of millions in a year through appreciating stock pays nothing on that growth until they sell. In the meantime, they can borrow against those assets at low interest rates, funding their lifestyle without triggering a tax event at all. It became known informally as the 'buy, borrow, die' strategy. This isn't unique to one country. In Sweden — often held up as a model of egalitarian taxation — a wealth tax was actually abolished in 2007, partly because it was pushing capital offshore. Norway reintroduced and tightened its wealth tax in 2022, only to watch a number of billionaires relocate to Switzerland within months. The mechanics of redistribution, it turns out, are far more complicated than the principle. The idea is simple; the plumbing is not.
Why It Matters
Understanding this distinction changes how you hear the debate. When someone argues against wealth taxes, they may be making a legitimate point about capital flight or administrative complexity — not necessarily defending greed. When someone argues for them, they may be grappling with a real structural problem, not just stoking class resentment. It also reframes how you think about your own position in the economy. Most people accumulate wealth primarily through work — salary, saved income, a pension. The compounding dynamics that drive extreme inequality operate at a scale most of us will never experience. But the policy choices made about how to tax wealth at the top have downstream effects on public services, housing markets, and the general texture of economic opportunity that touch everyone. Knowing that r > g is a structural tendency, not a moral failing, means you can think about redistribution as a design question rather than a blame game. What kind of economic system do we want to build? That's a question worth having an informed opinion on — and now you have a sharper framework for forming one.
A Question to Ponder
If wealth naturally compounds faster than economies grow, is rising inequality the default state of capitalism — and if so, what level of redistribution would you consider fair, and who gets to decide?
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