Wealth Taxes and Property Rights: A Theoretical Framework for Policy Evaluation

This paper develops a theoretical framework that quantifies the equivalent capital income tax rate of a wealth tax. By reframing wealth taxation in terms of property rights and effective capital income rates, the model makes the tradeoffs of such policies transparent to citizens and policymakers. The framework addresses a fundamental question in public finance: What rate of capital income taxation, under secure property rights, yields the same economic outcome as living under the recurring threat of wealth confiscation, as is the case under a wealth tax? The calculator shows that when using historic averages for returns to risk-free assets, wealth tax rates of 1, 2, 5, and 8 percent correspond to capital income tax rates of 17.5, 30, 52.5, and 64.6 percent respectively.