We’re Always Just One New Tax Away From Utopia

With Elon Musk’s ascent to trillionaire status following last Friday’s SpaceX IPO, progressive politicians are once again calling for a wealth tax. Elizabeth Warren, Bernie Sanders, and more argue that taxing immense fortunes would provide the revenue needed to fund everything from universal childcare to expanded healthcare and housing programs. Listening to them, one gets the impression that society is perpetually just one new tax away from solving its big problems.

That’s fantastical thinking. The wealth tax is often presented as an obvious way to fund government programs—basically free money. Yet its proponents rarely grapple with two realities. First, the tax may be practically unworkable. Second, even if it could be implemented, the revenue would not solve the problems these politicians identify, and may even worsen them. These are separate questions, and both deserve examination.

What exactly is being proposed? Senator Warren’s plan has generally called for an annual tax on fortunes above certain thresholds. Under various versions, households worth over $50 million would pay an annual tax on that, while billionaires would pay even more. The idea is that, rather than waiting to tax wealthy individuals once they sell assets and realize gains, the government would tax the wealth itself every year.

On paper, this sounds simple, but it runs counter to how wealth is actually held in modern economies.

This brings us to the first problem: unworkability.

People who hear the phrase “wealth tax” may imagine money sitting in a checking account. But that is not where most billionaire wealth resides. The fortunes of individuals like Musk are tied to stock ownership, often in companies they founded and continue to control. Their wealth exists on paper, via market valuations that can fluctuate.

A wealth tax, therefore, becomes a tax on unrealized gains, which immediately creates practical difficulties. A founder’s net worth might be assessed based on a company valuation today, only for that valuation to collapse in a year. If the government taxes wealth on the way up, should it reimburse taxpayers on the way down? If so, taxpayers effectively gain a government-backed hedge against investment losses. If not, the tax becomes punitive and unfair.

A billionaire whose fortune is tied to stocks may not have sufficient cash to pay a large annual wealth tax, in which case they must sell shares. But that is precisely where the proposal becomes economically dangerous.

Large-scale, recurring stock sales by founders and major shareholders would place downward pressure on company valuations. In many cases, founders would gradually lose ownership of businesses they spent decades building.

Supporters often shrug at this consequence, but ownership matters. Founders frequently retain large stakes to continue directing their companies’ long-term visions. A system that forces continuous liquidation would fundamentally shift incentives away from entrepreneurship and company-building.

Nor would the damage be confined to billionaires. Today, 62% of American adults, or 162 million people, own stocks, using the market to accumulate wealth. A wealth tax that, even if directed only toward the rich, causes major selloffs could reduce valuations and diminish the retirement savings of teachers, nurses, and other ordinary investors.

Granted, this may strike the reader as a worst-case hypothetical. But other reasons wealth taxes do not work are more easily verified, because such taxes have already been tried and failed in multiple countries. Governments found it difficult to assess assets, enforce tax payments, and prevent capital flight. In Germany, Sweden, France and elsewhere, the tax typically raised just 0.1–0.2% of GDP.

But let’s assume that Warren, who set the baseline net worth for her “Ultra-Millionaire Tax” above her own $12 million fortune, found a way to implement it smoothly and generate revenue. Would that necessarily be a good thing? This is where the debate becomes more philosophical and raises my second concern.

Politicians such as Warren and Sanders often discuss new spending programs as though their benefits are self-evident. Yet there is remarkably little discussion of whether additional government spending actually produces good outcomes, or may be harmful.

It was particularly striking that Warren pointed to government-funded daycare as a proposed use of revenue, stating on X that Musk “could pay for child care for all three and four-year-olds in America.” We are only months removed from one of the largest public-benefit fraud scandals in U.S. history, when federal and Minnesota state funds intended to feed low-income children were allegedly diverted to political insiders. Daycare facilities were at the center of this scandal.

And Minnesota was not an isolated problem, nor are daycares. There are persistent waste and fraud concerns around government programs tied to education, healthcare, housing, disability, and more.

Beyond outright misuse, government spending often produces negative second-order effects. Subsidies can drive prices higher by increasing demand, create self-perpetuating bureaucracies, and produce constituencies that become dependent on continued funding regardless of effectiveness. These are not arguments against all government spending, but they are consequences that sometimes result.

Wealth-tax advocates frequently speak as though revenue collection itself is the hard part. Once the money is obtained, the benefits are assumed to follow automatically.

The federal government, however, already has a $7.4 trillion annual budget, which works out to roughly $21,600 in spending per adult and child. About $1.5 trillion is used for healthcare, even as the nation becomes increasingly unhealthy and obese. $740 billion is allocated to anti-poverty efforts, yet the official poverty rate has remained stable for decades. Two percent of the federal budget is spent on education as educational outcomes continue to decline. The examples go on.

When the federal government throws all this money into systems that seem ineffective, one might reasonably ask what another new tax would accomplish. But I have never heard Warren or her left-wing contemporaries address that issue head-on.

Ultimately, a wealth tax is incompatible with how wealth is created. Had it been put into effect decades ago, today’s billionaires would not “exist,” but neither would many of the companies they built. Musk himself is the ultimate example: after selling his PayPal stake for $180 million in 2002, he used the money to launch Tesla and SpaceX. Had Warren’s tax existed then, Musk likely never could have scaled those transformative companies. Instead, that money would have gone into government bureaucracies to “solve” (but likely perpetuate) problems that are not going away.