Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, November 14, 2019

AI Summary. France's wealth tax, which levied top rates of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak—about 1% of total tax revenue—while at least 10,000 wealthy individuals left the country, primarily for Belgium. One French economist estimated the tax cost the government nearly twice the revenue it generated.

Noah Smith Bloomberg
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French Wealth Tax likely cost French State 2x revenue in terms of lost income tax.

Does a wealth tax raise less revenue than it costs?

Core argument: France's wealth tax, levied at a top rate of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak, about 1% of total tax revenue.

France's wealth tax, implemented from 1982-1986 and 1988-2017, imposed a top rate of 1.5%-1.8% on fortunes over €13m ($14.3m), raising only a few billion euros at its peak, or about 1% of total tax revenue. However, it led to the exodus of at least 10,000 wealthy individuals, primarily to Belgium, resulting in a significant loss of income and other taxes. French economist Eric Pichet estimated that the wealth tax cost the government nearly twice the revenue it generated. This outcome highlights the potential pitfalls of high wealth taxes, as the loss of affluent taxpayers can outweigh the benefits, suggesting that broader tax strategies might be more effective in addressing inequality without causing capital flight.

Takeaways by Macro Roundup® AI

  1. France's wealth tax, levied at a top rate of 1.5%–1.8% on fortunes above €13m ($14.3m), raised only a few billion euros at its peak, about 1% of total tax revenue.
  2. At least 10,000 wealthy individuals left France, primarily for Belgium, during the wealth tax's operation from 1982–1986 and 1988–2017, costing the government income and other tax receipts.
  3. French economist Eric Pichet estimated that France's wealth tax cost the government nearly twice the revenue it generated.

"...France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. The top rate was between 1.5% and 1.8%, with the total tax rate on fortunes larger than 13 million euros ($14.3 million) hovering at about 1.4%. This is much less than the 6% top rate proposed by Warren (not to mention the 8% proposed by her fellow candidate, Senator Bernie Sanders), but it's close to the 2% rate Warren would impose on fortunes larger than $50 million....The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium, which has a large French-speaking population. When these individuals left, France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax...."

Noah Smith, "France Tried Soaking the Rich. It Didn’t Go Well.,"Bloomberg, November 14, 2019, https://www.bloomberg.com/opinion/articles/2019-11-14/france-s-wealth-tax-should-be-a-warning-for-warren-and-sanders

France Tried Soaking the Rich. It Didn’t Go Well.

In recent years, several prominent economists have brought attention to the problem of growing inequality. These scholars include Thomas Piketty, author of the best-selling book “Capital in the Twenty-First Century,” and Emmanuel Saez and Gabriel Zucman, who in a new book chronicle the rise in American wealth inequality. All three embrace the same solution: much higher taxes. Piketty has declared that billionaires should be taxed out of existence, and he called for a global wealth tax, while Saez and Zucman helped Democratic presidential candidate Elizabeth Warren design her proposal for a U.S. wealth tax. Piketty and Saez have also suggested taxing top incomes at a rate of more than 80%.

Other economists have struggled to evaluate dramatic proposals like this. Studies on the effects of taxation when rates are moderate might not be a good guide to what happens when rates are very high. Economic theories tend to make a host of simplifying assumptions that might break down under a very high-tax regime. Historical experience is of some help, because the U.S. had very high top income taxes in the 1950s, but economic conditions could be very different now.

One way to predict the possible effects of the taxes is to look at a country that tried something similar: France, where Piketty, Saez and Zucman all hail from.

During the past few decades, as income inequality rose in most rich countries, it stayed relatively constant in France. The biggest reason is government redistribution in the form of taxes and social-welfare spending. France leads its rich-country peers, including the legendarily egalitarian Scandinavian countries, on both measures:

France Tried Soaking the Rich. It Didnt Go Well: Extended Excerpt Image 1


France, therefore, shows that inequality, at least to some degree, is a choice. Taxes and spending really can make a big difference.

But there’s probably a limit to how much even France can do in this regard. The country has experimented with both wealth taxes and very high top income taxes, with disappointing results.

France had a wealth tax from 1982 to 1986 and again from 1988 to 2017. The top rate was between 1.5% and 1.8%, with the total tax rate on fortunes larger than 13 million euros ($14.3 million) hovering at about 1.4%. This is much less than the 6% top rate proposed by Warren (not to mention the 8% proposed by her fellow candidate, Senator Bernie Sanders), but it's close to the 2% rate Warren would impose on fortunes larger than $50 million.

The wealth tax might have generated social solidarity, but as a practical matter it was a disappointment. The revenue it raised was rather paltry; only a few billion euros at its peak, or about 1% of France’s total revenue from all taxes. At least 10,000 wealthy people left the country to avoid paying the tax; most moved to neighboring Belgium, which has a large French-speaking population. When these individuals left, France lost not only their wealth tax revenue but their income taxes and other taxes as well. French economist Eric Pichet estimates that this ended up costing the French government almost twice as much revenue as the total yielded by the wealth tax. When President Emmanuel Macron ended the wealth tax in 2017, it was viewed mostly as a symbolic move.

Another French experiment was the so-called supertax, a 75% levy on incomes of more than 1 million euros. Introduced by socialist President François Hollande in 2012, the supertax added to the exodus of wealthy individuals, most notably actor Gerard Depardieu and Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton. Star soccer players threatened to go on strike, and there was fear that France would become a wasteland for entrepreneurs. Meanwhile, the supertax raised much less money than even the wealth tax had -- only 160 million euros in 2014. The unpopular tax was repealed two years after its adoption.

France’s experiments with taxing the wealthy at very high rates didn’t raise much money and didn’t prove politically sustainable. The flight of wealthy individuals from the country probably helped reduce inequality on paper, but it's not clear that their departure left France better off.

It’s possible that similar tax experiments in the U.S. might be more successful than in France. The U.S. economy is much larger than France’s; although a French business owner who moves to Belgium can still do business and move about freely within the European Union, an American mogul who moves to Canada might find access to one of the world’s largest markets restricted. That might allow the U.S. to raise more money from high taxes than France ever could.

But it’s also worth noting that France’s wealth tax and supertax ultimately weren’t that important. Despite repealing the supertax, France managed to increase government revenue and to reduce inequality. The end of the wealth tax will probably be a similar story. France simply didn’t need these flamboyant taxes on the rich to have very high levels of taxation and social spending. That means the U.S. probably doesn’t need them either. Tax increases across the board -- on top incomes, capital gains, estates, pass-through businesses, corporations, and so on -- might not excite populist firebrands, but they’re probably a more effective strategy for fighting inequality.

AI Summary. The Penn Wharton Budget Model preliminarily projects that a wealth tax would lower average annual economic growth over a decade from 1.5% to just over 1.3% if the revenue were used to reduce federal debt. The analysis excludes potential growth benefits from spending programs funded by the tax, such as universal child care and added education funding.

Jim Tankersley New York Times
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A preliminary analysis by the Penn Wharton Budget Model suggests Warren’s Wealth Tax could reduce annual economic growth from 1.5% to 1.3% over a decade, a slowdown 3x that of Trump’s tax cuts.

Would a wealth tax slow annual economic growth over a decade?

Core argument: The Penn Wharton Budget Model's preliminary analysis projects Warren's wealth tax would lower average annual economic growth from 1.5% to just over 1.3% over a decade if the revenue were used to reduce federal debt.

The Penn Wharton Budget Model's preliminary analysis suggests that Warren's Wealth Tax could reduce annual economic growth from an average of 1.5% to just over 1.3% over a decade if the tax revenue is used to reduce federal debt. This projected slowdown is three times the effect of Trump's tax cuts, which were estimated to increase growth by 0.06 percentage points annually. The analysis does not account for potential growth benefits from government spending programs funded by the tax, such as universal child care and increased education funding. While the tax aims to generate significant federal revenue, its impact on GDP could be substantial, highlighting a trade-off between revenue generation and economic growth.

Takeaways by Macro Roundup® AI

  1. The Penn Wharton Budget Model's preliminary analysis projects Warren's wealth tax would lower average annual economic growth from 1.5% to just over 1.3% over a decade if the revenue were used to reduce federal debt.
  2. The projected slowdown from Warren's wealth tax is three times the size of the estimated effect of Trump's tax cuts, which were estimated to raise growth by 0.06 percentage points annually.
  3. The Penn Wharton analysis does not account for potential growth benefits from government spending programs funded by the tax, such as universal child care and increased education funding.

FYI Penn ran Warren's Wealth Tax though the Penn Wharton Model".... The preliminary projection from the Penn Wharton Budget Model, which will be unveiled on Thursday in Philadelphia, is the first attempt by an independent budget group to forecast the economic effects of the tax that has become a centerpiece of Ms. Warren’s campaign for the Democratic presidential nomination. The assessment found that if the tax raised as much new federal revenue as Ms. Warren intends, and if the proceeds went toward reducing the federal debt, annual economic growth would slow from an average of 1.5 percent to an average of just over 1.3 percent over a decade. To put the finding in context: Penn Wharton estimated in 2017 that President Trump’s tax cut would increase economic growth by roughly 0.06 percentage points per year over a decade, an effect that was much smaller than White House officials predicted. Its estimate of Ms. Warren’s policy implies the wealth tax would have an effect that is three times as large as the Trump tax cuts — but in the opposite direction. Economists who favor Ms. Warren’s plan say the analysis does not accurately account for the benefits to economic growth from the new government spending programs she would fund with the tax revenue, including universal child care, increased education funding and student loan forgiveness...."
Jim Tankersley, "Warren Wealth Tax Could Slow Economy, Early Analysis Finds,"New York Times, November 14, 2019, https://www.nytimes.com/2019/11/14/business/warren-wealth-tax-economy.html

Friday, November 15, 2019

AI Summary. Venture capital investment in the United States equals roughly 0.4% of GDP, compared with about 0.05% of GDP in Europe.

OECD Staff OECD
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The US saw VC investment reach 0.4% of GDP in 2018, while Europe lagged behind at 0.05%.

How much more venture capital does America invest than Europe?

Core argument: US venture capital investment reached roughly 0.4% of GDP in 2018, against roughly 0.05% in Europe, a stark contrast between the two entrepreneurial ecosystems.

In 2018, venture capital (VC) investment as a percentage of GDP was significantly higher in the US compared to Europe, highlighting a stark contrast in entrepreneurial ecosystems. The US saw VC investment reach approximately 0.4% of GDP, while Europe lagged behind at around 0.05%. This disparity underscores the US's robust support for innovation and startup growth, driven by a more mature VC market and favorable regulatory environment. The higher VC investment in the US suggests a greater capacity for scaling innovative businesses, potentially leading to stronger economic growth and job creation. In contrast, Europe's lower VC investment as a percentage of GDP indicates potential challenges in fostering high-growth startups, which may impact its competitiveness in the global market. This data-driven insight emphasizes the need for policy interventions in Europe to enhance its VC landscape and support entrepreneurial ventures.

Takeaways by Macro Roundup® AI

  1. US venture capital investment reached roughly 0.4% of GDP in 2018, against roughly 0.05% in Europe, a stark contrast between the two entrepreneurial ecosystems.
  2. The US venture capital lead over Europe is attributed to a more mature VC market and a more favorable regulatory environment, suggesting greater capacity to scale innovative businesses.
  3. Europe's lower venture capital investment as a share of GDP indicates challenges in fostering high-growth startups and a need for policy interventions to strengthen its VC landscape.

Ed,OECD "Entrepreneurship at a Glance: 2018 Highlights,"Organisation for Economic Co-operation and Development,October 10, 2018,https://www.oecd.org/sdd/business-stats/EAG-2018-Highlights.pdfNote there is also a data-serieshttps://stats.oecd.org/Index.aspx