Wealth Taxes Can Be Efficient

By Robert H.

If you tax something, you tend to get less of it.  Tax beer and people start drinking wine, tax imports and they buy local, tax gasoline and people by hybrids.   As consumption shifts, you get less beer less imports less gas guzzlers.  This creates a total loss -- beer drinkers are less happy with wine, and that lost happiness isn't transferred to anyone else.  It's just gone.

But not land!  If you tax just land (ie, not the land plus the improvements on it.  In this world if you build a 200k dollar house on a 60k plot of land, they just tax the 60k plot of land) then you don't get less land.  The supply of land is pretty fixed!  You hurt the landowner because, duh, he has to pay money, but the money isn't lost, it goes to the state!   Economists have known this for a very long time, and so have deemed land taxes relatively awesome.

I bring it up because Tyler Cowen implied in an article today that economists disfavor wealth taxes.  I get why he didn't go into more depth -- space constraints -- but that doesn't change the fact that he was being a little misleading.  There is at least one kind of wealth economists are semi-cool with taxing.