November 13, 2019 - Douglas Myser

Wealth tax and effects on politics. We should be wary of a wealth tax because Henry Ford hated Jews. That's the argument Harvard economist and former director of the national Economic Council Larry Summers made on Twitter last Saturday, stirring up such a firestorm that he had to apologize and clarify. His argument: Henry Ford was an anti semite. If there had been a wealth tax in his day, he might have spent his money instead of leaving it to a foundation vulnerable to such a tax instead of his fortune going to the Ford Foundation, which went on to support many worthwhile causes, he would likely have spent it on priorities of his like lobbying for America not to go to war with the Third Reich and spreading propaganda about Jews. Wealth tax and effects on politics.

Put more broadly: A wealth tax will likely make billionaires spend their money now instead of leaving it to their foundations or their descendants. If billionaires suck (and many proponents of a wealth tax think that they do), this might mean more distortionary political spending on behalf of ideals that most Americans don't share, rather than less of it. Summers drew fire mostly for his awkward phrasing in the tweet, which some took as suggesting that taxation would make more billionaires be like Ford. But set aside his clumsy wording and there's actually something to his argument. Some proposals for a wealth tax would transform foundations like the Gates foundation--and if it had been around in Henry Ford's day, could have transformed the Ford Foundation.

As I've written and as even the fiercest critics of philanthropy have agreed, foundations do essential work in many areas that wouldn't otherwise get done. Trying to guess the effects of the proposed wealth taxes on these foundations and the work they do really is a conversation we should be having. Summers tweet came as part of a long thread on wealth IRS taxation. Most of it was pretty uncontroversial.

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