April 08, 2026

The wealth tax is gaining popularity among federal and state democratic legislators. This is a fact. These legislators also argue that the tax will collect large sums of money without adversely impacting the economy. Something we believe to be a fallacy. A wealth tax will elicit a response on the part of the affected parties. The revenue collections will be less than projected. The rationale for the wealth tax is the assertion that the rich are getting richer and the poor are getting poorer. But how do the proponents of the wealth tax know this? Their assertion is based on a misuse of the distribution of income. Often the proponents of the wealth tax argue that a deterioration of the distribution of income is prima facie evidence that the rich are getting richer and the poor are getting poorer. But a deterioration of the distribution of income may not necessarily signal that the lower income groups are worse off. There are three different combinations of changes in wealth and labor income that result in a deterioration of income distribution. Hence knowledge of the distribution of income does not allow us to make accurate inferences about changes in the wellbeing of the ultra-rich and the poor. The data shows that during the last 100 years there have been 6 years during which both net worth and income declined coincided with US recession. This leads to an obvious conclusion, policies that lead to a recession tend to make all parties worse off. In contrast policies that lead to an expanding economy make all parties better off. Albeit to different degrees in absolute and relative terms depending on the policies adopted. The data also shows that the economic expansion has occurred under both democratic and republican administrations. The differences in the relative performance are attributable to the impact of the policies enacted.

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