Europe’s richest man is whining about a proposed wealth tax for France. But of course, he is not complaining that it would hurt him personally, which would be very selfish, but that it would hurt the entire economy, which makes him a noble crusader and protector of the economic health of the country.
Europe’s richest man, the luxury goods magnate Bernard Arnault, has said that a wealth tax that could cost him more than €1bn (£817m) would be deadly for France’s economy.
The French founder of LVMH Moët Hennessy Louis Vuitton said in a statement to the Sunday Times that calls for a 2% wealth tax on all assets “aims to destroy the liberal economy, the only one that works for the good of all”.
The idea of a wealth tax has steadily gained ground in France because of a political crisis, with the government trying to push through unpopular budget cuts. The idea of a 2% wealth tax on fortunes worth more than €100m has been proposed by Gabriel Zucman, an economics professor who has become a household name in France.
…Zucman is a professor of economics at the Paris School of Economics and the École normale supérieure, and last year wrote a prominent study on the wealth tax for the G20. In June, Zucman wrote in the Guardian: “Unprecedented wealth concentration – and the unbridled power that comes with such wealth – has distorted our democracy and is driving societal and economic tensions.”
But Arnault insists that his motives are pure and that those who are pursuing this tax are doing so because, for some reason, they want to destroy the economy.
“This is clearly not a technical or economic debate, but rather a clearly stated desire to destroy the French economy,” Arnault’s statement said. “I cannot believe that the French political forces that govern or have governed the country in the past could lend any credibility to this offensive, which is deadly for our economy.”
Really? They ‘clearly stated’ that their desire is to destroy the economy? Where and when did they say this?
People like Arnault should continue to speak out like this so that people will increasingly see that what greedy, selfish jerks they are.
For a while, some years back. M. Arnault & Elon Musk swapped & re-swapped 1st- and 2nd- richest person in the world rankings, mostly depending (sfaict) on the respective levels of Euros and dollars. Then the other e-billionaires surged, and I wondered what had happened to “the suitcase guy”. Merely “richest in Europe” -- what ignominy! Only peasants deal in tangibles, amirite?
Now I can stop wondering, and sleep as serenely as … well, as I ever manage to these days.
While I don’t have a theoretical problem with a wealth tax, the devil will be in the details. Specifically what the tax assessors will be using to determine wealth.
Some wealth is easy to count; bank accounts, stock portfolios, etc.
Some wealth is entirely subjective; how much is that Picasso worth? Or the land their mansion is on?
If they concentrate on the fungible wealth, bank accounts and the like, it will be easy to figure out a number which can be easily justified. Although there are issues with that as well, as I’ll get to in a minute. The non-fungible wealth, like the Picasso’s, or the collection of expensive watches, that wealth is only worth what someone else will pay for it. If the tax law includes non-fungible wealth then there are some real difficulties in implementation.
Option A: The value is measured by it’s last sale price. This is an easy way to measure the value of an item, but it makes inherited wealth more valuable. If the family purchased that Picasso in 1950 for $5,000, is the value for that Picasso $5,000? If the family took out a loan with that Picasso as the security, the bank would undoubtably consider the value to be far greater than $5,000 and offer a larger loan, a much larger loan. Even if the value is adjusted by the inflation over the period since purchase, that $5,000 Picasso would now be worth about $67,000. Which is likely far less than the Picasso would get at an auction. Taking this option makes the wealth of non-liquid assets easier to calculate, but essentially taxes new wealth at a higher rate than old wealth. This option would also make wealth in stocks easy to calculate, but not reflective of market value. If the initial sale price of a stock was $100, and the wealthy person had 50,000 shares, that would be a value of $5M. Even if the share price was now $1000/share and it had split twice, having an unrealized value of $200M,. Under this option, the wealthy person would be taxed only on the original $5M.
Option B: Current assessed value. The tax collectors send appraisers to assess the value of non-liquid assets and calculate a person’s wealth based on those appraisals. The obvious move from the owners of those non-liquid assets is to hire their own appraisers to challenge the state’s appraisers. If the state appraises that Picasso at $1.5M, and the owner’s appraisers only think it’s value is $1M, what is the actual value? Multiply this across hundreds of assets and there will be a significant difference between what the state believes a person’s non-liquid assets are, and what the person thinks they are. Which will end up in court. Imagine multi-year court cases over taxes. The state may not even be able to collect any tax until the court battle for any given year is resolved. There would be significant chaos if the taxes for 2025 were unable to be collected until 2030 because it took that long to get the case through the courts. Multiply that by a few hundred people, every year, and the net result may well be that the government doesn’t collect any wealth tax for a long time. Unrealized, but fungible, assets also have the problem below in option C.
Option C: Avoid the problem with non-fungible assets, and only tax fungible assets, like bank accounts and stock holdings. The problem with stock holdings is that these are unrealized assets. That is, until they are sold their value is only a calculation based on number of shares held multiplies by the current market selling value. If stock holdings are considered part of wealth, and subject to a wealth tax, that will reduce their market value. Which reduces the wealth of the holder. If the holder has to sell stocks in order to pay the tax there is likely to be a further reduction in market value. Because of the drop in market value between the time the tax is calculated and collected, the wealthy owner may well have to sell more stock than they would have done if the market value remained steady. Further, the owners wealth would have dropped as well, giving them a reason to claim that the tax was too high. If the originally calculated tax was 2% on $2B worth of stock, but the value of the stock has dropped to $1.5B because of the taxes, what does the wealthy owner pay? Again, expect this option to end up in court.
There are, of course, other options. But I can’t think of one which would be fair, i.e. tax all wealthy people relatively equally, or avoid lengthy court challenges.
I’m a big fan of income taxes, partly because they are relatively easy to calculate, easy to confirm, and disputes about the amount of income a person has should be straightforward to resolve. I would like to be a fan of wealth taxes, but I can’t see how wealth taxes in a republic would work. The very wealthy will simply pay lawyers to challenge the states valuation indefinitely.
To be fair, as odd as it sounds that someone might “clearly” say that they’re going to destroy an economy and then do so, that is really happening elsewhere in the world right now. It’s what Trump did.
I do not, however, expect this rich guy to mention that as justification. Because then he’d have to admit it’s not being done by some random economist but by another clueless rich guy only out to serve himself.
@flex: Option D would be taxing the easy stuff regularly and taxing the variable value stuff like your Picasso only as it’s sold. Or when inherited. Which would encourage the rich to hoard such things while they’re alive (which they do anyway) but depending on how it’s done it could encourage their estates to sell them when they die. There’s rarely one magic solution to everything so we don’t need to find one before making positive changes.
Option C seems like more of a start-up problem. Once the tax is in place, stock prices will have the initial re-valuation in place already.
I am afraid we may already be too far gone for a wealth tax to work. At this stage, I am more in favour of decriminalising theft from anyone who still has at least a million pounds afterwards.
Governments issue bonds with the idea that they’re going to be around forever, or at least a good long time. Lawsuits are fine: governments have time. Not only will the government get it in the end, they will get interest on what is owed. Meanwhile the lawyers will fall into the category that is now taxed.