The hot idea among American politicians right now is reducing income inequality, i.e., taking money from rich people and giving it to middle class and lower-middle class Americans. A recent book by Thomas Piketty (see this review in the New York Times) adds some academic credibility to the idea that drastic changes in taxation would make almost everyone better off:
“The only way to halt this process, he argues, is to impose a global progressive tax on wealth – global in order to prevent (among other things) the transfer of assets to countries without such levies. A global tax, in this scheme, would restrict the concentration of wealth and limit the income flowing to capital.”
I’m wondering if there isn’t already a good body of data on what happens when middle class people get a big infusion of wealth from rich people. This kind of transfer of wealth happened in the U.S. in the mid-2000s. A huge amount of wealth was transferred from (mostly rich) investors in mortgage-backed securities to (mostly middle class) homeowners who siphoned equity out of their houses every time the value went up. A a lot of middle class Americans ended up not only living rent-free for 3-7 years but also some drew additional spending cash out of these houses. We should be able to find thousands of people whose housing costs went from +$2000/month to -$2000/month. That’s a $48,000/year after-tax supplement to income and presumably more than the average family could expect to receive if the wealthiest Americans were subject to a 90% wealth tax.
Tracking these folks down shouldn’t be very hard as many of the transfer recipients were clustered in California. Wouldn’t that be the natural place to start a research project on whether or not a wealth tax and transfer program would yield long-term benefits? Are the families receiving the $48,000 per year transfer now better off than a control group of families who incurred substantial housing costs over the same period, e.g., those who paid rent throughout the boom years rather than participating in the bonanza?