> I am a little bit skeptical of the assumption that a wealth tax encourages riskier investment strategies, though. After all, the effect of a fixed rate wealth tax is the same irrespective of your investment strategy; riskier strategies still yield both greater potential returns and losses.
Yes you're fully correct, in principle it should be no different financially. But for people holding straight up cash, there's a psychological hit to seeing your nominal amount of money go down due to a tax bill. If you hold $100k and it turns into $99k, then $98k, then a few years later $95k, you'll feel some drive to compensate those losses. If you hold $100k and it stays that much, a lot of people feel very comfortable and safe with keeping it just like that. (particularly in Europe where many countries don't have as much of a direct stock-investing culture traditionally, and where stocks are still seen by many as a form of gambling, or a world full of scams where only a few clever people profit, particularly the older generation).
For example in many European countries banks now charge minor negative interest (e.g. -0.5%) on your savings account (due to the negative deposit facility rate of the ECB). Suddenly there's an uptick of people who take their savings and invest it, because otherwise they'd 'lose money' and actually see their savings drop over time simply by holding it in a bank account.
However, these same people happily let that cash sit for 10 years at an inflation rate averaging 2%, losing 20% of their purchasing power in this time, responding differently to a universe in which inflation was 0% but the bank or taxes took the same 2% a year. They also happily ignored opportunity costs of various low-risk assets (e.g. a 3y savings deposit) that they could've invested in but didn't. Compared to letting the cash sit idly, the 2% inflation or 2% opportunity costs on low-risk asset-returns were happily ignored, yet when a -0.5% interest rate is charged by a bank, many spring into action. It's likely because while it may not be financially as bad, psychologically seeing $100k turn into $99k, or literally seeing interest charges being deducted from your account, feels worse than if $100k stays $100k nominally but is only worth $98k in real terms due to inflation, even though that's worse.
The fixed wealth tax works a bit similar. You have all these people who, every year, receive a tax bill, and are seeing a chunk of their savings having to be sent to the tax authorities. It inspires people to seek out financial advisers to help them compensate this. If at least you're compensating the fixed tax bill with a return on the stock market for example, it doesn't feel as painful.
Anyway that's what I'm seeing among friends/family and cobbling together from various sources, but it's just a hypothesis.
Yes you're fully correct, in principle it should be no different financially. But for people holding straight up cash, there's a psychological hit to seeing your nominal amount of money go down due to a tax bill. If you hold $100k and it turns into $99k, then $98k, then a few years later $95k, you'll feel some drive to compensate those losses. If you hold $100k and it stays that much, a lot of people feel very comfortable and safe with keeping it just like that. (particularly in Europe where many countries don't have as much of a direct stock-investing culture traditionally, and where stocks are still seen by many as a form of gambling, or a world full of scams where only a few clever people profit, particularly the older generation).
For example in many European countries banks now charge minor negative interest (e.g. -0.5%) on your savings account (due to the negative deposit facility rate of the ECB). Suddenly there's an uptick of people who take their savings and invest it, because otherwise they'd 'lose money' and actually see their savings drop over time simply by holding it in a bank account.
However, these same people happily let that cash sit for 10 years at an inflation rate averaging 2%, losing 20% of their purchasing power in this time, responding differently to a universe in which inflation was 0% but the bank or taxes took the same 2% a year. They also happily ignored opportunity costs of various low-risk assets (e.g. a 3y savings deposit) that they could've invested in but didn't. Compared to letting the cash sit idly, the 2% inflation or 2% opportunity costs on low-risk asset-returns were happily ignored, yet when a -0.5% interest rate is charged by a bank, many spring into action. It's likely because while it may not be financially as bad, psychologically seeing $100k turn into $99k, or literally seeing interest charges being deducted from your account, feels worse than if $100k stays $100k nominally but is only worth $98k in real terms due to inflation, even though that's worse.
The fixed wealth tax works a bit similar. You have all these people who, every year, receive a tax bill, and are seeing a chunk of their savings having to be sent to the tax authorities. It inspires people to seek out financial advisers to help them compensate this. If at least you're compensating the fixed tax bill with a return on the stock market for example, it doesn't feel as painful.
Anyway that's what I'm seeing among friends/family and cobbling together from various sources, but it's just a hypothesis.