Q: What do you think of the “billionaire’s tax?”

A: The proposal by Senator Wyden is complicated, targeting a very small number of American taxpayers. The expected revenue is significant, with much of it generated in the first years.

The key word in that sentence is “expected.” There are unintended consequences of any proposal and this may incentivize alternatives to publicly-owned companies. If the next Elon Musk knows that he could avoid billions in taxes by keeping his company public, he might choose to do that. In other words, it may work for a while, but not forever.

And this is part of the problem with such a narrow target for revenue generation. Even if you think that such concentrations of wealth are bad for society and unfair, targeting a small number of people this way is very bad policy. In a persuasive post on the subject, Aswath Damodaran wrote:

As a general rule, taxes that are broad based and affect most people are more likely to deliver predicted revenues than those that affect a narrow subset of the population, and the billionaire tax is about as narrowly focused as tax law gets. You may have little sympathy for the seven hundred or so billionaires affected by these taxes, but you should also recognize that these individuals also have the most resources to find ways to minimize the impact of these laws. In fact, not only is an army of tax lawyers, accountants and investment vehicles being created while the law in being written, but I would not be surprised if they are providing input on its actual form.

He explains that other tax policies that started small, like the Alternative Minimum Tax, eventually included many, many taxpayers. As the revenue from this tax declines, it would be easy for Congress to push the threshold further and further down.

So we are cautious about its ability to do what they expect, and concerned about the strategy as a way of addressing our continued, bipartisan deficit spending.