Donald Trump’s Big Wealth Tax
The plunging stock market has taken hundreds of billions from the billionaire gang
There is an effort by several progressive unions and other organizations to put a 5% wealth tax for the state’s billionaires on California’s ballot this fall. It’s not clear they will succeed in getting it on the ballot or how the initiative will do (I’m in), but Donald Trump has already one-upped them. Thanks to his management of the economy and his decision to go to war in Iran, he has reduced the wealth of the country’s richest people by far more than the sponsors of this initiative could ever hope.
In 2026 to date, the S&P 500, a broad measure of the stock market, is down by almost 7.0%. The NASDAQ, which is where the tech companies controlled by folks like Elon Musk and Mark Zuckerberg live, is down by almost 10%. That means Trump may have cost Musk $60 billion, and that’s in just three months. Who knows where he will be by the end of the year.
If anyone thinks I’m being perverse by celebrating a decline in the stock market, try thinking again, or just thinking for the first time. The stock market is not a measure of economic well-being. It is a measure of the wealth of people who own stock.
There are three basic reasons for the stock market to rise. The first is the expectation that the economy will grow more rapidly and that corporate profits will therefore rise more rapidly along with the rest of the economy. The second is that investors expect that after-tax profits will rise at the expense of wages or due to lower taxes. The third is due to a bubble, or “irrational exuberance” to use former Fed Chair Alan Greenspan’s great term.
Only the first reason reflects good news for the economy. The other two are negatives from the standpoint of the bulk of the population. There is no reason for the rest of us to be applauding a shift from wages to profits or a larger share of the tax burden to be left to ordinary workers. Nor should we be delighted about a bubble that distorts investment decisions and gives the rich even more disproportionate ability to command economic resources while it lasts.
I’ll leave it to others to speculate on the main causes of the decline in the market this year, but I would put my money mostly on number three, a bit less irrational exuberance, but also a bit of number one, more pessimism about future growth prospects. But regardless of the cause, the rich are considerably less rich because of Trump’s actions.
I know that even many progressives will find rooting against the stock market difficult to stomach, but let me urge using your head instead of looking at your 401(k). The rich own half of all corporate stock. When the market goes up, they get richer compared to everyone else. That is definitional. For progressives to both root for a rising stock market and then complain about wealth inequality is like the old joke about the kid who kills his parents and then begs for mercy because he’s an orphan. But serious economists do this for real.
To be clear, I have long emphasized focusing on income inequality rather than wealth inequality, partly for this reason. But no one cares what I say. I’ll also mention that the complaint that we should be worried about wealth buying political power is equally off base. Elon Musk, with $300 billion rather than $600 billion, still has far too much power. (And tell me your plan to cut his wealth in half with tax policy.) If we’re going to be serious, we have to address structural issues on controlling the media. (Sorry folks, it matters more what people see between the political ads than what they see in the ads.)
Just to be clear, I know many non-rich people (like me) also have money in the stock market. They will lose too when the market tumbles. I’ll make two points on this issue.
First, if you’re looking for a policy that doesn’t hit anyone you care about, you should go into a different line of work. Such policies do not exist in this world.
I recall working with a coalition pushing for a financial transactions tax that could raise close to $150 billion a year (0.5% of GDP), overwhelmingly at the expense of the financial industry. A major concern was that this could also hit middle-income people with their 401(k)s.
That was not altogether wrong, but what we were talking about was someone with $200k in their retirement account may have to pay $40 a year due to the tax.[1] Really, this is a big problem?
The other point is that if we are primarily lowering stock prices by getting rid of irrational exuberance, then the income flows from 401(k) stock holdings will be little affected. This means that $80k in stock may still provide the same capital gains and dividends as $100k did in a bubble inflated stock market. I know that it will be hard for the folks who just lost 20% of their wealth to stomach, but I am an economist, not a psychologist.
Trump’s war in Iran is abhorrent for many reasons, first and foremost the needless loss of life, but it is imposing real costs on the world economy. His tariff and immigration policies are also horrible, as are his efforts to increase greenhouse gas emissions. But insofar as these have led to a loss of wealth for the rich jerks that have been buying favors from him, I will shed no tears.
[1] This calculation assumes 20% of their portfolio ($40k) turns over each year. At the 0.1% tax rate we were discussing, that would come to $40 a year. And this is before factoring in the savings that would result from lower transactions costs due to reduced transactions. Sorry folks, you don’t make money by trading, the financial industry does.
Wouldn't a wealth tax include payments to the treasury and not just a loss of rich peoples' capital?
The rich in our nation have benefited so much with the Trump tax, regulatory, and tariff policies and I believe that only a large downturn in our economy will wake up America.
If only the wealthy oligarchs losses were going into our health care and social welfare programs.
How much pain would it take to wake up America.
I must confess to wishing there was a machine, like the one described by economist Chris Dillow (but better) where we could see how the economy functioned, with levers that allowed us to try different interventions to see what would happen.
https://chrisdillow.substack.com/p/policy-making-as-gardening?r=zsk0&utm_medium=ios
“In believing that there are such levers politicians are following some defunct economist. In 1949 Bill Phillips built a machine which, he thought, represented the economy. Partly, it did; it showed the circular flow of income and it reminded us that the economy is not an act of nature but a creation of humankind - and what humans can create they can change. But partly it did not, as it omitted important things such as inequality, environmental degradation, supply shocks, growth and innovation.”
The public has been pretty well indoctrinated in the importance of investing in their 401K, or RRSP as Canadians call them and to think, or aspire to think of themselves, as members of the asset owning class. It was a big part of the Reagan, Thatcher revolution, that fundamentally altered the way the world operated. Even the Norwegians, with their high taxes and generous social safety net have benefited from rising stock prices in their sovereign wealth fund, and Canada’s Maple 8 have done just fine. But the model, as you point out, is no longer delivering wealth or growth, except to the asset owning class in the form of asset bubbles and the boom and bust economy that accompanies them. As Chris Dillow has described very well in a series of recent posts, and as I think you are trying to get across here, something has to give, and it’s some combination of lower stock market gains, at least for a time, higher taxes, higher salaries, monopoly break up, deregulation, campaign finance reform etc. The head scratcher for me is how important is the private sector, capital markets, in funding this transition. The Phillips machine (there’s a link with a picture; it was built in the inventor’s garage). is very cool. I wish it could do more. There is an effort in Canada to encourage the big funds to stop chasing high stock prices and start investing in the real economy, infrastructure, renewable energy, productivity enhancing investments, housing. I assume this is at least partially what you have in mind.
His whole point is that the economy is more like a garden than a machine. The machine is compelling, because it’s so immediate, but the point is, we made it, we can change it. Perennials reach a point where the centers start to empty out and you have to divide them. That’s where we’re at. It’s takes effort, and things look a bit deformed for a while, but it’s necessary for the long term health of the garden.