Nudge: The Final Edition

by Richard H. Thaler

The simple cases are when most wealth is held in liquid market securities such as shares of publicly traded stock. The wealth that Jeff Bezos holds in shares of Amazon stock is easily measured. But what about the rest? Senator Warren was fond of saying on the campaign trail that she would tax the jewelry, art, and yachts owned by billionaires.21 Let’s take art as an example of how hard this would be to do. There are two critical problems: we don’t know what art people have, and we don’t know what it is worth. There is no national (much less international) registry of artworks. In order to tax wealth, the IRS would have to know each piece of art held by every rich family, and its current market value.fn2 Now think about jewelry, or stamps, or sports memorabilia. Our goal here is not to have you shed a tear for the accountants and art dealers of billionaires. Rather, just think of the staffing requirements that would be needed to administer such a tax. Now, you might think we could reduce the sludge by limiting the tax to wealth held in liquid assets, but of course that would encourage the rich to put even more of their money into other forms of wealth, and might also induce more large companies to become privately held like Cargill or Fidelity Investments. They would be encouraged to do so because it is difficult to determine the value of a privately held business whose shares do not trade.