Wealth Taxes, Competition, and Long-Term Prosperity

The measure’s proponents estimate total revenue of about $100 billion, but a Hoover Institution study that attempted to incorporate tax-avoidant behavioral responses reached a substantially lower estimate—about $40 billion in gross wealth-tax revenue over five years. The authors calculated that six billionaires who left California between the initiative’s filing and the January 1 residency cutoff removed $536 billion, or nearly 30 percent of the potential billionaire wealth tax base. After including their estimate of future state income-tax revenue lost when billionaires leave California, the researchers put the measure’s net present fiscal value at negative $24.7 billion.

That people respond to incentives ought not to be controversial. Economists Enrico Moretti and Daniel Wilson, for example, studied the movement of highly productive scientists among American states and found large effects from differences in personal and corporate taxes. Taxes formed only one part of the location decision. California used to attract scientists despite its relatively high taxes, because the state housed several innovation clusters. Even so, enough scientists and firms responded to tax differences for state policy to affect where innovation took place.

Interjurisdictional competition therefore places some discipline on governments’ appetites. People and businesses can move. A federal wealth tax would reduce that form of competition. In March 2026, Sen. Bernie Sanders and Rep. Ro Khanna introduced legislation imposing a 5 percent annual wealth tax on American billionaires. Moving from California to Texas would provide no escape from a federal tax. An American founder could still move abroad, reorganize investments internationally, or choose another country for future ventures.

That is why the French economist Gabriel Zucman has proposed a globally coordinated minimum tax equal to 2 percent of billionaire wealth. His plan includes stronger exit taxes and a mechanism under which another jurisdiction could collect the tax when the billionaire’s home country declines to do so. One of the explicitly stated goals of Zucman’s proposal is to prevent competition among countries from driving taxes downward. Supporters of the measure rightly see global tax coordination as a way to protect revenue collection and make taxation more progressive.

Conversely, opponents of the measure argue that a global tax on wealth would have a chilling effect on innovation and, consequently, growth and prosperity. How? In a recent post on his Substack, the Hoover Institution economist John H. Cochrane details how a wealth tax profoundly distorts economic incentives and chills innovation. The core mechanism operates through effective rates of return. Because the tax is charged on overall assets rather than just profits, an annual 5 percent wealth tax wipes out half of what investors would typically earn from a standard 10 percent stock market return—acting just like a massive 50 percent tax on their income. When layered over existing corporate levies, capital gains taxes, income taxes, and baseline inflation, the cumulative burden of the wealth tax pushes real after-tax returns into negative territory.

By eliminating the financial upside of venture creation, Cochrane argues, the policy disrupts the risk-reward calculus for entrepreneurs and would-be founders. Major technological breakthroughs require massive commitments of personal effort, risk tolerance, and reinvestment of capital. If the potential surplus from betting heavily on groundbreaking ideas is stripped away, innovators will opt for retirement or low-risk, small-scale enterprises over transformative ventures. Furthermore, because cutting-edge firms rely on reinvested equity rather than idle cash, seizing capital drains the funding streams needed to developgrow new technologies, ultimately shifting dynamic economies toward low-growth, low-risk stagnation.

Innovation matters. As the evolutionary psychologist William von Hippel argued in his 2018 book The Social Leap, humans survive through cooperation, but they flourish through innovation. Cooperation allows people to protect one another, divide labor, share knowledge, and solve problems collectively. It is one of the foundations of civilization. But cooperation by itself does not necessarily produce better tools, medicines, machines, or methods of production. Those improvements depend on innovation.

Innovation is also much rarer than cooperation. Most people respond to problems by drawing on existing knowledge or asking others for help. A small minority are unusually inclined to search for new technical solutions. Yet that minority can have an enormous effect because innovations are not consumed by their creators alone. Once someone invents a better engine, vaccine, crop variety, computer chip, or manufacturing process, millions of other people can copy, improve, produce, and use it. Innovation raises productivity, reduces the cost of satisfying human needs, and creates possibilities that did not exist previously.

The relevant question, therefore, is what political arrangements allow innovation to take place. History suggests that one answer is the availability of alternatives.

In his 2019 book The Wealth Explosion: The Nature and Origins of Modernity, the British economic historian Stephen Davies notes that innovation is ancient. Many earlier civilizations went through periods of relatively rapid technological, commercial, and intellectual advance. During these episodes of economic efflorescence, societies experienced something resembling modern growth for a time. The advances eventually stopped, and the old economic pattern of Malthusian stagnation returned.

The central historical puzzle, therefore, is the emergence of “sustained innovation,” which led to what economic historian Deirdre McCloskey calls the Great Enrichment, marked by a 3,000 percent increase in inflation-adjusted per capita incomes since 1800. Why, Davies asks, has innovation continued in Europe—before spreading to other parts of the world—long enough to become a permanent process rather than another temporary burst of creativity?

Davies starts by describing the institutions of traditional societies. People living close to subsistence placed a high value on security. Communities developed rules that protected people against sudden economic change. Guilds controlled entry into trades, training, and technology. Other rules restricted prices, arbitrage, and access to important resources. These arrangements made sense in societies where failure could mean starvation and death. They also made experimentation harder. Innovation creates winners and losers, especially in the short run, and traditional societies had strong reasons to protect established ways of doing things.

Rulers had different reasons to fear innovation. Innovation could produce more wealth for rulers to tax, but it could also change the distribution of wealth and power within society. New technologies could undermine established industries. New businesses could create new elites. New ideas could weaken religious or political authority. Davies, therefore, describes traditional ruling elites as ambivalent toward innovation and frequently willing to suppress it. The Nobel Prize-winning economic historian Joel Mokyr captures the problem in one sentence: “Every act of major technological innovation, then, is an act of rebellion not just against conventional wisdom but against existing practices and vested interests and thus will normally lead to some kind of resistance.”

Song-era China shows how far innovation could proceed before modernity. By around 1200, China possessed sophisticated financial institutions, large firms, extensive markets, enormous commercial cities, and substantial movement of labor from agriculture into manufacturing. Davies describes Song China as the closest premodern example of a breakthrough toward modernity. Many ingredients associated with modern growth were therefore present centuries before the Industrial Revolution in Europe.

The early Ming emperors, in contrast, sought greater central control and tried to reverse important developments associated with the Song period. China remained commercially active and continued to grow in population and total output. Rapid and systematic technological advance, however, became much weaker. Davies describes the Ming settlement as a deliberate effort to create a more stable and less innovative society. Crucially, China’s political unity gave the central government a wide area over which to apply that policy.

Europe developed differently after the military changes of the 15^th through the 17^th centuries. Gunpowder, firearms, artillery, new fortifications, naval technology, and new military organizations changed warfare across Eurasia. Large empires emerged across much of the Old World, while Europe remained divided among several states with significant military power.

Davies regards the European outcome as largely accidental. In fact, the Habsburgs, fueled by gold and silver from the New World, came close to establishing a pan-European empire in the 16^th and 17^th centuries. Their failure, thanks in part to the French, Dutch, English, and Ottoman pushback, resulted in the Westphalian settlement of 1648. This geopolitical system was characterized by several large and powerful competing states, and coalitions repeatedly formed to contain powers that came close to dominating Europe.

Political division changed the incentives facing rulers. A state that fell behind militarily could lose territory, revenue, independence, or even its ruling dynasty. Governments therefore had strong reasons to adopt useful military innovations developed elsewhere. Davies argues that European rulers eventually reached a position in which suppressing innovation carried the risk of losing out to more innovative rivals. A successful innovation in one country created pressure on others to copy or improve it. Competition turned technological backwardness into a direct threat to political survival.

The same pressure gradually affected economic policy. Armies and navies required money. Raising money required taxes. A large tax base required productive farms, workshops, merchants, financiers, and eventually industries. European rulers therefore competed for wealth as well as military power. A government that suppressed useful economic or scientific advances risked weakening itself relative to governments that permitted them. Europe’s political division prevented any ruler from applying a policy of suppression across the continent.

Political division also protected intellectual diversity. The Reformation split Europe along religious as well as political lines. Individual states still persecuted dissenters, but Europe as a whole contained competing churches, governments, universities, and printers, and the Republic of Letters carried ideas across borders. An idea suppressed in one place could survive in another, and a ruler who suppressed a useful one could watch it enrich a neighbor.

Immigration helped, for disfavored philosophers, scientists, merchants, and artisans could find more welcoming ground elsewhere. René Descartes left France for the Dutch Republic in 1628, then Sweden in 1649. Thomas Hobbes fled England for France in 1640. John Locke crossed to Holland in 1683. Leonhard Euler left Switzerland for Russia in 1727, Prussia in 1741, and Russia again in 1766. Denis Papin and Abraham de Moivre fled France for England. Voltaire went to England, then Prussia, then Geneva, finally settling in France near the Swiss border so he could bolt either way.

Markets mattered. Entrepreneurship mattered. Science, energy, institutions, immigration, and changing ideas mattered. Europe had experienced innovation before, as had China, the Islamic world, and other civilizations. Europe’s unusual achievement was sustained innovation. Political competition helped prevent successful experiments from being extinguished everywhere at once. Over time, innovation became cumulative, producing sustained growth in productivity and eventually transforming material life.

The United States reproduces part of this mechanism through federalism. Elon Musk moved his residence from California to Texas in 2020. Tesla moved its headquarters to Texas, and Musk later moved the headquarters of SpaceX and X from California to Texas. SpaceX changed its state of incorporation from Delaware to Texas. Peter Thiel has explored a more radical version of the same idea by supporting the Seasteading Institute, which sought to create new communities at sea. Singaporean entrepreneur and investor Balaji Srinivasan has pursued a related idea through the Network State and his Network School. The latter operated in Forest City, Malaysia, until Malaysian authorities revoked its business license in July 2026. Within hours, Srinivasan signed an agreement to establish a new campus in Kazakhstan.

The common feature of these activities is the search for alternatives. The above entrepreneurs, and others besides them, seek jurisdictions in which governments offer different rules for investment, technology, corporate organization, or community life. Davies’ history suggests that the availability of alternatives matters even for people who never move. Governments behave differently, which is to say “better,” when entrepreneurs, scientists, firms, and capital have somewhere else to go. As such, Davies has warned specifically that a movement toward a single global system of rules could weaken the competition that helps sustain innovation.

Innovation will always disturb established arrangements because successful innovation changes how people live, work, produce, and organize society. That is precisely why innovators need somewhere else to go. A government that taxes too heavily, regulates too aggressively, or protects existing interests too zealously should have to reckon with the possibility that people, capital, and companies will leave. Political competition does not guarantee good policy, but it makes bad policy more costly. A national wealth tax would weaken that discipline. A global wealth tax would come closer to eliminating it. The history of sustained innovation suggests that this is exactly the wrong direction. Prosperity has flourished where power was divided, experiments could escape suppression, and failure in one jurisdiction did not mean failure everywhere. The future of innovation depends on preserving those exits, not closing them.

Markets FTW

Every now and then, a piece of news comes along that makes all the daily political nonsense seem rather small. On August 19, Moderna and Merck announced that their experimental personalized treatment had produced positive results in a large Phase 3 trial against melanoma, one of the deadliest forms of skin cancer. It was the first positive Phase 3 result for a personalized treatment of this kind and for an mRNA-based cancer treatment. That is a big deal.

The treatment, called intismeran autogene, uses messenger RNA, the same technology Moderna made famous with its COVID vaccine, but for a different purpose. After a patient’s tumor is removed, scientists analyze it to find features that distinguish the cancer cells from healthy ones. Moderna then makes a treatment specifically for that patient, using mRNA to tell the immune system what to recognize and attack. It is given with Merck’s Keytruda, an existing cancer drug that helps the immune system fight tumors. In other words, this is not an off-the-shelf cancer vaccine. It is a cancer treatment made for you.

The Phase 3 trial included 1,137 patients whose melanoma had been surgically removed. The key question was whether adding Moderna’s personalized treatment to Keytruda could keep the cancer from coming back or spreading elsewhere in the body. Patients who received the combination did significantly better on both measures than those who received Keytruda alone. Moderna and Merck have not yet released the full numbers, so it is too early to know exactly how large the benefit was. But the earlier Phase 2 trial was encouraging: After five years, patients receiving the combination had a 49 percent lower risk of recurrence or death and a 59 percent lower risk of the cancer spreading elsewhere or causing death.

The melanoma trial is part of INTerpath, Moderna and Merck’s broader program testing the same personalized treatment, usually with Keytruda, against several cancers. Nine Phase 2 and Phase 3 trials are under way in melanoma, lung, bladder, and kidney cancers, while earlier-stage studies are exploring pancreatic and stomach cancers. The companies are betting that the approach can work well beyond melanoma.

The larger significance of this breakthrough is that cancer treatment may be moving further away from the search for a single cure and toward therapies tailored to particular cancers and particular patients. That could be especially valuable after surgery, when doctors are trying to eliminate tiny amounts of cancer left behind before the disease returns or spreads. Melanoma is a promising place to test the idea because the cancer often responds well to treatments that enlist the immune system. Roche and BioNTech have a rival program built on the same broad idea, with Phase 2 studies under way in colon and pancreatic cancers after surgery. Researchers are also working to choose better targets, cut the time needed to make each treatment, and find better combinations with other cancer therapies.

None of that means cancer has been cured. We still do not know whether patients in the Phase 3 melanoma trial will ultimately live longer, regulatory approval is not guaranteed, and making a different treatment for every patient faces obvious manufacturing and cost challenges. But personalized cancer treatment has now passed a major late-stage test. A therapy designed around one patient’s tumor helped keep cancer from returning or spreading when added to an existing drug. Something that would have sounded like science fiction not very long ago is moving closer to medical reality. Markets FTW, indeed.

Chart of the Week

On August 17, Jacobin, the socialist magazine, published an article titled “Capitalism Is Killing Summer.” According to the author, “Wrecking the weather and robbing us of beautiful spaces aren’t the only ways that capitalists deprive us of the full fruits of summer. American-style capitalism and its insane work culture also robs [sic] us of the time to enjoy summer’s pleasures.” Is there anything capitalism can’t do? Joking aside, Jacobin gets the historical trend almost exactly backward.

Consider the chart below. It is based on estimates by the Nobel Prize-winning economic historian Robert Fogel (1926–2013) and reproduced by the University of Oxford’s Our World in Data lab. To understand it, start with the green area: discretionary time. Fogel defined that as the hours in a lifetime left over after the basic biological necessities of sleeping, eating, and personal hygiene. In other words, these are the hours over which we have some meaningful choice. Those discretionary hours rose from about 225,900 in 1880 to 298,500 in 1995, largely because people started living longer. Fogel projected those hours to reach 321,900 by 2040.

But what happened within those discretionary hours is even more striking. In 1880, the typical American devoted about 182,100 lifetime hours to work and had only 43,800 hours left for leisure. Work therefore consumed more than 80 percent of all discretionary time. By 1995, lifetime work had fallen to 122,400 hours, while leisure had risen to 176,100 hours. For the first time, leisure accounted for the majority, about 59 percent, of discretionary life. Fogel projected that by 2040 work would fall to 75,900 hours, while leisure would rise to 246,000 hours, or more than three-quarters of all discretionary time.

Think about what those numbers mean. Compared with 1880, Americans by 1995 enjoyed roughly four times as many lifetime leisure hours while working about one-third fewer hours. Fogel attributed much of that transformation to technological progress: Producing the food, clothing, housing, and other necessities of life came to require far fewer hours of human labor.

The 2040 numbers are projections and should be treated as such. Nor did markets act alone. Labor laws, changing social norms, education, and other developments affected working time. But the direction of travel is difficult to dispute. Our World in Data finds that annual working hours fell dramatically across the countries that industrialized earliest, with workers in many of them going from more than 3,000 hours per year in the late 19^th century to roughly half that amount today.

So, capitalism did not merely make people richer in money. By raising productivity and extending life, the modern economy helped make people richer in time. The scarce commodity that Jacobin says capitalism is stealing from us is, historically speaking, one of the things economic progress has given us in superabundance.