Government spending in capitalist countries creates returns to capital. Financing that spending almost entirely through taxes on labor, as the US does today, means that government spending is (in part) a direct transfer from labor to capital.
Also, capital is not a scarce resource in the US today. For firms that would be worth investing in but don't have access to capital on reasonable terms, the reason for their lack of access is a combination of incentive problems and inefficiency on the part of e.g. VC firms, not because the capital isn't out there. It's true that a wealth tax would increase the cost of equity, but the Finance 101 strategy of "only initiate a project if the IRR of the expected cashflows is greater than the cost of equity" isn't really meaningful for startups since the future cashflows are so uncertain.
If by "those who need capital the most" you mean charities and not startups, a wealth tax would just incentivize giving more to charities and doing it sooner.
> Government spending in capitalist countries creates returns to capital.
Mostly, it doesn't. It boosts the value of specific, scarce assets. The increase in e.g. land values that's directly attributable to government spending is a lot more tangible than any fuzzy effect on rates of return for capital. This makes most government spending basically a transfer from the productive (labor and capital) to the rent-seekers, but that has nothing to do with capital per se.
> isn't really meaningful for startups since the future cashflows are so uncertain.
Uncertain cashflows make the effect more meaningful, not less. Few investors will be well-positioned to fund a firm with hard-to-assess future cashflow, so capital is meaningfully scarce for those firms.
> Government spending in capitalist countries creates returns to capital. Financing that spending almost entirely through taxes on labor, as the US does today, means that government spending is (in part) a direct transfer from labor to capital.
You’re engaging in a slight of hand. Leaving aside capital gains taxes, returns on capital are taxed as income when companies pay dividends. So the income tax covers both returns to labor and returns to capital.
Also, capital is not a scarce resource in the US today. For firms that would be worth investing in but don't have access to capital on reasonable terms, the reason for their lack of access is a combination of incentive problems and inefficiency on the part of e.g. VC firms, not because the capital isn't out there. It's true that a wealth tax would increase the cost of equity, but the Finance 101 strategy of "only initiate a project if the IRR of the expected cashflows is greater than the cost of equity" isn't really meaningful for startups since the future cashflows are so uncertain.
If by "those who need capital the most" you mean charities and not startups, a wealth tax would just incentivize giving more to charities and doing it sooner.