Recently, some analysts have argued that a progressive wealth tax may have large beneficial effects on the distribution of welfare in society with small adverse effects on real economic activity. We evaluate the merits of this view, both conceptually and empirically, within a dynamic general equilibrium model in which empirically plausible income and wealth distributions arise from an agency problem between managers, executives, and entrepreneurs, on the one hand, and capital markets, on the other. Our preliminary simulations show that even a simple version of the model accounts well for observed income and wealth inequality in the United States. The model implies a substantial aggregate output loss from wealth taxes of the magnitude currently debated, leading to a reduction in inequality that would be achieved at a much lower cost by taxing consumption rather than wealth.