Tax time is upon me. Perhaps some of you as well. If I could fix one inequity–at least I perceive it as an inequity–it would be to tax wealth instead of income. I don’t think there is any way to do it. I’d love to get any thoughts on this. One of my many pet peeves is the endless discussion around current inequities (or not) in “taxing the rich” when what is really meant is “taxing the wealthy.” In particular I think there is an assumption on the part of the lower wage earner that income correlates with wealth. This is only very crudely true, especially at very high levels of wealth.
One can get a long way in politics, at least as a Democrat, by being publicly in favor of income tax “fairness” but I don’t hear much about taxing wealth itself. If you are already loaded, it’s really easy to be in favor of raising income taxes. For the super wealthy, the financial consequence of income tax is trivial. I’m not interested in the politics…just whether or not it’s possible for a society to tax wealth.
How can you tax wealth? After all, much of wealth is bound up in property. For example, the value of a home may make one wealthy, but unless you sell that home, you probably can’t afford to pay taxes on that wealth. Right now we tax people when they make money from a sale of their property that makes them wealthy. If you own an expensive home and sell it, you’re taxed. If you own stocks and make a capital gain on them when you sell them, you are taxed. That is the only way to really tax wealth. Then again, I guess you could just confiscate people’s property if they are too wealthy, but I hope even people here could see why that’s a bad idea.
I imagine in many cases you would be talking about taxing again something that has already been taxed.
Someone earns money, pays tax, and invests the remainder somehow. The value of the investment increases, thus increasing “wealth”. We want to tax “wealth”, so we tax the investment. But we already taxed the income, so this is another tax.
I suppose it’s possible, but given the labyrinthian complexities of the current tax code, I suspect you are not going to get any closer to some standard of fairness than you are now.
I own a house. The value of the house has gone up, thus increasing my wealth. We pass a law that every year, the wealthy have to pay 10% of their wealth in tax. But my house is my major asset, say. If I don’t have $35,000 on hand to pay the wealth tax, what do I do? Sell the house?
Okay, so we exempt primary residences from this wealth tax, as we do now with capital gains. This encourages people to spend more on their houses than they otherwise would, and less on other forms of investment. Good for real estate values; bad for all other investments.
Like I say, it can be done, but it will be subject to what I was told was the first law of ecology -
Yes. England (not Britain, this time, but specifically the pre-1707 kingdom) and France (before 1789) had precisely this sort of taxation system in place – unfortunately with huge exemptions for the aristocracy and nobility. But taxes like ship money, the thrave, the taille, were specifically on property – real and/or personal – as opposed to income.
The idea of taxing wealth rather than income is not in and of itself evil. If your income is insufficient to pay taxes on your expensive home, you need to trade down to property that you can afford to pay taxes on.
[Side note to Shodan: I suspect your objection to “taxing what has already been taxed” is covered by two things: (1) My inference from the OP is that “wealth tax” would replace income tax, and (2) You do not object in principle (though you might cavil at the amount!) to paying property taxes annually on the same property today. As I understand the issue-for-debate, this would be an annual levy against the sum total of one’s wealth, to be planned for in much the same way as one does for income or propery taxes today.)
However, human nature being what it is, I have no reason to think that the wealthy would not somehow find ways of inducing legislators to exempt their wealth. “Obviously your $2,000,000 shares in various stocks is benefitting the economy by providing the venture capital with which companies are operating, blah blah, while Joe Nearbroke’s old mobile home, 1/6 acre of land, elderly car, and $100 savings account are not benefitting anyone but Joe and his family.” Therefore, I’d be steadfastly against the idea of trying to reintroduce a “wealth tax” – it would work out in practice just as it did in England and ancien regime France.
Isn’t sales tax considered a less regressive tax than income or property tax? At first glance, seems to me that’d be the most fair way to raise tax revenue because it taxes people relative to their real wealth. I assume the wealthy will spend more than the rest of us, and be taxed accordingly. The rich guy who buys a Cadillac or a Lexus would pay more tax than I pay for my Chevy. And the wealthy wouldn’t feel like they were being hit unfairly hard with taxes because it would be relative to the cost of the purchase.
I know, I’m probably being terribly naive about this – somebody powerful and important would stand to lose a ton of money with a national sales tax, or it’d be done already.
Sales tax is considered regressive and income tax progressive, as the former impacts the poor more heavily than the rich, and the latter the other way around.
It’s not that the rich buy more expensive things – it’s that sales tax is imposed on all purchases (yeah, in some states groceries and the like are not taxed or taxed at a lower rate). And typically the rich are able to put income aside in non-taxed savings and investments while the poor are obliged to put most of their income out for necessities (and the occasional luxury) and to pay taxes on whatever they purchase.
I do not think there is a way to tax wealth. Absent that I don’t think there is a way to make taxes fair. Absent that I suppose I’ll continue to be cynical about most discussions around “fair” taxation, and most political initiatives to implement fairness.
As to 1), I didn’t see any implication that it would replace anything. As to 2), I don’t object in principle to any tax that is intended to generate necessary government revenue that impacts least on the wealth-generating powers of a capitalist society. I object very strongly in principle to a tax that purports to bring about other kinds of social outcomes, like wealth inequity. Which is the feeling I get from the way the wealth tax is described in the OP.
This is sort of in relation to your point, BobLibDem -
I thought this was a tax on total wealth, not income, and thus would include a percent of everything you own, year after year, even if you hadn’t received any income. If I am a millionaire, and the “wealth tax” is 10%, then I pay $100,000 this year, and $90,000 next year, and so forth.
If I am mistaken about this, I am sure you will correct me. I seem to remember you handing me my ass in a related thread some time back.
I wonder, would the government take a snapshot of my total assets once a year, and charge me a percent? Are we talking about a tax on wealth in addition to income tax, or in replacement of it? Are there any exemptions, either on who pays or what is taxed? “The devil is in the details”, as with all tax codes.
And I am not a tax lawyer, but I bet I could figure some way to game the system no matter what was devised.
Well, the problem is that ‘fair’ is subjective. What YOU might think is ‘fair’ I might (almost certainly WOULD) disagree with…and vice versa. Expand that to the entire nation and you can see what the problem is. For my part, I’m partial to some sort of flat tax, with exemptions from tax for the first $XXXXX.XX amount and zero deductions. To me this is ‘fair’, as it means everyone pays (well, everyone who CAN pay) the same percentage into the system. Structure the budget around the actual ammount coming in (which would be less than currently coming in) and there you go…perfectly ‘fair’.
I concede that not eveyone see’s it this way however. In the end, the current graduated tax system is probably as ‘fair’ as its likely to get. You could maybe tweak it a percentage point up or down, maybe get rid of (or gods forbid add) some additional exemptions…but its about as balanced and ‘fair’ as we are likely to AGREE on any time soon.
I have long agreed with your budget proposal…government budget should be assigned as a percentage of money that comes in, all adding up to 100%, rather than a dollar amount…
Back to taxing wealth instead of income: I think there is a fundamental unfairness beyond what the “right” amount of taxes is. Say I have $100 million. I borrow ten million and live on it, paying the juice out of the ten I borrowed. I leave the 90 in stocks/whatever that are never liquidated but which secure the loan. I pay no taxes. That, in a nutshell, is what the truly wealthy do. (I’m not talking about the specifics, but rather the basic point: they are rich enough to avoid having to live off their income, and b/c we tax income and not wealth, a fundamental unfairness results.)
FWIW, I lean toward the current system due to the luck of my own circumstances. I’m just wondering if there is anyone who thinks its bizarrely unfair. More to the point, if there is anyone who can propose a good mechanism to make taxes more fair by taxing wealth instead of income. I consider the problem not solvable.
I hate to agree with Shodan, but this would be a terrible idea. (It could be done, it would just be stupid.) Not all wealth is liquid. Besides the obvious case of real estate, some people’s wealth might be in the form of art, furniture, or equipment. I suspect there would be loopholes where people could incorporate, and stuff their wealth into a company. We have 401Ks today - would you be able to stuff your house into your 401K and shelter your shelter?
Besides this, wouldn’t this discourage the accumulation of capital assets? if you blow every penny you make on wine, women and song, no taxes? Is this what we want to encourage?
Income is always reasonably liquid, and thus easy to tax. I’d be happy restoring some of the taxes on investment income recently eliminated. Tax on your portfolio, no, tax on dividends yes.
Haven’t read the other posts, but a variant on income tax (the estate tax) eventually taxes wealth when the wealthy person dies and distributes their assets to people other than their spouse.
Here in the great Garden State, and I bet in a lot of others as well, there IS a tax on one form of wealth: real estate. Most of the cost of local schools is funded via the real estate tax. It’s high, and it’s a potential killer. An average middle-class working person can work hard, buy a home, pay the mortgage for years, and keep up with the ever-increasing taxes on it. Then they retire, on an essentially fixed income. But the value of the property keeps going up. More families move into town, more schools are needed, and the property tax just keeps going up, and up, and up. Yes, there are some breaks for the elderly, but not enough. A certain percent sell the house and move to, say, Florida or some other state that somehow avoids this ridiculous tax. They sell the the house to a young couple or family that has more children and soon, even more schools are needed.
Having lived in the South my entire life, I was struck the first time I spent extended time in upstate NY, seeing many people who had subdivided their own homes into apartments merely for the purposes of keeping up with the taxes.
I kept on asking people “Why don’t y’all protest about this? Isn’t this where the American Revolution began… the Northeast?” It struck me as morally offensive and I think some of them were rather taken aback… but I was in my 20’s back then and just knew everything, so I was largely oblivious to their reaction (or relishing it).
France, Sweden and Switzerland have a Wealth Tax, as does Florida and certain counties in Pennsylvania and Kansas. A study of a proposed nationwide wealth tax is here: “…we then estimate the tax rates that would be needed to raise the same revenue as currently raised by the personal and corporate income tax. We find that rates of 1.57% on net worth and 17.7% on earned income would be required.”
As noted above, the estate tax is another form of wealth tax.
due to the luck of my own circumstances. I’m just wondering if there is anyone who thinks its bizarrely unfair. More to the point, if there is anyone who can propose a good mechanism to make taxes more fair by taxing wealth instead of income. I consider the problem not solvable.