What is a Wealth Tax?

Please update what are the characteristics and main objectives of the wealth tax?

I absolutely dislike property taxation. Anytime I make a purchase I have to take into consideration the true cost of that item. I live in a state that taxes everything, including the horse I ride.

For a serious and expanded discussion of the concept as it might be applied today, I recommend "A Citizen's 2% Solution: How to Repeal Investment Income Taxes, Avoid a Value-Added Tax, and Still Balance the Budget," which argues that repealing existing investment income and corporate taxes and replacing them with a 2 percent tax on net assets (above a reasonable threshold), and simultaneously flattening and reducing tax rates on earned income, would stimulate both investment and middle class real earnings - and thus consumer spending and the broader economy.

A millionaire couple pays one-fourth the taxes of a working middle-class family. Yes, it's easily done. See the tax returns and other calculations for the two families if you research "fair share taxes."

If you consider all our current taxes including income, social security, sales, excise, property taxes, you see that the progressive income taxes are overwhelmed by the other taxes, which are regressive and shift the tax burden to the middle class.

The working class family’s tax rate on income from work is seven times greater than the millionaire’s tax rate on investment gains and income (unrealized gains, huge tax-free retirement accounts held predominantly by the wealthy). Middle class families often pay over half their entire wealth (>50 percent of net worth) in taxes each year, while the third-richest man in the world pays less than 0.02 percent of his net worth, a tax rate 2500 times lower!

This is not only unfair but hurts our economy and the chances of the US remaining a force to build a better world. The 5-10-fold lower tax rates for investment (vs work) and wealth accumulation in the investing class (the top 20 percent now holds 87 percent of the nation's wealth.) distorts incentives, leads to too much money chasing too few worthy investments, investment bubble, bust, recession, you lose your job or take a salary cut.

There is a lot of talk about adding a Value Added Tax. A VAT, essentially an elaborate sales tax, would just worsen this unfairness and worsen the economy.

The very wealthy spend much less than they earn or own in wealth. The poor and middle-class spend most of what they earn and a high fraction of their savings. Therefore, the VAT is regressive on income and wealth. It would concentrate more wealth in the rich and encourage more over-investment, more bubbles, and more recessions. A VAT discourages consumption.

How many times have we heard the consumption by Americans represents two-thirds of our economy? So the VAT hobbles our economy and makes it less recession-proof.

A wealth tax is a much better alternative to the VAT for raising revenue. Unlike the VAT it would move us toward fairness and strengthen the economy.

If we want to make taxes proportional to ability to pay and the extent to which a household has profited from the economic infrastructure that our governments (i.e. all taxpayers) provide, we need to tax wealth, as well as income. If we add a very small wealth tax on net worth over $500,000, we could eliminate our regressive social security, sales and property taxes, cut income taxes, cut total tax payments by each middle class family by thousands, and eliminate the national deficit.

As a demonstration of the power of even a tiny wealth tax on the very richest: A 1 percent tax on the portion of any family’s net worth over 1 million dollars would cut the projected 2011 federal defect by 30 percent.

Many wealthy and trickle-down supply-siders will scream, "taxing the wealthy will kill jobs." They did when Clinton increased taxes on the wealthy in 1993. The tax increase was followed by the strongest economy with the highest job creation in decades and federal budget surpluses.

Then he and Bush reduced taxes on the wealthy, particularly on investment. What followed? More concentration of wealth and income in the richest 20 percent, one recession, one near-depression, the worst decade of job creation, massive federal deficits.

The rest of the industrial world has much less wealth concentration and they do fine. The last two global recessions started here, because of bubbles caused by wealth disparity and the favored tax rates for money made through investment.

The great depression of the 1930's started here, the last time the US allowed wealth disparity reach its current levels. -PeteG

It is also worth noting that as the world becomes increasingly globalized - so that individuals can choose where to live, hence the tax/benefit mix they will receive - tax competition is bound to force countries to recognize the relationship between benefits derived and the taxes they require their citizens/residents to pay.

As this happens, it seems that countries will find it necessary to use net wealth as a tax base for much the same reason that automobile insurance premiums are based on the value of the car insured: the wealthier individual generally benefits to a greater degree (in absolute dollar terms) than do poorer individuals as a result of the (different forms of) property rights created by governments.

Take away property rights and Bill Gates loses much more (in absolute dollar terms) than does a typical homeless person.

Without mobility (nation to nation) and the corresponding tax competition that such a situation implies, governments are effectively monopolistic in their ability to "charge" whatever they want to for the benefits they provide their citizens/residents; and as a consequence even if individuals do benefit proportional to their net wealths, there is no need to make taxes reflect that since individual consumers/citizens/residents cannot choose anything else (i.e. another form of government with corresponding implied tax obligation).

-lg780032 (l.graham)

Actually, when thought of from the proper perspective, one realizes that most of our taxation should be done via a net wealth tax rather than an income tax, since the primary economic benefit we derive from our form of government is property rights; and we benefit from those rights in a manner that is proportional to our net wealth.

One implication of this conception of taxation is that homeowners should only be paying property taxes on the portion of their properties that they actually own - not on the entire value of the property since often much of the value of the property is owned by the shareholders of banks and other mortgage lenders.