Wealth Tax - Arguments in Favour

Arguments in Favour

There are many lines of argument in favor of including a tax based on individual net wealth. Variations in how the details of the particular net wealth tax is implemented, including whether there are exemptions and whether other taxes are lowered or flattened will have an impact. “Income conventionally is defined as the sum of consumption and any change in net worth. This definition highlights three likely bases for a tax: income, consumption, and net worth. Tax rates can be applied to essentially any base (or combination of bases) to raise the revenue that government requires.”

Fairness: According to the "beneficiary pay" criterion of tax fairness, a tax on property rights can be seen as a use fee. Specifically, protection of property rights is a primary purpose of government. Holders of property rights enjoy the existence of government more than do those who hold no property rights. This is also true of ownership interests or stock and bonds. The 2008 bail out significantly contributed to the turn around in the stock market 2009 to 2011...Coupled with market-driven assessment (bids in escrow, for example) and deferment of tax liability at interest equal to long term government debt rates, the "beneficiary pay" criterion of "fairness" contrasts with the "ability to pay" criterion of "fairness" which is more expedient than essentially reciprocal. In t

Revenue: In 1999, Donald Trump proposed for the United States a once off 14.25% wealth tax on the net worth of individuals and trusts worth $10 million or more. Trump claimed that this would generate $5.7 trillion in new taxes, which could be used to eliminate the national debt. A net wealth tax may also be designed to be revenue neutral as where it is used to broaden the tax base, stabilize the economy and reduce individual income and other taxes.

Economic Growth: A wealth tax that decreases other tax burdens, such as income, capital gains, sales, value added and inheritance, increases the time horizon for investment and can increase the return on investments over that time. The increased time horizon of investment results from the competition for investment between the risk free asset of modern portfolio theory, and commercial assets. The higher return on investment results from the removal of taxes on profits. More economic equality has been correlated with higher levels of innovation.

Investment: A wealth tax serves as a negative reinforcer (as in "use it or lose it") which coerces the productive use of assets. According to University of Pennsylvania Law School Professors David Shakow and Reed Shuldiner, “A wealth tax also taxes capital that is not productively employed. Thus, a wealth tax can be viewed as a tax on potential income from capital.” Because a net wealth tax can be the equilivant of an annual tax on imputed income, the capital gains, estate and gift taxes are not necessary. When used to lower the income tax rates the combination provides the maximum "carrot and stick" incentives to business investments. The ultra wealthy (billionaires) who create wealth by increasing business value (i.e. stock or private holdings) and defer most taxes because they require little taxable income, would continue to avoid income taxes but would on average pay net wealth taxes as if they realized a 7% or 8% return.

Job Creation and Social Security Reform: A wealth tax of 2% could replace the 15% job killing payroll taxes and enable business to have more money to hire workers (employee share) and increase employee consumer spending (employee share). Millions of jobs would be created with no government spending. Using a wealth tax to fund Social Security and Medicare would also eliminate any short term need to reduce benefits.

Wealth Redistribution: Tax Codes redistribute income and over time there is also some redistribution of wealth (even if entirely unintended). For example, each year the U.S. tax code redistributes income of $1.3 trillion in tax expenditures ("loopholes"). The bottom half of the United States had 3.6% of the net wealth in 1995 and this was reduced to 1.1% in 2010,. Over the same time frame the wealth of the top 10% grew to 75% of the wealth. The annual tax loopholes are twice the size of all the wealth owned by half the United States.

Housing and Consumer Debt: A net wealth tax permits an offset for the full principal of any mortgage, student loan, automobile loan, consumer loan, etc. Thus even with tax reform that eliminates income tax deductions for interest the taxpayer may be better off with a full credit for the amount of the debt for the net wealth computation. In the U.S. the net wealth tax offset for debt would be particularly helpful to restore a healthy housing market and help collage graduates with unpaid student loans.

Social Effects: By unburdening the poor and middle class of taxation, while stimulating investment in commercial assets that create demand for labor, more financial resources in the hands of the poor and middle class would reduce their reliance on government delivery of social goods, such as improved educational opportunities for their children. This would promote social mobility, mean more citizens reach their full potential of productivity, and so improve the economy. Increased government revenue from a wealth tax could be used to promote public investment in services like education, basic science research, and transportation infrastructure, which in turn improve economic efficiency. Increased government revenue from a wealth tax coupled with restrained government spending would reduce government borrowing and so free more credit for the private sector to promote business. A strong, steadily growing economy could in turn increase tax revenues further, allowing for more deficit reduction, and so on in a virtuous cycle.