Income Tax, Not Wealth Tax: That's Another Story

Felix Salmon at Reuters had a post up yesterday that asks why the Wall Street Journal is referring to the proposal to place a surtax on various levels of income as a wealth tax. He contends it’s an income tax and I would have to agree with him.

I don’t know why the WSJ would call it a wealth tax. As you know, a wealth tax is just a tax on your accumulated wealth. For instance you might have been a very successful something or other and worked hard and accumulated a lot of money even after you paid income taxes. You invest wisely in stocks, bonds, collectibles and maybe real estate and after twenty or thirty years you are a very wealthy person. Then the government finds itself strapped for cash and decides that they will institute a tax on the net worth or wealth of everyone above a certain level. Presto, you get nailed again.

Felix sees some merit in this idea:

This is an income tax, pure and simple, not a wealth tax. Personally I think a modest wealth tax, in conjunction with an income tax, makes a certain amount of sense. Why tax income, which people work hard for, but not unearned wealth? But in any case, this isn’t a wealth tax, and I don’t understand why it’s being characterized as one.

I’m not quite sure what constitutes unearned wealth. It seems to me the only way to accumulate wealth is to earn it via hard work or diligent investing, but what do I know?

Anyway, how would you feel about a real wealth tax?

Comments

[Baboon:]

Wouldn't be asking for your wealth constitute the intrusion of privacy? As far as I know no one has to report his wealth to government.

Jul 12 10:07 AM

[Clayton:]

How about we tax the wealth of the Kennedy's, Rockefellers, etc... the folks who have not had to earn it.

Jul 12 10:34 AM

[texpat:]

If a wealth tax were instituted, I'd vote with my feet.

Jul 12 10:37 AM

[z bunyats:]

to all my fellow combatants // how does everyone propose to pay for all the money that has been borrowed and spent already let alone the unfunded liabilities that we face in the future // social security will payout more than it takes in very shortly// its pretty obvious that we cant borrow our way out of this mess// we just tried that and now we have a 11 trillion dollar natl debt// we lit the fuse on this debt bomb back in 1980 and now it blew up in our faces// pretty soon anything that we import will have to be paid back with tangible assets not paper money

Jul 12 11:11 AM

[wg:]

It is fools and jerks like this Felix guy--and presumably Comrade Lindmark, as well--who want to turn this country into a socialist cesspool. Marxist doctrine calls for an absolute elimination of the"bourgeoise" class (the entrepenures, manufacturers and creators of wealth) Lenin explained it plainly:"The surest way to crush the bourgeoise is between the grindstones of taxes and inflation." (This was before he and his cronies managed to seize power in Russia and simply murdered the bourgeoise instead)

Jul 12 11:24 AM

[Baboon:]

Cut the spending, spur the growth.


On Jul 12 11:11 AM User 445861 wrote:

> to all my fellow combatants // how does everyone propose to pay for
> all the money that has been borrowed and spent already let alone
> the unfunded liabilities that we face in the future // social security
> will payout more than it takes in very shortly// its pretty obvious
> that we cant borrow our way out of this mess// we just tried that
> and now we have a 11 trillion dollar natl debt// we lit the fuse
> on this debt bomb back in 1980 and now it blew up in our faces//
> pretty soon anything that we import will have to be paid back with
> tangible assets not paper money

Jul 12 11:27 AM

[Richard Wak...:]

We have a substantial wealth tax system in this country: the Federal Estate Tax and the states' Inheritance tax. And, since every earner has to file an income tax return every year and everyone has to file death related tax returns when death occurs, the governments know how much wealth you have.

Jul 12 11:47 AM

[Baboon:]

You don't have to report it every year to government. This is just one time deal and it only tells a government by how much your wealth was increased through estate transfer. Don't get confused.


On Jul 12 11:47 AM Richard Wakefield wrote:

> We have a substantial wealth tax system in this country: the Federal
> Estate Tax and the states' Inheritance tax. And, since every earner
> has to file an income tax return every year and everyone has to file
> death related tax returns when death occurs, the governments know
> how much wealth you have.

Jul 12 12:15 PM

[Mad Hedge F...:]

I spent the evening with Dr. Robert Frank, professor at the Cornell University School of Management, and author of The Economic Naturalist’s Field Guide. US consumer spending peaked at $10 trillion, or 73% of GDP in 2000, and in the new world of falling incomes and enforced savings rates, it will take many years to come back. The current disaster was a guaranteed outcome, because while incomes stagnated over the last 30 years, the median home size jumped 50% to 2,600 square feet. Deregulation poured gasoline on the fire, enabling an unsustainable culture of leverage. California is in a real pickle, because governor Arnold Schwarzenegger is forced to act as Herbert Hoover did by balancing a budget while falling into a Depression. Dr. Frank argues that we should use this economic crisis to fundamentally remake the US tax system. The current system taxes savings on multiple levels, but spending is tax free. We need to scrap the income tax (three cheers), and implement a steeply progressive consumption tax. We need to tax pollution the same way. Dr. Frank, who co-authored a previous book with Fed governor Ben Bernanke, offers radical solutions. It seems that desperate times require desperate measures.

Jul 12 12:15 PM

[TonyCinTX:]

Inherited wealth is not earned; the children of movie stars, wealthy investors, entrepreneurs (like the original Hilton or even Donald Trump), and even the Kennedy's or Obama's (the children) have not earned a lick of wealth; their parents earned it, and when the parents die, it is a gift to their children.

That glaring oversight aside, let me point out the actual wealth tax: Inflation. Inflation is a flat tax, so some would like that, but it certainly costs the wealthy much more than the poor, and takes a fixed percentage of their wealth.

If some person holds one billion dollars in something that can be tied to the US Dollar, after 5% inflation they have lost fifty million in buying power. That might as well have been a flat 5% wealth tax.

When the US Government needs to tax wealth, they can do it anytime they want: Print the money.

Inflation taxes the poor as well, but almost by definition the poor have no cash reserves. It does reduce the buying power of whatever income they DO get, so in that sense 5% inflation acts as a 5% income tax on the poor; at least until minimum wage is jacked up to account for the inflation.

So, texpat, best get yer boots on and hit the trail, pardner.

Jul 12 12:20 PM

[ChrisJCook:]

I'd get rid of most tax on earned income and knock it right back to a few % flat tax, with no allowances etc etc collected through the clearing system.

Then I would tax privilege.

First, a Location Benefit Levy. ie a tax on land rental values. This captures a part of the unearned gains made by individuals from the spending by society which raises the value of their land.

Note here that if Hong Kong did not operate this painless approach to land tax the taxes on income would be 35% higher.Similarly In Denmark, similar taxes account for 30% of the tax take.

On the other hand, the investment made by an individual in the land/location he exclusively occupies should not be taxed.

Secondly a levy on exclusive use of common resources like non-renewables and water.

Third, a Levy on Limited Liability collected from gross corporate revenues.

All other taxes eg Corporation Tax, taxes on dividends, sales taxes, value added tax, I would get rid of, as well as Inheritance tax, and property taxes.

Then I would get rid of all means tested benefits and the bureaucracy that goes with them (noting that we have already blown away the entire public tax system and its related legion of private sector service providers) and simply give every citizen as of right a National Dividend.

Nice to dream....

Jul 12 12:38 PM

[The Geoffster:]

wg quoting Lenin:
"The surest way to crush the bourgeoise is between the grindstones of taxes and inflation."

Methinks Lenin crushed the wrong class of people.

Jul 12 04:56 PM

[conceptwizard:]

Boy wont it be a great surprise when everyone finally wakes up to the fact that the income tax rate has to be 67% just to fund the unfunded liabilities of the US.

This giant expenditure from the Obamaism campign to save America has in itself increased taxes by 50%. With the DECREASED tax revenues by 28% this year and more next year from unemployed people and increased output to EI benefits and other social programs exacerbating this problem.

I really dont know where people think that this money has to come from...The Banks?? no, we pay them. Automakers?.... no we pay them. Politicians ...no we pay them...Corporations?...no they pay the lowest tax...I Guess that leaves ME & YOU!

Jul 12 07:44 PM

[rm:]

[Why tax income, which people work hard for, but not unearned wealth?]

What, exactly, is unearned wealth?

SOMEBODY earned it. If they CHOSE to give it to someone else, that doesn't change the fact.

Jul 13 11:20 AM

[Living4Divi...:]

Conceptwizard - As usual, you capture the essence. I agree with nearly your entire post. One exception: the US pays the 2nd highest Corporate income tax rate in the developed world. Only Japan pays more.

On Jul 12 07:44 PM conceptwizard wrote:

> Boy wont it be a great surprise when everyone finally wakes up to
> the fact that the income tax rate has to be 67% just to fund the
> unfunded liabilities of the US.
>
> This giant expenditure from the Obamaism campign to save America
> has in itself increased taxes by 50%. With the DECREASED tax revenues
> by 28% this year and more next year from unemployed people and increased
> output to EI benefits and other social programs exacerbating this
> problem.
>
> I really dont know where people think that this money has to come
> from...The Banks?? no, we pay them. Automakers?.... no we pay them.
> Politicians ...no we pay them...Corporations?...no they pay the lowest
> tax...I Guess that leaves ME & YOU!

Jul 13 12:16 PM

[Living4Divi...:]

Tony - you hit the nail on the head - we already have a wealth tax - it is the inflation tax. It is the easy kind of tax to collect.

Actually the inflation tax applies to stocks and real estate as well as bonds.

Real estate may go up 5%/year, but say 3% of it is due to inflation. When you sell you have to pay capital gains on that 3%. By generating inflation, tax revenues are increased. The more money the government prints thereby creating inflation, the more money they collect.


On Jul 12 12:20 PM TonyCinTX wrote:

> Inherited wealth is not earned; the children of movie stars, wealthy
> investors, entrepreneurs (like the original Hilton or even Donald
> Trump), and even the Kennedy's or Obama's (the children) have not
> earned a lick of wealth; their parents earned it, and when the parents
> die, it is a gift to their children.
>
> That glaring oversight aside, let me point out the actual wealth
> tax: Inflation. Inflation is a flat tax, so some would like that,
> but it certainly costs the wealthy much more than the poor, and takes
> a fixed percentage of their wealth.
>
> If some person holds one billion dollars in something that can be
> tied to the US Dollar, after 5% inflation they have lost fifty million
> in buying power. That might as well have been a flat 5% wealth tax.
>
>
> When the US Government needs to tax wealth, they can do it anytime
> they want: Print the money.
>
> Inflation taxes the poor as well, but almost by definition the poor
> have no cash reserves. It does reduce the buying power of whatever
> income they DO get, so in that sense 5% inflation acts as a 5% income
> tax on the poor; at least until minimum wage is jacked up to account
> for the inflation.
>
> So, texpat, best get yer boots on and hit the trail, pardner.

Jul 13 12:22 PM

[Wildhawk:]

Dividends: someone has got to set the record straight on the corporate tax blather, so I guess it'll have to be me.

There is an enormous difference between corporate tax RATES and corporate taxes PAID. You are correct that the US has the second highest RATE of corporate taxes in the developed world. However, the US is middle of the pack when it comes to corporate taxes actually paid as a percentage of total revenues when compared to the rest of the developed world.

While we may have a high marginal rate of income for corporations, we also have inumerable loopholes allowing for reductions of taxable income that many other countries do now allow. While I don't have the source readily available, I read last year (perhaps two years ago now) that while the highest marginal tax rate for US corporations was 35%, the total effective tax rate which US corporations PAID was approximately 7%, which puts US corporations somewhat less than median for corporate taxes paid in the developed world.

The corporate tax rate is a joke- no corporation actually pays 35% tax rate on income- they either don't repatriate foreign-earned income or defer the taxes to a later date. And it they are paying an effective 35% tax rate, the CFO should be fired tomorrow because he isn't doing his job effectively.

Jul 13 01:20 PM

[NoBody78:]

Screw them poor kids, let them die of some curable disease. Let that kid that can't see the chalkboard because he needs glasses drop out of school when he's older cause he's illiterate. Who cares! thats his parents fault. Should of been born rich.

Jul 13 02:31 PM

[Living4Divi...:]

Wildhawk

As for dividends at the receiving end (shareholder) you are indeed correct - 15% is average for the world (it is now going up to 20% for those earning 250,000 per year). Investors keep 85%

You are correct that US stated rate is 35%. I have read however that the EFFECTIVE rate collected is 25% (not the 7% you quoted). CFOs are smart, but not that smart. The corp keeps 75%.


On Jul 13 01:20 PM Wildhawk wrote:

> Dividends: someone has got to set the record straight on the corporate
> tax blather, so I guess it'll have to be me.
>
> There is an enormous difference between corporate tax RATES and corporate
> taxes PAID. You are correct that the US has the second highest RATE
> of corporate taxes in the developed world. However, the US is middle
> of the pack when it comes to corporate taxes actually paid as a percentage
> of total revenues when compared to the rest of the developed world.
>
>
> While we may have a high marginal rate of income for corporations,
> we also have inumerable loopholes allowing for reductions of taxable
> income that many other countries do now allow. While I don't have
> the source readily available, I read last year (perhaps two years
> ago now) that while the highest marginal tax rate for US corporations
> was 35%, the total effective tax rate which US corporations PAID
> was approximately 7%, which puts US corporations somewhat less than
> median for corporate taxes paid in the developed world.
>
> The corporate tax rate is a joke- no corporation actually pays 35%
> tax rate on income- they either don't repatriate foreign-earned income
> or defer the taxes to a later date. And it they are paying an effective
> 35% tax rate, the CFO should be fired tomorrow because he isn't doing
> his job effectively.

Jul 13 03:16 PM