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Rung Sangprasit's & Bill Smart's Personal Website
Accumulated Wealth Tax
...an opinion piece written by Bill Smart
| The purpose of taxes is to provide
revenue for the government.
The government uses this revenue to fund itself and
pay for the services it provides as agreed to and documented
in the national budget.
These services can be
public services
provided to everyone without distinction, or can be
entitlements
provided only to a select group based on some eligibility
criteria. Taxes
can be set to be the same amount for everyone (fixed fee) or
can be rate-based.
The rate can be the same for everyone (flat tax/sales
tax) or can be different depending on some criteria.
The USA’s current tax structure is a progressive tax
where the rate is based on income and is progressively
higher as income increases.
Progressive income tax systems when used by the
government to pay for entitlements for which the major
criteria is low income are means to redistribute wealth
because they require the wealthy to pay for services that
are only offered to the poor. |
 |
Wealth redistribution in an economy mainly
based on capitalism is essential to keep the inevitable economic gap
between the rich and poor from growing so large as to cause both
economic and civil instability.
In the USA the current progressive income tax system and
associated entitlement programs have not been able to stop the
widening of this economic gap to what is now an alarming size.
|
|
The distribution of net wealth in the United States, 2007.
The chart is divided into the top 20% (blue), upper middle
20% (orange), middle 20% (red), and bottom 40% (green). (The
net wealth of many people in the lowest 20% is negative
because of debt.)
Source:
Wikipedia.com |
The need for wealth redistribution in the USA
could not be clearer and more urgent.
Nowhere however do I see any serious efforts to address this.
I think we have an opportunity right now as our Congress
enters into serious discussions about both the short- and long-term
solutions to bringing down our budget deficits to a surplus budget
in order to address our growing national debt.
There are two main factors driving our budget:
spending and revenue.
There will certainly be those focusing, perhaps exclusively,
on lowering spending.
Reducing spending to only necessary services is essential but
spending cuts alone will not solve the budget deficit problem.
There will also be those who will be looking at revenue and
primarily the US Tax Code.
This is an excellent opportunity to not only review this code
and the plethora of rules, exemptions, exclusions, rates, etc…; but
also to consider a fundamental change in the way taxes are
calculated and levied.
I am
recommending that US taxes be calculated and levied not on yearly
income, but each year on accumulated wealth.
Accumulated wealth would be net wealth that
could exclude a small amount of basic capital holdings such as a
private home, car, personal savings account, and a long-term
retirement account.
These exclusions would have to be reasonably valued and be limited
to a predetermined amount that was close to the national average.
The total amount after these exclusions held at the end of
the tax year would be Taxable Net Wealth.
Very steep, progressive tax rates would then be applied and
would begin at some pre-stated minimum amount.
There would be no maximum amount above which additional taxes
would not apply.
The implications of a system such as this are:
Those
with little wealth would pay no or very little tax regardless of the
amount of their income.
It might seem unfair that those in this category with high
income would pay little tax, but if someone had a high income and
ended the year with low wealth it would be because they had high
expenditures. These
could be unexpected emergency expenses like education or health care
costs, or could be business or investment losses.
This could also be just someone living an expensive
lifestyle, but in that case their expenses would mainly be made up
of buying products or services which are the source of jobs and
income for others. The
wealth does not just disappear.
It is only transferred from one person to another, to group
of people or to a business or corporation.
The wealth will still be there somewhere and subject to
taxation.
Those
with high wealth would pay substantial tax regardless of the amount
of their income. It
might seem unfair that those in this category with low income would
pay substantial tax, but they would be paying that tax because of
their accumulated wealth.
This would prevent people who in today’s income tax based
system receive little or no income per se, but continue to
accumulate untaxed wealth because from their investments.
It would also prevent or at least curtail people from passing
their accumulated wealth along to their heirs, a situation that only
tends to exacerbate the widening gap in wealth distribution and
perpetuates both wealth and poverty down through successive
generations.
The progressive rates of taxation should be based on the estimated total national wealth and the amount of tax revenue required by the national budget, and not the other way around as is done today.
This
new approach of matching tax revenue to budget requirements is
addressed in a companion article about the
US
Federal Budget.
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Copyright © 2013 Bill Smart. All rights reserved. Reproductions permitted.