WSJ Blogs

Real-time commentary and analysis from The Wall Street Journal
The Wealth Report
Robert Frank looks at the culture and economy of the wealthy.

The Problem With a Wealth Tax

    • We could make it work just like the property tax works. The government will assess your property and send a bill. You pay or appeal, and then pay, including penalties and interest.

    • Since net returns on wealth only average about 4% per year, an annual tax on wealth at 3% would amount to a 75% surtax to the income tax. Even if this tax is deductible for purposes of the imcome tax, it would leave someone otherwise taxed at a 40% income tax rate with an effective income tax of about 85%. Beyond any doubt, that is at levels which would discourage the accumulation of wealth to an extent that the tax would result in a net loss of revenue to the government. The wealthy would flee the US, and the US would wind up as a poor nation as a result.

    • NO

    • Mike, there are enough problems valuing real estate, which is actually quite simple. How could we possible think that the government is going to be able to appropriately value a business (or a minority interest in a business)? The appeal processes would be a disaster–there would be limited experts available to opine on any particular business, and limited comparable sales by which to judge value. This is unlike real estate, where there are tons of transactions and tons of appraisers to opine on such transactions.

      Agree Chris.

      You can get a substantial part of this by cutting out lots of current loopholes in the tax code. One quite simple example related to one major piece of the wealthy’s net worth: eliminate the 1031 exchange, so people need to pay tax on real estate gains when assets are sold, and not simply trade them forever and build up the wealth that we now want to tax.

    • If you are going to impose a 3% tax on someone who makes 3million, then please do the fair thing and compute the net present value of pension income including Federal and State pensions. For someone without a pension the safe withdrawl rate of anywhere from 2 to 4 percent of their invested assets. For 3 million dollars that equates to 60K to 80K per year. For those with similar pensions, they should also be taxed as if they had a net present value of 3 million. Let’s be completely fair about this!

    • Difficulty in valuing holdings is the only “problem with a wealth tax” that the author can come up with? How about the morality of taxing that which has already been taxed multiple times? Let’s repeal all taxes and reduce the size of government to that which can be sustained with user fees for the few services actually provided.

    • This basic idea of this is so wrong-headed that I can scarcely believe that I feel like I have to make a post to refut it. So we are now going to open up even more of our financial lives and conditions to the government for the purpose of raising ever more revenue to feed the beast? This doesn’t just mean that some small group of “the rich” must be studied and assessed, but virtually all of us now must be an open book about what we own all in the name of stoking the coffers of a government that has NEVER brought its books into balance even when revenues were higher. And think now about all of the unintended consequences of changes in behavior that this will induce as people who would otherwise be out growing their businesses and their wealth do to avoid crossing the threshold into “the rich” category. All of these fools who actualy think that they can devise tax schemes to thwart the statistical average revenue that can be brought into the government no matter what the tax rates are always proven wrong. The only way to bring the financial condition of this nation into good standing is to cut spending and stop all the social and economic engineering.

    • A sure way to destroy what’s left of the tax base, plus any incentive to re-build it. Such a tax would push properties that are now barely above water to permanent underwater status. This would effectively destroy the middle class.

    • Of course it’s difficult, but the alternative is a plan that’s not effective, not efficient, not fair, or some combination of the above.

      Listen, a net-worth approach to taxation is our ticket out of this mess. It’s also the most fair. Fair is a hard word to define, but consider this definition: no person should give up a larger chunk of his net worth to the government than anybody else. Did you know that the poor, while paying little to no income taxes, actually pay the largest chunk of their net worth to the government through payroll taxes and sales taxes? The rich, who pay the highest income tax rate, actually pay the lowest net-worth chunk. Jesus preached the lesson of the widow’s mite, and it’s relevant here. Google it.

      Value estimates are the second most difficult of MBA courses (after risk estimates), but that’s not to say they aren’t feasible. Why, household net worth estimates are done all of the time. The author mentioned divorce cases, but they are also done for investment planning, sales pricing, gift taxes, property taxes, vehicle registration, and personal interest.

      Liquid assets like stocks, bonds, and cash (the bulk of wealthy fortunes) are easily priced – say, on April 15th, and taxes can follow. The Federal Reserve estimated the 2007 household net worth in America exceeded federal outlays by a factor of 20, so a 5% household net worth tax would fund the government with no deficit, no debt, and no foreign borrowing. Raise it to 5.9% for ten years and you’ll halve the existing debt, which currently sits like a radioactive pile for our children.

      Private businesses are still hard to value, but that’s an acceptable pain. If more people choose to start a business to save on their tax bill, won’t that be a blessing in itself anyway?

      The bigger question, hat tip James Taranto, is whether we should meddle with the existing Constitutional principle of only implementing a direct tax if it’s proportional to state populations (income tax excepted due to an amendment). That deserves continued reflection.

    • This whole idea is depressing and really sucks the wind out of anyone to try and better themselves. Valuing a private business is especially scary. Small business people work long hard hours for years building their business.They give up much during those years in lifestyle, forgo vacations, and so forth. Then once they start to reap the reward of all their efforts we will excise a special wealth tax on them. This is so un-American, so not entrepreneurial.

      These things always end up hitting the middle class as well. And what is the point? Until the free spending government is reigned in, they will simply consume this as well. We are not all these trillions of dollars in debt due to lack of revenue taken in, this is excessive spending with out of control entitlement programs that are expanding everyday.

      How about a speical tax on the government salaries every time they make another wasteful, boneheaded expenditure of our tax dollars? That should bring in trillions.

    • Even if you accepted the idea of a wealth tax, remember that the income tax when it was introduced in 1913 was only a small fee on “the rich”; look how that has evolved over the years. No tax ever goes away if it gets introduced, it just morphs into something else. Will Congress and the individual state legislatures have the discipline to avoid playing with the tax code? Experience indicates that they won’t. Manhattan residents would be looking forward to a wealth tax, in addition to the state, county, city, and borough taxes. Furthermore, how many hours does the average taxpayer spend on complying with the tax laws through filling out and filing the various forms (can you say Alternative Minimum Tax?)? How many accountants, tax preparation professionals, employers and others spend on complying with the Byzantine tax code? Can you imagine the additional burden that this tax would eventually become? Other than lobbyists and accountants, no one will be anxiously awaiting tax season.

    • Has anyone looked at the Constitution to see if the federal government is authorized to levy a wealth tax?

    • Amendment XVI


      The constitution had to be amended to allow the government to confiscate private property, in the case of the 16th amendment this was allowed insofar as income is concerned. I think that it would be unconstitutional for the government just to confiscate private property without due compensation in return. Certainly under eminent domain if the government takes ownership of your home they must pay you fair market value for it. Otherwise the government can take whatever private property you have. All of the founders were very explicit in their belief that without private property we will not have liberty.
      This idea of taxing wealth is a very dangerous idea and would lead us down the road to tyranny.

    • @cdg

      You questioned the morality of taxing something which has already been taxed once. What was taxed last year funded the military and border security and whatever else we dictated it funded during the previous year. We still have a national security concern to do it all again this year. The hat goes around every time you place an order, not just the first time.

    • The problem with a wealth tax? The idea itself.

    • How does the Florida Wealth Tax work?

    • If a wealth tax is imposed, wealth would flee the US. The US economy would be harmed.

    • This is a Velocity of Money study. You take that much money out of the pool and the amount of taxes collected will go down drastically. I don’t remember who published it, but there was a great article on cities and counties increasing parking and traffic violations. They initially had a revenue increase, but then revenues were lower than they were before the “increased enforcement”.

    • The same income could be subject to tax up to 4 times!

      Tax 1: Tax on corporate income.

      Tax 2: Tax on the dividends I receive from the already taxed corporate income.

      Tax 3: The proposed wealth tax (every year?)

      Tax 4: Estate tax.

      When the next flight to Singapore?

    • Insightful article by McKinnon? That’s a more the generous observation. Talk about a disincentive. It’s more like, “We did not confiscate enough of your income, so we want another bite of your apple.”

      This “approach” ignores a basic fact: no matter how much money is raised in tax revenue, more is ALWAYS spent. And that is in addition to not recognizing the massive unfunded liabilities already in existence.

      Better fix the hole in the bucket before pouring more water in it.

    • Taxing wealth is yet another betrayal of the principle of private ownership. It will have horrendous consequences in terms of economic incentives to invest. Investment is critical to building a capital base to grow an economy, If you destroy the incentive to invest, the capital base will cease to grow, incomes will cease to grow, and the feedback into diminished saving and investment will proceed into another round. Those familiar with Keynesian economics will recognize here a negative multiplier effect. Another problem with this concept is that a significant amount of assets are held in non-liquid forms. Thus, aside from bankruptcies and fire sales such a tax would create, it would shift the entire asset structure of the economy into vastly more liquid forms held largely for the purpose of paying the tax. I would characterize such a policy as stopgap stupidity. Watch, it will not save Europe. If anything, if enacted across the Eurozone, it will only precipitate its collapse.

    • What problem?
      Just tax those making over 250,000; “just do it.”

    • 50%+ inheritance tax. The offsprings of the wealthy already have substantial advantages to succeed on their own. They don’t need more. If the assets are sheltered in a trust, i.e., the beneficiaries have a familial relationship to the asset contributor, distributions can be taxed at higher rates, for example, an amount exceeding x will be subject to ordinary income tax rate or even at a higher progressive rate.

    • Amazing how big government wants more from us.

      Even Buffett does not suggest wealth tax. Th extremist greedy left’s appetite is scary.

    • An annual wealth tax is not workable. Stick with a progressive income tax, with a top, marginal rate of 40%, eliminate all deductions except for those taken for charitable contributions. Wealth tax should continue to be limited to an estate tax.

    • @ Walter White

      A better idea is to transition entirely to the net-worth tax, not just add it to the current mess.

      @ Stephen Metzger

      The principle of private ownership doesn’t negate taxation. The hang-up about only taxing newly-gained wealth instead of wealth alone is a separate issue from the old private vs. public ownership debate. If you want federal goods for two years instead of one, you pay taxes twice instead of once. If not, then vote that way. A 5% net worth tax across the board would give every American the same incentive to keep an eye on Congress. Keeping 95% of what you have every year is also a great reason to invest: it’s better to have 95% of a lot rather than 95% of a little, but either way we’ve all paid our 5% in taxes. I don’t see the multiplier effect you mentioned. Bankruptcies and fire sales can be avoided through leins.

      The two problems are wealth flight (to countries that don’t have this system, until they all do) and the unconstitutionality of it all (which we can change should we so choose).

    • Anyone that starts a business does so with the intent of working hard to make a better life for themselves by 1) having some degree of independence, and 2) accumulating wealth (mostly the latter). Such a tax would be yet another disincentive to entrepeneurship. Since our government is unable to decrease spending, the only question is when will they reach to point of dimishing returns with the tax payer and / or become a less attractive investment for creditors. One of the two will happen and those that can preserve their wealth through such a shock will find an alternative to supporting a broken government.

    • Who is John Galt?!

    • 1. Buy Gold
      2. Use shovel

    • @Amir Gharbi

      I don’t “question” the morality of taxing something that has already been taxed. I label it as immoral and mathematically unsound. If you tax 3% of the residual wealth each year, there will be no wealth left to tax after 25 years. “The hat goes around each year”. but that doesn’t mean we should have to contribute to the same failed programs over and over. The American citizen is not a bottomless pit to fund whatever programs you socialist invent.

    • How can we seriously claim to be a free people living with a limited government when we have to talk about all these shenannigans to even begin to pay for it all.

      We live in a cloud of income taxes, property taxes, sales taxes, tolls and “user fees” and still borrow ourselves into oblivion to pay for it all.

      Not what Adams, Jefferson, Madison, Washington and the rest of ‘em were trying to do.

      -as a matter of fact it’s actually worse than what they were trying to UN-do.

    • and what happens when farmers pass on this entire cost to consumers boosting food prices? this type of tax has nothing to do with profitability. a farmer with $10mil of land could be wiped out just from this tax alone without even getting to the income tax layer. 3% would be $300,000 in taxes plus income taxes. most farmers dont even make that much. this guy would be broke in a few years after having to sell all the property. but then again, who the hell would have the cash to buy the property from him?

      another fantastic idea by liberals

    • This is very Good for Appraisers, Lawyers, and accountants! Bad for everyone else. We need a Flat Tax!

    • Suppose that “wealth” is largely in a deferred retirement account that a person is drawing from to live? They take out 4% for expenses, then another 3% for the wealth tax? Won’t be long before they have no wealth. I don’t know many portfolios that could survive a 7% withdrawal rate.

    • It has to be based on reported income. If someone owns a billion dollar business, but receives no income from it, should he have to sell the business to pay taxes? Crank up the taxes on income based on 3 year average reported income, so that you don’t over tax people that have a one time event, but are not rich.

    • What a crazy or criminal idea. Taxing a saver – everyone should just spend spend spend then.

    • CUT SPENDING, nuff said…

    • When a person files their federal income tax report each year that defines their taxable income for that year and determines how much tax they should pay. It is not a matter of wealth, it is a matter of ability to pay. A peraon with a taxable income of $25 to $30,000 cannot affort to pay any taxes, either federal or local, while a person with a taxable income of $250,000 can afford to pay taxes. As I understand it the proposal is to move the rate from 35% to 37%, a 2% increase. This amounts to $5000 more. Those who argue that this will stiffel business are saying that after a business has paid all of its employees, supplies, production costs still has a taxable income of $250,000 then their taxes will go up by $5000. I do not believe this is true.

    • The typos detract from the content. A quick read over could have fixed that.

    • It’s scary to think that people are even talking about this. Scary to think that the average person who considers this has no respect for basic property rights. And it’s amazing that educated people would use an ends justify the means argument of saying that the wealthy wouldn’t miss X Y Z.

      These individuals already paid taxes on their income… now they want to tax it a second time after the fact.

    • “According to the most recent data from the Federal Reserve, most of the wealth of the top 1% is in illiquid assets – i.e., stuff that can easily be valued or sold. ” – When the heck is the WSJ going to hire people that know how to write and people who know how to read. Preferably both.

    • The inheritance tax is a tax on wealth, even thought he wealth has already been taxed once already. I suspect that much of this ” wealth” is really the effect of massive printing of money by the feds and is in fact not real. Look at the current price of gold. It is driven because of the irresponsible action of the Federal government.

    • @ Amir Gharbi:

      We try and stick to a 1% rule (i.e. we live off 1% or less of our invested NAV). This means we have to live much more modestly than one might assume if they knew our NAV, and I work although many would choose not to in our situation. We do this to 1) provide a good example to our children, and 2) give them freedom to have choices in life as we have had in ours. However, if you invest conservatively for wealth preservation, it is also the only way to maintain principle on inflation adjusted basis. I dispise the fact that we exercise restraint, and others would support dwindling our family’s assets over time by giving 5% / year to a government with no self restraint what so ever. 5% is not sustainable, and I would leave the country I love to defend the choices I want my children to be able to have in life rather than transfer our family’s wealth to the govenment over a period of 40 or so years. How does that help the tax base?

    • Stop already! The problem with our deficits and our economy overall is government spending not taxes. Government spending and the taxes collected to support it drain valuable private resources from the economy as well as create the need for ever more government debt which artificially drives up the cost of private debt issues. I want a Constitutional Amendment to limit the non-defense employment of the Federal government to 100,000. Forget shutting down 3 agencies; shut them all down except defense, state, and treasury. Turn the operation of the country back to the states. Those that want the government to do more can move to those states that like a welfare economy (see California), the rest of us can live the way we want; with less government!

    • what happened to liberty???????

    • @ Robert Crow. Someone making 25K can’t afford anything? That is hardly true. In fact it sets a bad precident. My daughter makes about that amount. She uses plenty of social services. She contributes … as well she should. Everyone can pay something.

      You must be a politician. I wish I had the temerity to decide who should and should not pay.

    • Politicians are always lauding folks who “play by the rules”. The rules about what’s taxable and what isn’t require lots of planning, all of which is trashed by proposals like this. For example, if you took advantage of the recent opportunity to do Roth conversions, paying all the taxes up front in anticipation of lower taxable income down the road, you would be totally shafted by a shift to either wealth or consumption taxes.

    • I am very unimpressed by suggestions from anyone for new taxes that, just coincidentally, do not take anything from the person making the suggestion. I’d pay more attention if the genius who made this proposal suggested a new way to tax himself.

    • There already is a wealth tax. It is called inflation. Created by the Federal Reserve, and making your dollar earned today worth less tomorrow. But it allows the government able to continue making those pesky debt service payments.

    • Why cant we shrink government and make it more efficient and have every pay their fare share of tax.
      Don not kill the free spirit of people taking the risks and creating the jobs in this economy.More jobs we create, more revenue is generate, that is common sense approach. Our manufacturing base is shrinking and importing everything from china.We need to create incentives to have manufacturing base and create jobs in the private sector. I am not sure government can solve all the problems to wipe out the entitlement sector in america.

    • I am ok with wealth tax so long as the inheritance tax is abolished. I think people should be able to gift their wealth to children tax free, but then a wealth tax will force these children to work. I think an economy needs people who are working. A prospect of wealth reduction will force people to work. Wealth is easier to measure than income despite the premise of this article. Income can be hidden by expenses. Real estate and a financial holdings can’t be hidden. However 3% is too harsh. Max 1%

    • It is hard to imagine that this is seriously being proposed in the land of the American Dream. It suggests the president’s war on the rich is actually gaining traction.

      If I am a food producer requiring either ranch land or farm land, my wealth is the land itself, so I will have to sell land to pay the tax, thereby reducing my future income. The same impact applies to just about every other small business.

      Such schemes haven’t worked out well in history, as the wealth producers left; many of them came to the then-free US. You want equal poverty for everyone?

    • Just wait, if this goes through, the number will drop to 250k…Obama’s favorite number.

    • Such a scheme would result in a massive reduction in the actual value of many assets. If you force people to pay a percentage of illiquid assets you will cause people to dump underperforming assets and/or sell assets to raise the cash to pay the tax on illiqud assets. This will result in a cycle of devaluing the very assets you’re basing the tax on. This will cause a significant reduction in the net worth of the whole US population since it will drive down prices of whole asset classes as they are sold for no reason besides paying or reducing tax obligations.

    • What a bad idea to tax people who have worked hard and sacrificed to achieve success. Support a flat tax with none or limited deductions. Stop government spending on wasteful projects and political paybacks for supporters (Boston Big Dig, Solyndra). Giving government more and more money just encourages politicians to spend more to curry favor with groups in order to stay in power.

    • Politicians are always looking for a way to steal your money. I hope those with wealth move it out of the country to a country who serves their people instead of stealing from them. We have a government of a bunch of thieves stealing from those who don’t have an adequate number of votes to stop them, it is the inherent weakness of a democracy where the minority are not protected but raped by those who are suppose to protect their rights.

    • Any chance of our government just SPENDING LESS?

    • If Obama isn’t stopped then we will degenerate into what the Soviet Union was before it was overthrown by a passion for freedom. It is too bad that most Americans no longer care for freedom or are not even smart enough to vote with any degree of intelligence.

    • Economists can show that taxing wealth (net worth) is equivalent to taxing the income that is derived from that wealth. That is, if the wealth tax is set at 3%, then someone with $1 million net worth owes $30,000 in wealth taxes. If the annual rate of return on that wealth is, say, 10%, then each year the net worth generates an increase of income of $100,000. Thus, the 3% wealth tax ($30,000 in taxes) is equivalent to a 30% tax ($30,000/$100,000) on the income generated by that wealth. As such, that “low” rate of 3% could definitely have detrimental incentive effects on an individual’s decisiona to save, start a business, etc. The only justification I see for a wealth tax is to correct for the fact that under our current income tax, some income escapes taxation, capital gains passed to heirs at death, capital gains from homes, but correcting the income tax is a better way to deal with those problems.

    • The problem with a wealth tax is that it is asymetric. When implemented the government tends to take a ‘heads I win’ ‘tales you lose’ approach. The opinion piece in today’s WSJ by Laffer provides a greate example. Warren Buffet’s net worth increased by $10 billion in 2010 so why not tax that as implict income, just like the tax codes does today with mutual funds. Well, in 2010 Buffets net worth dropped by $11 billion due to changes in stock valuations. So if the government taxes implicit income and wealth for the very wealthy, will they also provide tax credits when their wealth declines? If treatment of mutual funds is indicative the answer is ‘ heads I win and you pay’ ‘tales you lose and too bad’.

      A wealth tax is just a bad idea, another bandaid that allows Congress and the President to avoid making the critical decisions.

      The answer to the budget problem is a restructuring of government. Eliminate agencies and spending that are not critical to national defense, health, and safety. Consider outsourcing agencies where similar services are provided by the private sector.

    • How silly. You value a private business the same way you value a public business but take into account factors such as additional risk and illiquidity. People do it everyday and many private business owners already have it done for tax purposes or corporate planning purposes. You can argue all day about the tax itself, but it is very possible and very common to value illiquid assets and private businesses.

    • Well, as a senior, a life-long, fiscally-conservative Democrat, who is still working in our family’s small business, and a former practicing CPA, I am totally shocked to see this kind of idiotic idea even be mentioned and/or discussed.

      Obviously, the liberal-progressive-socialist fruitcakes in my party have finally “reached the end of their idea rope.” Next November 2012 America needs to make a significant change in who is running this country because I, frankly, cannot stand to listen to or read about any more of these harebrained ideas coming from the extreme left-wing fools in my party.

      Please help us fiscal conservatives to TAKE BACK AMERICA by voting out of office ALL of the irresponsible “tax, borrow and spend” idiots, regardless of party, before they turn America into a socialist state and bankrupt us. We can start this revolution by throwing out of office the current POTUS, Obama, by voting for ABO (“Anybody But Obama”)!

    • A small tax on the wealthy could be a very good idea. People always mention the incentive of lower tax rates, what about the incentive of a tax on wealth- someone wealthy who is doing nothing and living off their income could be incentivized to become productive if their wealth was taxed, lessening their income. I often slack off when I feel wealthier and work harder when money is tight-negative rather than positive incentive. One tax I love the idea of is the value added tax, everybody pays it but you don’t see it so it is relatively painless and it raises a ton of cash. Also retailers compete to make their goods cheaper to lessen the impact of the tax so it even less burdensome-easy

    • A wealth tax would be a great idea because it would finally put these limosine liberals to the test. Its so easy to gove up 2-3% of their annual income. Take a big chunk of their wealth and I guarantee you Oprah will be a speaker at the next republican party convention.

      The arrogance of liberalism and the hypocrisy would finally be exposed if a wealth tax were ever inacted.

      I say do it!

    • People talk about the wealthy and social responsibility. How about the governments responsibilities towards the people which instituted it? The government is the wealthiest entity of them all. The senators who have countless aides, the numerous government agencies that just burn through budgets just for the sake of bureaucracy, and our elected leaders who allow military contractors to charge $100 to wash one bag of laundry for our soldiers. What about that? Where is the benefit to society from that? Might as well shovel money into incinerators.

      I spent more than I took in each month, should I shake down my boss and say – well i need more money so you are going to have to pay more no matter if I deserve it or not? Of course I shouldn’t – we put people in jail for that sort of thing.

      Let not think of more ways to take money from those who work the hardest to earn it, instead, lets think of more ways to increase productivity and spend less. Private businesses do this every day, why should government be any different?

      I work very hard, every damn day to make something of myself and to make sure that I am able to provide for my family and for the generations down the line.

      The best thing to do is to do away with our current tax system and introduce a flat tax, say 20% of all income, for EVERYONE. No deductions, no loop holes. In addition, you can then charge a VAT or similar tax on luxury items. If I am willing to spend $500K on a brand new Ferrari, I won’t mind paying an extra $50K in taxes. That way I pay my share proportional to what I CONSUME, not what I MAKE.

      Why is this so hard for people to grasp? if we continue to demonize the top 1%, the they are going to take their 42% of our entire economic wealth and take it elsewhere. How “progressive” and “fair” do you think that is going to make our society then?

      Do as all a fucking favor and invest in a copy of “Economics for Idiots” before you let your emotions flush our country down the toilet.

    • The value of assets will have to be significantly reduced. If you are going to tax wealth, the items loose a significant amount of their value. If an asset generates a 6% return and you are taxed 5% in taxes, the asset generated a whopping 1% return. It is now time to sell these types of assets and do something else with your money and you. You need to leave the US, get citizenship somewhere else, pay your taxes to the US, and renounce your citizenship. Just under 500 families in the US did that in the first quarter of 2011.

      People should be required to read “Atlas Shrugged” in high school and discuss it. I am afraid the liberal teachers today would vilify the book since it is against what unions have become.

    • The same income would not be taxed merely 4 times. It would be taxed 50 times (or as long as the person lives from the time they earned it). That’s why govt loves the idea so much.

      If you start a successful business and make $10 million by age 40, think through what would happen. You’d pay whatever taxes on the earnings, but every year in perpetuity you’d get taxed a 3% wealth tax on that same $10 million. By the time you were 70, you’d have paid 90% of the income in wealth tax (assuming they don’t raise the rate). By the time you were 80, you’d have paid 120% of the income in wealth tax. And that’s on top of whatever you paid in income taxes when you earned it.

      The bottom line is that we do not have a tax revenue problem in this country. Govt (Fed+state+local) collect about one-third of GDP in taxes (all taxes added together). Isn’t that enough? We have a spending problem — that same govt spends about 45% of GDP. Let’s bring the 45% down to 33%, then we can argue the “fairest” way to collect.

    • I believe in cutting spending before raising taxes yet again. We’ve been borrowing too much. It’s ridiculous to be discussing new taxes when the government is spending a record amount. First do the hard but necessary work of balancing the budget, then get back to us on income redistribution.

      Pretty soon we’ll have collectivism and socialism, at the rate we’re going. Don’t these liberals study history?

    • This is the stupidest idea I’ve ever heard. The French have a wealth tax which is 1) constantly maneuvered around and 2) which is loathed by any French person with any assets. One can only imagine the machinations and maneuvering and backlash in the US.

      It would be a boon, however, for accountants and lawyers!

    • Pick an annual date and compare on a trailing twelve month (TTM) value. Sure, this could be “gamed” but after a few years the law of averages would provide stability.

    • There is already a wealth tax. Its called the estate tax or ‘death tax’.

    • This is about the stupidest idea I have ever heard of. Almost 50% of Americans don’t pay any income tax already, I would argue that putting the 24 million unemployed back to work picking up garbage along the side of the road for their benefits would be better policy than this.

    • We need to eliminate most of the waste and fraud in our current spending system before any more taxation occurrs. It is hard to bite off on more taxes when current monies are being wasted on poor programs etc. Once that is done and we can see clearly IF more income is needed , then we can talk about more taxes.

    • “The wealth tax, however, has a fatal flaw: valuation.”
      No it isn’t the fatal flaw.
      The Constitution is about life, liberty and the pursuit of happiness.
      Property ownership by citizens is inherent in the Constitution.
      5th Amendment:
      Progressives having failed to produce promised Jobs and Prosperity for All now propose to redistribute wealth represented by property of the “rich”.
      Not allowed.

    • If you can ask your Uncle Ed for a financial bailout, you will ask Uncle Ed to bail you out a second time.

      Skim 3% off the super wealthy and you’ll think: “that was easy”. So why not get 3% more?

      Thus we move to socialism.

    • Oh, so now if someone saves money and invests, instead of eating out, going on vacations, etc, they’ll be taxed on my savings and investments. An make no mistake, that’s what this is. You can’t tax someone on the lavish vacation they took, but you can on the stocks they own, which are not consumption on their part, but savings. The message “spend it, even stupidly, or lose it” couldn’t be clearer. So, those who believe in investing for the future, living far within their means, and building wealth should be looking for another place to live. And make not mistake *that’s not an idle threat any more*. 30 years ago, the US was in many ways the only game in town. It’s still a land of opportunity, but it has a much less clear edge vis a vis other nations than it used to. If you don’t like the rich running around in yachts and private jets, then tax *consumption*, not saving and investment

    • Reposting with better editing and a name :)

      Wealth tax is a clever term, but this is really a savings and investment tax. If someone saves money and invests, instead of eating out, going on vacations, etc, they’ll be taxed more heavily as a result. You can’t tax someone on the lavish vacation they took, but you can on the stocks they own, which are not consumption on their part, but savings. The message “spend it on yourself, even stupidly, or lose it” couldn’t be clearer.

      So, those who believe in investing for the future, living far within their means, and building wealth, should be looking for another place to live. And make no mistake *that’s not an idle threat any more*. 50 years ago, the US was in many ways the only game in town. It’s still a land of opportunity, but it has a much less clear edge vis a vis other nations than it used to.

      If you don’t like the rich running around in yachts and private jets, then tax *consumption*, not savings and investment. If you want savers and investors, or at the very least their children, to seek other nations where their contributions are welcome, then hang out a wealth-tax “not welcome here” sign.

    • We need to keep in mind that, for the most part, net worth is simply income which is saved and invested instead of being consumed. Does the US want to penalize savings and investment and, consequently, subsidize consumption? It would be madness. Most modern models of wage rates show that capital is a part of the production and, consequently, real wages rise as capital increases. That is the principle reason why the US has high wages relative to developing countries.
      Income tax is bad enough since it penalizes productivity. A wealth tax would penalize productivity and frugality at the same time.

    • Ronald McKinnon’s proposal to tax wealth should be ranked near the top of the all-time poorest ideas in economic or philosophical history. We remove capital from its market-determined highest and best use to hand it to a government which spends more than it makes so that it may be redistributed to the less-successful. We transfer long-term productive, enterprise-creating capital to short term subsistence spending. In effect, we eat our seed corn. Beyond all that, property remains a concept. It is property which does not belong to the government. So, it is both counter-productive and morally corrupt.

    • Apologies if this has been mentioned before, but while valuation is a problem with any proposed wealth tax, the greatest problem is liquidity. The greatest danger of the death tax has always been that it forces heirs to sell illiquid assets (real estate and businesses) in total in order to produce the cash necessary to satisfy the tax. The damage is not mere emotional – productive assets are typically sold at a discount because of the time limitations imposed.

    • I am in favor of a wealth tax for individuals with assets in excess of a hurdle, say $500mm. This is easy to value as many of our richest capitalists have much more. But you need to count the value of their private foundations into this calculation as this is the most significant preferred tax avoidance vehicle in the history of the U.S. Buffet is the biggest user of this vehicle and truly a tax dodger – you almost can’t count him as a real American as his greedy self-interest transcends all else. I would vote for something palatable that wouldn’t cause our super-wealthy to accelerate their offshore activities. Capital has flight! Having said all that, I would rather see Washington shrink by 75% and let the private sector do their thing.

    • Bill Gates III was a hard worker, but his father Bill Gates II. was a multi-millionaire who financed his Microsoft start up. So was he ‘self-made’, you decide.

    • Whoever is promoting this propaganda doesn’t comprehend the guarantee of the 5th Amendment of the U.S. Constitution to hold property. Envy is not an adequate rationale for the Left’s trashing of what’s left of the Constitution.

      People in this country have had it too good for too long, and we have a $15 Trillion-dollar deficit to show for it. Get ready to work harder than the Chinese while experiencing a lower standard of living.

      Our government is corrupt and incompetent. Our politicians have chosen a fiscal path that is unsustainable in order to retain political power. It’s time to remove all profligate spenders from public office.

    • I sponsor the website but I oppose a net wealth tax on the wealthy unless it also applies to the poor. In August of 2006, I proposed the 2-4-8 Tax Plan to the President’s Advisory Panel on Tax Reform which consists of three taxes: a 2% Net Individual Wealth tax, a 4% Retail Sales tax and an 8% Payroll/Business Income tax.

      Please try to think outside the box before you react. The 2-4-8 Tax Plan is the only reform proposal that applies the exact same rates to the rich and poor. There are no deductions. There are no tax brackets. There are no tax credits or entitlements. There is no favoritism. It would yield about $2.6 trillion per year (slightly more than the current combination of Income, Social Security, gasoline and other federal taxes and fees).

      In the last couple of months, both the New York Times and the Wall Street Journal have published opinion pieces from academics recommending European style wealth tax surcharges on the wealthy. These have been around for over a century and are often described as socialistic – at least in the government’s blatant effort to redistribute the wealth of a few to entitlements for many. These ill-considered proposals to tax only the wealthy are just as inequitable as the so called “Fair Tax” attempt to impose a national 30% sales tax which would devastate the poor.

      Concerns about valuation (especially for private businesses) are often raised. In today’s environment of near universal access to internet databases there would be no real obstacle to the valuation of 99% of assets. A private business, at least in the early years, will no doubt need to be valued almost entirely on its tangible assets alone (i.e. liquidation value). As income grows the ratio of income to assets would likely require an upward evaluation based upon accepted guidelines. When the business is sold any huge discrepancy might be grounds for an audit. The process does not have to be exact to be fair.

      Lastly, I invite you to consider the fact that many wealthy people (and many more who want to be) would gladly accept a 2% wealth tax in exchange for a flat 8% individual and corporate income tax, and the elimination of Estate and Capital gains taxes (… and just suck up the 4% sales tax without being a cry baby).

    • Tax always gets wasted by the government they take enough from anyone. Cut the government and move to what made America great survival of the fit. Tax the wealthy only when they die. That way people start over and are still able to benefit from the work they do.

    • A one-bedroom apt. in Manhattan costs about $1.5 million in a nice (not the best) neighborhoods, so if a person sinks that amount into buying the place, what is anyone planning to tax? The apt. already is subject to real estate tax, condo fees, etc. and all the owner has is a place in which to live. Which if he works in Manhattan is hardly all the taxes he has to pay. And would IRAs be exempt? Not the simple “tax it” subject that a lot of people would like to believe.

    • Instead of writing these simplistic tax laws with defined marginal rates, build economic models into the laws that rely on objectively measured statistics such as GDP, inflation, and the GINI coefficient. Let the rate fluctuate without Congressional intervention until certain indicators reach desired levels. For example I’m sure the concern of this newspaper’s readers is that the wealth tax rate would be too high and hurt investment. The only way to measure that is to keep raising the wealth tax rate until tax revenues begin to decline. Most economic studies I’ve read about this indicate that we are to the left of the Laffer curve maximum, so more taxation will not be a problem.

    • If you want to kill the economy, put a wealth tax in place. Every item today will be worth substantially less because you now have to pay a percentage of it in taxes each year. Items are worth less if their return on investment after taxes is less. A $1Million dollar investment that returns $50K per year is a good investment. A $1Million dollar investment that returns $10K per year is one to kick to the curb. It is now probably worth something like $600K.

    • this is about the most offensive and regressive tax notion ive ever heard of. by the time income has actually become “wealth”, its already been taxed 8 ways to Sunday. That’s the economic fairness side. From the moral hazard side, its equally ridiculous becasue even if we whacked the defict through this measure, it would, inevtaibly, just balloon up again over time, and this will persist until there is a sea change regarding our thinking regarding gov’t spending. And BTW, not spending so much is how you become wealthy to begin with; the people who have accumulated wealth already understand this.

    • The Federal Government does not have constitutional power to levy a wealth tax. The sixteenth amendment, which was adopted to override a Supreme Court case that said the U.S. lacks the authority to adopt a tax on income, authorizes the Congress to tax “income from whatever source derived”, which has been interpreted to include “income” from gifts and bequests, does not extend to a tax on wealth itself.

    • I like the idea mentioned above to change over to a “consumption tax” for all citizens. A citizen who chooses to buy a $200,000 car or a $20-million dollar yacht will automatically pay/contribute much more than the citizen who chooses to buy a used, $2,000 car or a $20,000 small boat… and no “smart write-offs” to wiggle out of it. It would have to be a mandatory tax.

      It could be flat-rate based consumption tax or a consumption tax that would increase exponentially by the value of the item, but in all fairness, I think a flat-rate consumption tax would be more just to all. If the citizen has worked hard to earn his $200,000 car, then don’t begrudge him. (Btw, I am not in that financial class as to afford such a car, or yacht, for that matter.)

      Anyway, the same could apply to clothes (haute couture as opposed to off-the-rack) and even those costly vacation packages that can cost in the 10′s of thousands and even the 100′s of thousands of dollars, as opposed to those who choose to stay home or follow some other more frugal vacation plan, like spending time with the family at the local lake. :)

    • I think the author is asking the wrong question. The discussion should focus on why anyone should have to pay tax on items that they already paid tax for? E.g. one’s post-tax income is used to purchase an asset, which is also taxed (by local, state and federal authorities). Now you want to implement a recurring tax on that very asset?

      On another note, how can the government implement this throughly and fairly? Are they going to send IRS agents to each house to itemize household possessions and place a value to it (e.g. 5% tax for a PS3, 3% tax on Pokemon card collection)?

    • Oops, yeah! I meant a “one-time consumption tax” at point of sale. I also agree with Jae. :)

    • One of the largest parts of the US Budget is the Defense Department.

      If we think of the Defense Department as a form of Insurance to protect our assets (like Home Owner’s Insurance),

      then this makes perfect sense! If you have more assets that need protecting then you pay more, no different than paying more on your Home Owner’s Insurance if you have a bigger home or multiple homes.

    • Wealth Tax

      Since the rich have 80 percent of the wealth,
      They would pay 80 percent of the tax?

      Those who make money, and create jobs for the rest of us, would pay taxes only what they have, not on how much they make.

      Their would be no income tax.

      The rest of us would usually pay less than half of what we are now paying.

      The problem is that the people who make our tax laws, represent money.

      A rating service in the US said that the economy in Europe is not good, but economists in Europe, say the economy in the US and England is worse. If they are both right, that leaves China holding the bag, and it is only a matter of time before we are going to have to pay the bill.

      The bill could be an atomic war that destroys the planet; or forces us to change our poorly functioning tax structure.

      What do you think it will be?

Add a Comment


About The Wealth Report


    The High-Beta Rich
    • The Wealth Report on Twitter
    • The Wealth Report on Facebook

Top Groups In Personal Finance

  • Mutual Fund Investing


  • WSJ Editor Cheapskate


  • Market View
