Unsplash / Austin Distel
A wealth tax is, in simplest terms, a tax on the net income based on different income brackets. This may mean taxing financial securities, real estate, personal trusts, insurance and pension assets, and more. Though it has been a big topic of discussion lately, the concept of a wealth tax is not new to America. For instance, if you own any property, you must pay property taxes on the value of that property each year.
America is also not the first country to consider it. The idea of a wealth tax can be traced back to ancient Greece when Athenians collected taxes on houses, property, and more. At times, it may be referred to as an equity tax, a capital tax, or net wealth tax.
How would the wealth tax work?
Senator and presidential candidate Elizabeth Warren is proposing a wealth tax that will decrease the income inequality gap, and, in theory, help people in need across America. She, along with others, feel that this wealth tax could solve multiple problems in the economy. The wealth tax, just like the income tax, will be based on different income brackets.
Households with $50 million dollars or more will be taxed 2%, and those with $1 billion dollars or more will be taxed 3%. The tax is based not on gross wealth but on the net wealth of an individual minus any liabilities. At the stated wealth levels, about 75,000 Americans would be impacted. It will also produce approximately $275 billion each year to support federal programs.
There are those that feel higher taxes on the wealthy is not fair. There are 20 very wealthy people who disagree with that sense of unfairness and have already signed on for it. The fact is that not all wealth was earned. Many actually inherited part or all of their wealth.
How could the wealth tax affect America?
There are different points of view on this tax, both of which have points worth consideration. There seems to be a fine line between the potential benefit and the concerns of the proposed wealth tax. This wealth tax could improve the nation’s economy or destroy it. Unfortunately, there really is no way to know in which way it will go unless it is put into effect. However, these potential positives and negatives can be thought through heavily and used to propose a plan more beneficial to all.
Potential benefits of the wealth tax
The taxes collected would go to expanding and increasing programs that assist those in poverty.
This wealth tax can help decrease wealth inequality, meaning that struggling and impoverished Americans will have access to more financial assistance. Part of the plan is to use some of the tax collected to help Americans in need. The approximate $275 billion collected each year could help with utility programs, food programs, housing subsidies, and more. With these programs could come relief on the impoverished, allowing them to focus on improving their situation (i.e. returning to school or getting training) rather than simply trying to survive.
It could stimulate the economy.
Due to the fact that being taxed more is likely unfavorable to most, wealthier people will either spend their money in the free market or invest in non-taxable assets. Both scenarios force money that would otherwise sit stagnant to start flowing through the American economy.
There is a proposal for some of the funds to cover a nationwide smart energy grid.
Though a portion of the taxes would go to assistance programs, another portion is said to be intended to provide nationwide clean energy. All American citizens can benefit from such an investment.
Challenges and concerns of the wealth tax
Duplicate taxation will occur.
At this point, any income earned is taxed only one time, and that is when it is earned. With the wealth tax, that income would be taxed continually — once when it is earned and then every year they hold onto it. Due to this, there might need to be a re-working of the income taxes on the wealthy. If they will be paying continual annual taxes on their income and financial gains, there may be some difficulties getting any of the wealthy on board.
It might cause America to lose a portion of its wealthy citizens.
If the wealthy choose not to pay, there are ways around it. Some may just ignore it. Others may leave the country while others may not come at all. This could damage the nation’s economy.
With the extra assistance, some might not feel the need to work.
Though this is not true with all, some are concerned that if financial assistance is increased and more easily attainable, it might discourage work among those in poverty.
It might discourage investments which would negatively impact the economy.
Since investments are considered assets, they are included in taxable income. If the wealthy fear that investing their money will cost them more, they will likely avoid investments. As the government does not wish to discourage investments, this is a very large concern.
There are really great parts of the wealth tax and some that are not so great. Deciding whether to put this tax into effect will take require careful consideration. Perhaps if both sides of the argument work together, the wealth tax could be adapted to something that could benefit the wealthy, the impoverished, and the nation as a whole.