“your thoughts on replacing income and consumption taxes by a wealth tax?”

That is another reader request.  I would emphasize the following points:

1. A property tax already is a wealth tax.  This form of taxation works fine, although as much as possible value taxes on land should be replaced by taxes on the unimproved value of land, for the reasons suggested by Henry George.  California in particular should tax land more and income less.  Read Noah Smith on this.

2. The actual impact of capital gains taxes is complicated, but in practice they often act as wealth taxes, especially if they are not indexed for inflation.  The next time the Democrats hold all branches of government, they are likely to try to raise these tax rates to an excessive level.

3. The French try to tax wealth per se, and that is a big reason why so many French people have ended up in London.  People hate this, feeling they’ve already “given at the office.”  A higher and more progressive income or consumption tax, if needed, usually is better than a wealth tax.  The wealth tax hurts savings and investment to a disproportionate degree, plus it makes all property rights insecure.  You never know when your earnings are safe from further taxation.

4. Taxing wealth is another way of running a higher implicit government deficit, and this is dangerous.

So #1 aside, overall I am not crazy about wealth taxes.  Compare them to sovereign wealth funds.  You may or may not like SWFs, but at least the government is then trying to augment wealth rather than take away from it.


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