Inequality
I would argue that a significant tax on a transfer of wealth, such as an inheritance tax or gift tax would be the most effective policy. Some definitions include these as types of wealth tax, as they are still based on the value of a stock. However, they could also be considered income taxes, as wealth becomes income for the recipient when it is transferred. Inheritance tax exists in some form in many countries, including the UK, where it is taxed at 40% on the value of estates over £325,000. A wealth tax also reduces wealth inequality by taking a proportion of the assets of wealthy people. This means that wealth is more evenly distributed simply by the very wealthy having slightly less, even if it is only by a fraction of a percent. Outspoken French economist Thomas Piketty argues that the rate of growth of capital and existing wealth has exceeded the rate of economic growth over the past century, resulting in rising inequality. By charging those with large amounts of wealth, the wealth tax can reduce or even eliminate this disparity. It is clear that a wealth tax has the potential to reduce inequality if it has the effect that its proponents project. However, there are several obstacles that may prevent a wealth tax becoming a successful policy. Firstly, it is very difficult to accurately and fairly value the assets that the wealthy would be taxed on. Some are easier than others, such as property, which is already valued by councils in the UK (although some have questioned whether the valuations are sufficiently up-to-date), and the prices paid previously are already known by the government. However, something more abstract or of fluctuating value such as artwork or intellectual property can be much harder to value. This presents some obstacles, such as the high administrative cost and difficulty of (fairly) valuing all of these extra assets; there are privacy concerns as well. If a wealth tax is charged on a significant proportion of the population, then the administrative costs could outweigh the benefits. One proposed solution is that taxpayers value all their own assets, and the government can buy anything it thinks is undervalued, disincentivizing undervaluing assets, although this is unlikely to ever be implemented. In addition to this, in order to know which assets belong to a taxpayer, there has to be some loss of privacy in order to prevent wealth from being hidden away, which would be politically unpopular. The UK wealth tax commission has suggested that assets should be taxed based on their open market value, which reduces the administrative cost of valuation, but with the option to challenge a valuation the owner of the asset thinks is unfair. Privately held companies cannot be measured in this way, so it suggests that an independent professional values these instead. It also suggests that the administrative costs for an annual wealth tax would be too great to make it worth taxing those with less than £1 million, hence their proposal for a one-off tax rather than an annual one. A wealth tax could also cause increased capital flight, as demonstrated earlier by the French example, where the wealthy move their wealth abroad in order to avoid paying. This means it is no longer invested in the original country, and is reduces economic growth as a result of the withdrawn investment. An exit tax has been proposed as a solution to this by some, where a tax is charged on assets when they are moved out of the country. Elizabeth Warren’s proposed policy provided an extreme example of this, with a proposed 40% exit tax on assets over $50 million. This has the potential to be effective at reducing capital flight, but will not be able to prevent all movement of capital away from the country.
Another important aspect to consider is to whom a wealth tax should be applied: just the extremely wealthy billio naires, or anyone who owns property. In the US, Bernie Saunders’ proposal suggested
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