Back in February I mused about the idea of a “wealth tax” as a way of exposing the fact that so many of the rich liberals (Buffett, Gates, the Hollywood and Silicon Valley crowd) who support higher income taxes do so because higher income tax rates do not touch any of their vast fortunes, accumulated not in the form of taxable income, but in the form of non-taxed asset value appreciation. Why not nick those guys where it hurts?
I know, I know, it’s a bad idea on the merits, and would amount to double (or really quintuple) taxation on the assets of people who accumulated wealth the old fashioned way—by saving their after-tax earnings. My purpose was to taunt the left, which—so far—has not embraced the idea. So far. But this may well change soon, and it could provide an opportunity for a wider argument about “fairness” that conservatives manage to flub consistently.
Economist Tyler Cowen takes up this subject in the New York Times today:
IF you’d like to know where American political debates are headed, the data suggest a simple answer. The next major struggle — in economic terms at least — will be over whether taxes on personal wealth should rise — and by how much. . .
In the United States, wealth taxes are currently limited to a few levies, such as property taxes and inheritance taxes. Capital gains taxes that aren’t indexed to inflation also serve as an implicit wealth tax, because they dig into the body of a person’s capital. Most likely those rates will rise. Like the bank robber Willie Sutton, revenue-hungry governments go “where the money is.”
The coming battles over wealth taxation may prove especially bitter and polarizing. Most wealth has already been subjected to income and other taxes, perhaps multiple times. It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed.
Higher wealth in a nation means that there is more to take, and growing inequality means there are more problems that its government might seek to remedy. At the same time, however, this new economic configuration will mean greater political influence for the holders of that wealth, and that will make higher wealth taxes harder to achieve.
Historically, economists — including me — have generally favored taxes on consumption, on the grounds that they would do the least damage to long-term savings, investment and economic growth. Yet in some eyes, rising wealth will become a tempting target for short-term political gain. And note that while most Republicans currently oppose consumption taxes, they may dislike the relevant alternative, namely wealth taxes, even more.